Mass Appraisal: An Introduction to Multiple Regression Analysis for Real Estate Valuation

Focus

This case investigation presents an introduction to the basics of real estate appraisal and multiple regression analysis; in particular, as used in real estate valuation for mass peculiarity tax assessment. While real estate researchers, appraisers and a certain number of tax assessors have used multiple regression analysis for many years, its use by means of a large number of assessors is relatively fresh The purpose of this case is to make bare students to standard appraisal approaches including the market comparison technique as well as the advantages and disadvantages of using multiple regression analysis. In their answers to the case, learners are encouraged to explore and exhibit solutions, so as to understand in what way to use the market comparison approach and multiple regression analysis for real estate valuation.

Setting

The real estate tax assessment proces is used to provide an introduction to multiple regression analysis. The tax assessor's office in a small west Texas shire has always assessed properties [i]or[/i] part of to the other manual market comparison analysis. This manual proces uses freshly sold properties that are in shut up proximity to the subject attribute to make corresponding weighted adjustments. After going to a seminar upon multiple regression analysis for mass appraisals, the shire tax assessor employs a university professor to explain in what way multiple regression analysis works for real estate valuation and mass assessment, as well as what its relative benefits are above the existing manual system. He invites his staff, the shire commissioners, and others to a one-night seminar that explains multiple regression analysis. This seminar neared by a university professor to Texas participants is used educate case readers about real estate appraisal and multiple regression analysis.

Exhibits

Multiple regression handout not absented in Appendix.

Availability

This case is available [i]or[/i] part of to the other the ARES clearing house.

Teaching Notes

Teaching Notes are available and emphasize the objectives that the pupils are expected to master. Generalized solutions for the case are included.

Introduction

This case close attention presents an overview of the basics of multiple regression analysis and illustrates its use in real estate valuation for mass quality tax assessment. While real estate researchers, appraisers and a certain quantity of tax assessors have used this methodology for many years, its use through a large number of assessors is relatively of recent origin Lusht (2001) suggests that multiple regression analysis " . can be used to value a large number of properties quickly and economically, which helps explain its (growing) popularity with tax assessors." The Appraisal of Real Estate (2001) published by the agency of The Appraisal Institute, offers an in-depth analysis of this methodology. Smith, bottom and Belloit (1995), Downing and Clark (1997) Allison (1998) Baldwin (1999) Betts and Ely (2001) and Ratterman (2001) investigate the worthiness of multiple regression analysis and its application to real estate valuation.

Background: Back to Texas with fresh Information

Mr. Austin Modano has not long ago returned from a business trip to the annual tax assessors' talk in Washington, D.C. Being the assessor of a small west Texas shire he is a bit in awe of the advances in software technology and statistical techniques being used by the agency of his counterparts around the geographical division In particular, he is intrigued by the agency of the use of multiple regression analysis to estimate real estate value for taxation views His county has always assessed properties the old-fashioned way-through manual market comparison analysis of lately sold properties that are in shut proximity to the subject peculiarity a costly and time-consuming proces Furthermore, it requires hiring additional appraisers during the reassessment proces and it is lying flat to human bias and error.

Changing from his county's assessment methodology to individual using a multiple regression analysis for estimating value now appears preferable for several reasons. First, he realizes that in multiple regression analysis, data from all sales are utilized, rather than data from sole three or four comparable properties that have sold freshly Appraiser bias with respect to choosing comparables or "comps" therefore, would be eliminated. next to the first rather than "guesstimating" adjustments in magnitude and direction, the multiple regression software output statistically estimates the adjustments from one side the values and signs of the regression coefficients. In other words, having to calculate the magnitude (i.e., the dollar value) of each characteristic, like as a fireplace or a swimming pool's contributory value, would not be necessary. Unnecessary as well would be determining whether or not a characteristic is a positive or a negative attribute. In multiple regression analysis, the direction of the adjustment is determined simply by dint of the sign of the coefficient from the regression equation's output Last, matched pairs analysis-an appraisal technique used in the traditional market comparison approach-becomes unnecessary. Although switching to a statistical analysis methodology would be high-priced and may require staff training, the ease of mass appraisals for quality tax assessments would largely overbear these costs in the lengthy run. Local elected officials, however, would also have to be persuaded of the benefits for these changes.