December 3, 2009
By Selma Lewis, Research Economist
The exhibit below shows the top twenty characteristics that have been used by academics when specifying home prices and attributes that most often affect it. The exhibit shows the total number of times a characteristic has been used in the studies and the number of times its estimated effect has been positive, negative, or not significant.
As seen, age shows up most frequently and typically reduced the home price although it is seen to increase it and even bare no significance.
Square footage is the next most used characteristic and typically has the positive effect on selling price. Other characteristics that appear frequently are garage, fireplace and lot size. Each typically has the expected positive effect. Garage never has a negative impact but sometimes it appears to be insignificant. Fireplace has in few studies shown to decrease the value of home, while the size of the lot always increases the price of a home.
Other characteristics that show up frequently are bedrooms, bathrooms, swimming pool and basement. Bedrooms decrease the price in some studies but bathrooms almost never do. A swimming pool never has a negative effect on selling price although it has been not significant in some studies. Basement usually increases the price but it has been shown to be negative or not significant in some studies.
Time-on-the-market shows up in eighteen studies and shows to be not significant most often. When it is significant, it is negative to positive eight to one. This tends to support the argument that the longer a house is on the market, the more willing the seller is to concede on the selling price. The opposing theory is that the longer a house in on the market, the more likely the seller is to find the one buyer willing to pay a higher price.
Other characteristics that have been commonly used to specify selling price include distance variables, brick exterior, the number of stories and a time trend. Brick exterior is consistently positive but the other variables have different signs. This could be at least partially a function of the method of specification.
The results come from a paper which reviewed all recent academic studies that have estimated housing prices.
Source: Macpherson, David A., Sirmans, G. Stacy, Zietz, Emily N. The Composition of Hedonic Pricing Models. Journal of Real Estate Literature; 2005, Vol. 13 Issue 1, p3-43, 41p, 21 charts
Copyright National Association of REALTORS®, Reprinted with permission.
