122

JOURNAL OF HOUSING STUDIES, VOLUME 16 NO. 2, DECEMBER

2007

An Application of Mass Appraisal and the Hedonic Equation

in the Real Estate Market in Taiwan
***
Chu-Chia Lin*, Yu-Chiung Ma**

(hedonic equation)

(mass appraisal)

ABSTRACT
Estimating a housing price precisely is always an important issue both in real estate research
and in practice by financial institutions. According to the Basel Accord, financial institutions have
to review and to reassess their mortgage assets for a certain period of time to maintain asset quality
and control risk. However, since it is costly to reassess a real estate property in the traditional way, it
will be very troublesome and costly to reassess thousands of real estate mortgages for each institution
from time to time. Therefore, constructing a mass appraisal model to reassess a large quantity of real
estate mortgages has become a necessity for most financial institutions.
In this paper we first build a mass appraisal model using the hedonic equation model,
including housing characteristics, neighborhood attributes, and macroeconomic variables, and
then apply a dataset with more than 50,000 real estate mortgages to construct a housing price
equation. According to several statistics, including R-squared, the mean absolute percentage
error (MAPE), and the hit rate, we find that the estimation results of our pricing model are quite
satisfactory. This implies that mass appraisal could be a good model to apply in Taiwan.

Key words: mass appraisal, hedonic equation, real estate pricing

(2007422007522200712)
*

64
Professor, Department of Economics, National Chengchi University, Taipei, Taiwan, Republic of China.
E-mail: nccut001@nccu.edu.tw
** 64
Ph.D. Student, Department of Land Economics National Chengchi University, Taipei, Taiwan, Republic of China.

()(1)

()

()
(2)

(single house)

()
(parametric method)

(3)

Rosen(1974)(hedonic equation method)

Lockword
& Ruthenford(1996)(instrumental method)Pace et al.(1998)
(grid adjustment approach)Schuiz & Werwatz(2004)
(semi-parametric model)Fotheringham et al. (1998)Leung et al.(2000a,
2000b)(geographically weishted regression)Sing et al.(2001)
(fuzzy discount cash ow analysis)Francke & Vos(2004)Pace et al.(2001a,
2001b)Schuiz & Werwatz(2004)(Kalman filter method)
McCluskey(1997)(neural network model)
James(1997)(artifical intelligence model)

Rosen(1974)(characteristics)

(1992)(1995)
(1989)Goodman(1978)Goodamn & Kawai(1982)

Rosen

Max

UU(X,H,Z1,Z2,...Zk) ..................................................................................................... (1)

s.t.

YPXXPH(Z1,Z2,...Zk)H........................................................................................... (2)

UHXPXPH
Zi(i1,...,k)KY
LagrangeLagrange
LU(X,H,Z1,Z2,...Zk)[YPXXPH(Z1,Z2,...Zk)H] ............................................................ (3)

i1,,k .................................................................................. (4)

(shadow price)
......................................................................................................................... (5)
1/
(reduced form)
PHf(H,Z1,Z2,...Zk) ................................................................................................................ (6)

(6)

..................................................... (7)
Pxidjlkdjlk

1.
(1986)(1992)
2.
(1999)(1989)(1988)
(1993)(1993)
(1992)(1994)
3. (1986)(1988)

4.
(1994)
(1996)(1995)

1.
(outlier)
2. (heterogeneity)

3.

(mean absolute percentage error,
MAPE)(hit rate)(MSE)(AS ratio)
(4)

2002220045
(5)

1()

()

()

(1997)(2007)

(6)

(7)

(8)

(
9)116(10)5

()

5%95%(11)
(12)

(13)

4015

(14)

()

10

27%(23%)
1662%(57%)

()

()(a)
409.374
196.362
135.265
1058.120
(a)(b)
()
458.823
216.699
150
1170

()
39.535
15.569
7.01
175.180
()
9.231
6.766
1.500
85
()
11.722
9.012
0.010
65.310
1(c)
0.092
0.289
0
1

