Question

I would like you to think about what factors have an impact on the selling price of houses in an area. In more technical terms, the selling price of houses is our dependent variable. For your contribution, you must make suggestions for independent variables that we should include in a linear regression. You must also indicate if you think that your variable will increase or decrease the price along with an explanation why you think that your X variable will have an impact on the Y variable (price of houses).

Answer 1

Independent variables that should be included in a linear regression to predict selling price of houses in an area are:

• Size of the house (Total area).

X = Area of the house in sq ft/ sq metres

As area increases cost of the house will increase

• Age of the house (How many years since it has been built)

X = age of the house.

As age increases cost decreases, since new homes are costlier and old ones require more maintenace.

• Availability of transport (Proximity to bus stations/ train stations)

X= distance from the nearest bus station/train station or airport.

As X increases cost decreases since people prefer homes closer to such locations

• Availability of quality schools in the area(No. of schools, distance from nearest school).

X₁ = no. of schools in that area

As X₁ increases the cost will increase since it will be a location preferred by people living in families with children.

X₂ = distance from nearest school

As X₂, increases the cost will decrease since it will be inconvenient for families with children.

• Availability of Parking lots.

X= Parking lots available or not(Binary)

When not available the cost will decrease.

• Proximity to shopping locations

X = distance from the nearest sgopping locations

As distance increases cost will decreases, because frequent visits will become difficult

• Access to major highways

X = distance from the nearest sgopping locations

As distance increases cost will decreases, because frequent visits will become difficult

• Past selling prices in that area

X = Average price of houses sold in that area

As past price increases cost will increase, because clients usually expect to pay prices closer to prior purchases in that region. Also there is usually an overall increase in prices due to inflation.

• Distance from amenities such as gyms, playgrounds

X = distance from the nearest such locations

As distance increases cost will decrease.