Property valuation: the hedonic pricing model: the application of search-and-matching models

Abstract

PurposeThe aim of this education briefing is to comment upon how basic hedonic pricing models for the valuation of property can be expanded and developed. In this case, the briefing illustrates the use of the new economic approach to the analysis of housing markets, namely the search-and-matching models.Design/methodology/approachThis education briefing discusses the connection of two important economic theories: the hedonic price theory and the search-and-matching theory.FindingsThis education briefing gives an example of a (non-linear) form of the hedonic price function.Practical implicationsIn cases of mass appraisals, hedonic pricing models can provide a broad indication of value across submarkets and this education briefing demonstrates a theoretical model that can be used to provide a theoretical groundwork for the use of a concave hedonic price function in empirical estimates.Originality/valueThis education briefing shows how basic hedonic pricing models can be enhanced by a search-and-matching approach to determine property values.