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Municipal assessments versus actual sales price information in hedonic price studies: A South African case study

In most hedonic price model studies, the actual sales price of a property is employed as the dependent variable in the parametric regression analysis. Although the use of this price is pervasive, alternatives to it do exist. One such alternative is the assessed property value, which is more readily available compared to the actual property price. The aim of this study is to compare implicit price estimates of property characteristics (both structural and locational) based on actual sales price data and assessed property values. To this end, a seemingly unrelated regression with two hedonic price equations is used, one which employs actual market prices as the dependent variable and the other which employs assessed values. The results show that the hypothesis that the influence of structural and locational housing characteristics on residential property prices is the same for assessed values and actual market prices cannot be accepted. This finding should act as a caution for hedonic practitioners not to solely base their conclusions and recommendations on the use of assessed values in hedonic price models.

Working paper 411
1 January 2014
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