The size of a property relative to the average sized property in its neighborhood may affect its sale price, according to an article published this week in The Appraisal Journal. The Impact of Relative Size on Home Values by Paul K. Asabere, Ph.D., and Forrest E. Huffman, Ph.D., examines the impact on pricing of the relative size of houses. Relative size impact refers to the effect on home values of house size relative to the average size of properties in the same neighborhood. Unlike absolute size, which is a property characteristic, relative size is a type of neighborhood effect.
In the study, the authors expand on previous research by developing new measures of the effect of relative house size and the pricing effects of relative size. The research uses standard regression analysis and a database of 5,996 home sales in 412 subdivisions in the San Antonio area over a one-year period from April 2001 through March 2002.
The study shows that larger houses sell at discounts while smaller houses carry premiums relative to the average house size within the same neighborhood. Houses that were larger relative to the average-sized homes in the neighborhood sold at an 11 percent discount while the homes that were smaller relative to the average home sold at a 4.7 percent premium.
However, the authors emphasize that there has been very little analysis of the potential effects of relative size. The appraisal profession has not developed any specific definitional or procedural guidelines for the concept. The investigation into the potential effect of relative size begins with a discussion of the underlying buyer motivations that might drive these effects.
Asabere is professor of finance at Temple University. He has published extensively in all the top journals in real estate and urban economics, including The Appraisal Journal, Journal of Real Estate Research, Journal of Real Estate Finance and Economics, Land Economics, Regional Science, Urban Economics, Urban Studies, and Real Estate Economics. He is currently on the editorial boards of the Journal of Real Estate Research and Journal of Real Estate Finance and Economics.
Huffman received his Ph.D. in real estate from the University of South Carolina in 1985. He is currently a professor of real estate and finance at Temple University in Philadelphia. He has published in numerous academic and professional journals and is a past contributor to The Appraisal Journal. In addition to valuation and hedonic modeling, his current interests include the impacts of historical preservation and the value impacts associated with fracking.
