Property Valuation: Scienti?c mass appraisal is a technique in which linear regerssion methods are applied to the problem of property valuation. The objective in scientific mass appraisal is to predict the sale price of a home from selected physical characeristics of hte building and taxes (local, school, county) paied on the building. Twenty—four observations were obtained from Multiple Listing (Vol 8?] for Erie, PA, which is designated as Area 12 in the directory. These data (Table 11.1 7') were originally presented by Narula and Wellington {1977). The list of variables are given in Table 1 1 .18. Answer the following questions, in each case justifying your answers by appropriate analysis. (a) In a fitted regression model that relates the the sale price to taxes and building characteristics, would you include all the variables? (b) A veteran real estate agent has suggested that local taxes, number of rooms, and age of the house would adequately describe the sale price. Do you agree? (0) A real estate expert who was brought into the project reasoned as follows: The selling price of a home is determined by its desiability and this is certainly a funciton of the physical characteristic of the building. This overall assessment is reflected in the local taxes paid by the homeowner; consequently, the best predictor of sale price is th elocal taxes. The building characteristics are therefore redundant in a regression equation which includes local taxes. An equation that relates sale price solely to local taxes would be adequate. Examine this assersion by examining several models. Do you agree? Present what you consider to be the most adequate model or models for predicting sale price of homes in Erie, PA.

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