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Real estates can be valued by a real estate agent or appraiser or by a computer-based analytical model. The hedonic estimation is a statistical comparative value model that was developed in the USA in the mid-20th century to explain the price differences of goods with different characteristics, for example cars or building plots. In the 1980s, the method was used for the first time to value real estate. Today, hedonic valuation is widely used for houses or flats. Our property valuation also relies on hedonic valuation.
In our article "Property valuation: How much is your house or flat worth?" we present the different valuation methods and explain how residential properties are valued.
The hedonic estimation provides a computer-assisted market value estimation. The statistical comparative value method takes into account all transaction prices of comparable houses or flats in the region. The computer model divides a property into so-called quality characteristics so that it can be compared with other properties and uses a multiple regression analysis to calculate how strongly the quality characteristics influence the price of a property. Regression analysis is a statistical procedure with which a dependent variable, for example the market value of a property, is explained by one or more independent variables, for example the location and property-specific criteria of the property.
The result of the statistical comparative value method is a well-founded market value estimate that is real and objective for standard properties such as single-family homes, condominiums or apartment buildings. That is why many investment foundations, banks, pension funds and insurance companies work with the computer model when they finance residential property and need a market value estimate. Realtors or project developers also often rely on the hedonic appraisal to value a property quickly, close to the market and at a reasonable price.
In special cases, a valuation by a real estate agent or valuator can make perfect sense. For example, in the case of properties with large building land reserves, farms, lovers' properties such as Maiensässe or Rustici, luxury properties or very old houses - and in the case of inheritance divisions or in divorce cases. Hedonic estimation is also rather difficult for properties in building rights or with value-relevant obligations.
The better the data, the more reliable the result. This also applies to hedonic estimation. That is why the statistical comparative value method is based on large databases. Depending on the model, plus/minus 20 property-specific criteria and plus/minus 50 location-specific criteria flow into the calculations. Object-specific criteria must be recorded, location-specific criteria are found by the system via the address of the object in databases and directories. The statistical comparative value method evaluates all plus/minus 70 property characteristics with their implicit prices in market equilibrium and estimates the market value of a property on this basis. Unlike the buyer or seller, it evaluates the criteria neutrally and objectively instead of subjectively and sometimes emotionally. Especially if the seller associates fond memories with the property.
Depending on the model, you need to record various object-specific criteria for a hedonic estimation. All models need quantitative property information and qualitative property information about the house or flat for a sound market value estimation.
Quantitative object information
Qualitative object information
For all models, you must enter the address of the property so that the system can pull together the location-specific criteria from publicly accessible databases and directories. The location-specific criteria are divided into macro-location and micro-location.
The hedonic estimation is a solid basis for negotiations when you buy or sell residential property. However, the market value estimation is not the purchase price or the sales price. Ultimately, as in any negotiation, it is a matter of the contracting parties finding and agreeing on a price. Sometimes two hedonic estimations can differ from each other. On the one hand, because not all models weight the criteria equally, on the other hand, because different interests can be behind an estimation. Banks, for example, like to value a property more cautiously in order to protect themselves against losses in value.
Banks lend on residential property according to the lowest value principle. This means that you receive up to 80 percent of the purchase price or market value as a mortgage - whichever is lower. If you buy a property above market value, you have to raise the difference yourself as additional equity.
Our market value estimation is based on the statistical comparative value model of our partner Fahrländer Partner Raumentwicklung. FPRE, like Houzy, is neutral and independent and has collected hundreds of thousands of transaction records throughout Switzerland in recent years. Based on this data, we can estimate the market value with a high degree of accuracy. All data is continuously updated and market values are recalculated every three months. Once a quarter, we inform you by e-mail how the value of your house or flat has changed. FPRE's comparative value model learns from itself every quarter, ensuring high accuracy of its results, also in the future. The market value estimate is free of charge and does not commit you to anything.