0.109
0.311
0
1

0.0002
0.016
0
1

0.228
0.420
0
1
()
5.082
4.343
-1
39

0.205
0.404
0
1
(d)
0.088
0.302
0
3
()
48971.210
48663.730
0
871451
()
11.771
11.309
0.050
309.480
(%)
0.147
0.127
0
0.738

0.709
0.454
0
1

0.008
0.091
0
1

0.075
0.263
0
1

0.181
0.385
0
1

0.885
0.319
0
1

0.105
0.306
0
1

0.002
0.047
0
1

0.008
0.090
0
1

0.833
0.373
0
1

0.161
0.368
0
1

0.833
0.373
0
1

0.011
0.106
0
1

0.088
0.283
0
1

0.025
0.155
0
1

()
706452.900
358812.500
107959
1224540
()
11870.150
6206.510
1232
24900
()
12283.410
6378.190
1250
25351
()
127.803
139.712
2
954
()
92.336
68.272
3
358
(%)
-0.343
2.830
-6.865
11.441
(%)
3.754
29.838
-61.941
96.651
(%)
3.749
0.796
2.470
4.963
()(%)
-0.406
6.871
-12.028
12.638
(%)
0.496
1.035
-1.476
2.337
(%)
3.964
1.991
-0.540
8.100

(a) 4081518637
(b) 0
(c)
(d) 30

10

3785

9.27

2405

12.90

3785

6578

16.12

3082

16.54

185

0.45

51

1790
11254
181
16

451
106
243
123

4.39

27.57
0.44
0.04

720

4256
43
4

1.10

350

0.60

75

0.26
0.30

77

139

3.86

22.84

0.27
0.23
0.02
1.88
0.41

12.9

6578

16.12

3082

16.54

366

0.90

94

0.50

1790
11254
467
106
243
123

1735

40815

4.25

100

371
903

18637

139

0.40
0.75

5.00

370

0.91

0.30

0.41

932

2.12

370

75

77

5.54

4850

1735

395

0.60

0.26

1.90

2261

0.75

5.00

1.01

354

12.88

932

411

1.14

22.84

2400

5.54

376

4256

3.86

14.23

2261

1.64

27.57

720

5806

12.88

670

4.39

0.40

2400
2058

2405

14.23
11.88

9.27

5806
4850

11.04
2.02
1.99
4.85

100

670
411

40815

11.88
1.64
4.25
1.01
0.91

100

2058
376
903
395
371

18637

11.04
2.02
4.85
2.12
1.99

100

()
10%
Belsley et al. (1980)DFFITS
(15)

i
i
s
i (i)
ih(i)hat matrixxi(XX)-1xipn
DFFITS2

11

DFFITS

DFFITS
10%out-sample 1
200222004590%
in-sample
out-sample 2(16)

yy()yy()
1
Y
5%10%20%

Hit Rate

100%

nN
Hit Rate
10%20%

MAPE

100%(yt0)

etytt

MAPE
outsample 1out-sample 2MAPEin-sample
MAPEout-sample 1(2)
in-sampleout-sample 1(2)MAPE(17)

()

out-sample 1out-sample 2

0.772
0.719

12

1()

(a)

(b)

(c)

(d)

t
1.19061
1.59

t
7.477**
4.49

0.772**
0.157**
-0.083**
-0.027**
-0.013**
0.040**
-0.011**
-0.249**
0.197**
-0.162**
0.057**
0.023**
-0.044**
0.263**
0.102**
-0.084**
-0.024*
0.025
0.077**
-0.080**
-0.027
-0.004
-1.033**
-0.184
0.132*
0.116
-0.081**
-0.232**
-0.124**
-0.273**

0.719**
0.176**
-0.068**
-0.032**
-0.018**
0.036**
0.014**
-0.183**
0.134**
-0.170**
0.055**
0.007
-0.056**
0.232**
0.091**
-0.207**
-0.034
-0.015
0.099**
-0.055
-0.283
-0.210
-0.438*
-0.390
-0.011
-0.008
-0.148**
-0.273
-0.183**
-0.405**

