Specification of a Hedonic Model for Rental Apartment Buildings in Berlin

Abstract

This paper focuses on the estimation of a multiple-regression model (hedonic model) for pricing
apartment buildings. With the hedonic model, the price of a residential property can be segmented into its various properties in order to subsequently assign individual prices to these properties. In addition to selecting the target size, the specification of a hedonic model also requires ascertaining the price determining independent variables, choosing the correct functional form and defining the sub-market to be examined. This paper provides various approaches to identify the relevant contributing factors for the target size, and analogously, finds the most optimal functional form (inter alia) via an iterative path of model estimation.