Use of collocation method as an improved sales comparison approach
Zaddach, Sebastian & Hamza Alkhatib
The sales comparison approach, which is used in real estate valuation, is from a mathematical-statistical point of view based on the multiple linear regression analysis. Since decades it has been considered as a standard procedure for analysing the real estate market and to determine the current market value of real estates. Nevertheless, since its introduction the method has not been enhanced significantly. The estimated comparative value is in particular depending on the number and the type of value influencing variables which are considered within the regression equation. However, the multiple regression analysis suffers from the facts, that on the one hand complex interactions cannot be expressed by a functional relationship, on the other hand, a large number of influencing factors and their interaction on the purchase price are not known or cannot be imposed. The aim of this contribution is to enhance the use of regression analysis in real estate valuation by introducing a collocation approach. The research approach extends the system equation of the regression by a signal component. This additional component contains the mentioned value effecting influences, which cannot be modeled in an adequate way and thus the collocation is able to exhaust additional information. The results of the regression analysis as a linear trend model are improved; the extended approach is able to give a higher explanation to the real purchase prices. The methodology is tested on a real data set and the results are validated by comparison of the predicted market values with real purchase prices.
Event: FIG Working Week 2012 : Territory, environment, and cultural heritage
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