Application of hedonic methods in modelling real estate prices in poland

Abstract

This paper concentrates on empirical and methodological issues of the application of econometric methods to modelling real estate market. The presented hedonic analysis of apartments’ prices inWrocław is based on the dataset consisting of over ten thousands offers from the secondary real estate market. The models estimated as the result of the research allow for pricing the apartments, as well as its characteristics. The foundations of hedonic methods are formed by the so-called hedonic hypothesis which states that heterogeneous commodities are characterized by a set of attributes relevant both from the point of view of the customer and the producer. As a consequence, the price of a commodity is determined as an aggregate of values estimated for each significant characteristic of this commodity. The hedonic model allows to price the commodity as well as to identify and estimate the prices of respective attributes, including the prices which are not directly observable on the market. The latter is particularly useful for the real estate market as it enables pricing location-related, neighbourhood-related and structure-related characteristics of housing whose values cannot be obtained otherwise.