Question

Which of the following types of real estate index construction techniques is most likely to lead to an index that exhibits smoothed data?

a) Discounted cash flow.
b) Repeat sales.
c) Hedonic pricing.
d) Appraisal-based valuation.

Answer 1

The Hedonic pricing technique is most likely to lead to an index that exhibits smoothed data in real estate index construction.

Step-by-step explanation:

The type of real estate index construction technique that is most likely to lead to an index that exhibits smoothed data is the Hedonic pricing technique.

Hedonic pricing is a method that uses statistical analysis to estimate the value of a property based on its characteristics and market data. It smooths out the data by accounting for various factors that influence property prices, such as location, size, amenities, and condition.

For example, if the index is tracking housing prices, the hedonic pricing technique would consider the specific attributes of each property, such as the number of bedrooms, bathrooms, square footage, and location, to determine its value. This helps to eliminate the volatility in the data and provides a more accurate representation of the underlying trends in the real estate market.