Article:

Use of Hedonic Prices to Estimate Capitalization Rate

Author: Gaetano Lisi

Start Page: 303
End Page: 316
Volume: 18
Issue Number: 3
Year: 2015
Publication: International Real Estate Review

Abstract:

In this paper, a model of income capitalization is developed where hedonic prices play a key role in estimating the going-in capitalization rate. Precisely, the hedonic functions for rental and selling prices are introduced into a basic model of income capitalization. From the modified model, it is possible to derive a direct relationship between hedonic prices and capitalization rate. An advantage of the proposed approach is that estimation of the capitalization rate can be made without considering rental income data. Empirical evidence is provided for the theoretical result.

Keywords

Income Capitalization Approach, Hedonic Models, Hedonic Prices, Capitalization Rate

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