191.63
16.11
-73.37
-12.8
-23.42
5.58
-3.53
-4.24
24.54
-20.52
25.55
8.09
-14.62
119.49
37.27
-6.61
-1.74
0.24
3.77
-2.72
-0.26
-0.04
-3.83
-1.62
1.75
1.54
-3.18
-2.43
-4.69
-9.49

111.95
10.19
-49.83
-8.74
-23.38
3.03
2.59
-2.01
9.86
-13.21
15.52
1.46
-10.2
66.26
21.72
-10.17
-1.58
-0.06
2.68
-1.13
-0.91
-0.67
-1.81
-1.24
-0.05
-0.03
-3.39
-1.21
-4.06
-8.41

13

()

(e)

()

F-value

-0.332**
-0.335
-0.220
-0.296
-0.954**
0.346
-0.133
-0.566*
-0.366
-0.280
-0.194
-0.630**
-0.906**
-0.301
-0.318

-1.38
-1.46
-0.92
-1.54
-2.83
1.46
-0.45
-1.90
-1.30
-0.88
-0.65
-6.12
-4.12
-1.06
-1.02

-0.045
0.041**
-0.024
0.005
-0.009**
-0.027**
0.001**
0.009**
-2.2E-05
0.004**
0.0003

-0.83
2.50
-1.45
1.58
-3.18
-14.81
3.50
8.99
-0.65
7.20
0.77

40815
1125.70
0.8521

**5%*10%
(a) ()
(b)
(c)
(d)
(e)

t
-1.153**
-0.287
-1.363**
-1.105**
-1.141**
-1.231**
-0.952**
-0.435
-0.669*
-0.801**
-0.879**
-0.823**
-1.051**
-0.765**
-0.805**

-3.75
-1.01
-4.83
-3.33
-2.37
-2.60
-2.45
-1.16
-1.78
-2.18
-2.98
-6.51
-3.40
-2.54
-2.18

-0.436**
-3.71
-0.035
-1.27
0.073**
2.62
-0.001
-0.27
-0.002
-0.40
-0.032**
-10.22
0.0004
1.46
0.006**
3.68
1.67E-05
0.32
0.006**
7.16
-0.0007
-1.35
18637
453.40
0.8226

14

0.0230.007-0.083-0.068
-0.013-0.018
10.0400.036
0.1970.134-0.0110.014

(18)-0.162-0.170
(18)

(-0.044-0.056)(0.2630.232)
(-0.084-0.207)

(0.1020.091)
()
0.1570.176(
19)

(-0.027-0.032)(0.009
0.006)
(0.0040.006)
0.85210.8226
(20)
MAPEhit rateMAPE
MAPE15.09(out-sample 1)14.45
(out-sample 2)19.56

15

15.09

18.06

43.82

40.28

out-sample 1(%)
Hit Rate(20)

74.56

71.33

out-sample 2 (%)
Hit Rate(10)

14.45

15.64

33.73

36.09

62.28

64.39

19.56

25.49

MAPE(%)
out-sample 1 (%)
Hit Rate(10)

out-sample 1MAPE

out-sample 2(%)
Hit Rate(20)

out-sample 2MAPE

(outsample 1)(out-sample 2)MAPE18.0615.6425.49

(hit rate)(out-sample 1)1020

43.82%74.56%(out-sample 2)33.73%62.28%(21)
MAPE
(out-sample 1)
(out-sample 2)40.28%71.33%36.09%64.39%

Rosen(1974)

MAPEhit rate

MAPEhit rate

0.8

16

(cross-sectional data)

17

1 2001(Basel Accord)
()

2 Shenkel(1991)

3 Geho(2003)250
1516.67
4 International Association of Assessing Officers(2003)

6
(2007)
7

8 228

10 ()()
(20032)6

11 Sample Seletion

Wooldridge(2002)
12
13
(variation)

14

15 Belsley et al.(1980)(1996)
DFFITS
16 2005678
17 MAPEDFFITS

18

10%MAPE
MAPE
2
MAPE

18 6

19 (2007)

20

0.7

0.8
21 Matysiak & Wang(1995)1030%20
70%
Ibrahim et al.(2005)
MAPE

19

1994 249-65

1988

1992 43(1)347-371

1993 121-45

1996 203-219

1995 (VAR)
71143-160

1996 1(1)29-49

1999 847-67

1993 71143-160

2007 2007
443-466

1989

1992

1989

1995

1994

20

1997 517-35

1986

1986
Belsley, D. A., E. Kuh & R. E. Welsch
1980 Regression Diagnostics. New York: John Wiley & Sons.
Fotheringham, A. S., C. Brunsdon & M. E. Charlton
1998 Geographically Weighted Regression: A Natural Evolution of the Expansion Method
for Spatial Data Analysis, Environment and Planning A. 30(11): 1905-1927.

