ECON2206: Introductory Econometrics - House Valuations Stage - Economics Assignment Help

Assignment Task:

Response to request for further data

The Head of the Housing Group at CHS Consulting has responded to the request for further data. The following has been extracted from their reply: “Housing Group thanks Management Services for assisting them to refine our project. The discussions with your staff have helped us considerably in deciding what needs to be done given the data we have available for analysis. While several of the approaches you have suggested would no doubt provide useful information, we are constrained by data availability. As such it is possible to supply some, but unfortunately not all, of the extra data that was requested by Management Services. We have decided to undertake a pilot study using recent data for Melbourne, Victoria. As you correctly noted, there is likely to be differences across real estate markets and across different types of dwellings. But we feel that an investigation using the Melbourne data, concentrating on free standing houses is likely to provide a template for a methodology that will be transferable across markets and dwelling types. The data represent a sample of sales of houses in the Melbourne Metropolitan area during 2016. The data includes many house characteristics and importantly a selection of the largest real estate agents. By supplying these largest agents, the data includes most sales and facilitates reliable analysis by individual agents if required. The discussion between Housing Group and Management Services recognized that valuations are not provided to the public for all houses that are put up for sale and we have complied with your request to provide data that includes all sales irrespective of whether the valuation information was available or not. Importantly, we confirm that there are three central questions to be addressed using these data: 

1. Is there any substantive difference between houses for which valuations are publicly provided and those where valuations are not available? Why is this important for subsequent analysis of the underquoting?

2. Can you provide a general econometric approach that investigates the accuracy of real estate price valuations? In initial discussions with real estate agents they emphasized the difficulty in predicting the final sales price. This together with the interest amongst policy makers to be prescriptive about providing price guides in terms of a price range we would like you to concentrate your analysis on a measure of accuracy that is defined by whether or not the final price falls within a 10% range of the valuation.

3. Is there evidence of differences in the accuracy of real estate price valuations in the data that has been provided? Does this translate into evidence of underquoting by real estate agents?

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