Francke, M. K. & G. A. Vos

2004 The Hierarchical Trend Model for Property Valuation and Local Price Indices, Journal
of Real Estate and Economics. 28(2): 179-208.
Geho, M. L.
2003 Prospects of Applying Computer Aided Mass Valuation in Tanzania, Computer
Assisted Mass Valuation and Cost Management (TS21), Paris: FIG Working Week.
Goodman, A. C.
1978 Hedonic Prices, Price Indices and Housing Markets, Journal of Urban Economics. 5:
471-484.
Goodman, A. C. & M. Kawai
1982 Permanent Income, Hedonic Prices, and Housing Demand: New Evidence, Journal of
Urban Economics. 12: 214-237.
Ibrahim, M. F., F. J. Cheng & K. H. Eng
2005 Automated Valuation Model: An Application to the Public Housing Resale Market in
Singapore, Emerald Group Publishing Limited. 23(5): 357-373.
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2003 Standard on Automated Valuation Models(AVM). USA: International Association of
Assessing Officers.
James, H.
1997 The Application of Artificial Intelligence to Mass Appraisal Systems, Computer
Assisted Mass Appraisal. 79-102.
Leung, Y., C. L. Mei & W. X. Zhang
2000a Statistical Tests for Spatial Nonstationarity Based on the Geographically Weighted
Regression Model, Environment and Planning A. 32: 9-32.
2000b Testing for Spatial Autocorrelation among the Residuals of the Geographically
Weighted Regression, Environment and Planning A. 32: 871-890.

21

Lockword, L. J. & R. C. Rutherford

1996 Determinants of Industrial Property Value, Real Estate Economics. 24(2): 257-272.
Matysiak, G. & P. Wang
1995 Commercial Property Market Prices and Valuations : Analysing the Correspondence,
Journal of Property Research. 12: 181-202.
McCluskey, W. J. & R. A. Borst
1997 An Evaluation of MRA, Comparable Sales Analysis and ANNs for the Mass Appraisal
of Residential Properties in Northern Ireland, Assessment Journal. 4(1): 47-55.
Pace, R. K., R. Barry & C. E. Sirmans
1998 Spatial Statistics and Real Estate, Journal of Real Estate Finance and Economics.
117(1): 5-13.

Pace, R. K., C. F. Sirmans & V. C. Slawason

2001a Automated Valuation Models, in Real Estate Valuation Theory. 133-156. ed. Wang K.
& M. L. Wolverton, American Real Estate Society (ARES) Monograph, Vol. 8.
2001b Are Appraisers Statisticians? in Real Estate Valuation Theory. 31-44. ed. Wang K. &
M. L. Wolverton, American Real Estate Society (ARES) Monograph, Vol. 8.
Rosen, S.
1974 Hedonic Price and Implicit Markets: Product Differentiation in Pure Competition,
Journal of Political Ecnomics. 82: 34-55.
Schuiz, R. & A. Werwatz
2004 A State Space Model for Berlin House Prices: Estimation and Economic
Interpretation, Journal of Real Estate Finance and Economics. 28(1): 37-57.
Shenkel, W. M.
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Sing, T. F., K. H. D. Ho & P. H. Tay
2001 A Fuzzy Discounted Cash Flow Analysis for Real Estate Investment, in Real Estate
Valuation Theory. 389-410. ed. Wang K. & M. L. Wolverton, American Real Estate
Society (ARES) Monograph, Vol. 8.
Wooldridge, J. M.
2002 Econometric Analysis of Cross Section and Panel Data. Cambridge: MIT Press.

22

()