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Custom Houses-Pricing Essay

The size of the house has for a long time been viewed as an important factor while pricing a house. Different people have opined on the effects of size on the price of a house. On the other hand, some others have come up with theories that conclude that size is of no importance when pricing a house. Who is right and who is wrong? The aim of this research was to find out whether size really matters in pricing houses. According to the study carried out, there is no correlation between price and size of the house thus concluding that size does not matter a lot.

Effects of the house size to the price of the house

Introduction

It has always been believed that the size of the bedrooms is one of the determining factors of the price of a house. Many real estate dealers have been believed to attach a lot of importance to this factor when pricing the houses. Many studies in the past have been coming up with conflicting conclusions on this issue. This research is dedicated to finding answers on this important issue in order to provide a way forward for all the stakeholders in the real estate business. This research will involve setting out the problem at hand and the various nagging questions. The problem and questions will be resolved and answered through a comprehensive analysis of the collected data from which a good conclusion will be made.

The problem statement

There has been a problem on whether the size of the house really matters when pricing the house. Various people have come up with conclusions supporting the size as an influencing factor while others conclude that it doesn’t matter. Some researchers have argued that if the size of the house really matters, then the volatility in prices should be low. Recently the house prices have been volatile, and hence they argue that the size does not really matter in pricing the house, rather the locality of the house.

The research question

What is the relationship between the size of the house and its price? Though arguments have been raised as to locality as the determinant factor of the price, are houses in the same locality priced with no regard to the size of those houses?

Hypothesis

The hypothesis testing forms the most important part of the research and this hypothesis will be tested. The null hypothesis and the alternative hypothesis are as outlined below:

H0: There is a strong correlation between the size and the price of the house

H1: There in no strong correlation between size and the price of the house

Data presentation

The data used in this study has been collected from a real estate database. The data show various house prices, number of bedrooms, bedroom sizes and their locality. From the real estate database a sample of 105 items is picked. The sample size is further sampled according to the number of bedrooms in each house, and then a proper analysis is carried out for houses with an equal number of bedrooms. This decreases the margin of error associated with any research.

The data provided are plotted as they are and thus no scaling is needed when drawing the graphs. The hypothesis testing will be done by presenting the data into scatter diagrams and line graphs which will indicate the relationship between price and size of the houses as required.

Number of Bedrooms: 2          3          4          5          6          7          8

Number of Houses:      24        26        26        11        14        2          2

From the samples above a proper analysis of any of the above samples is carried out to check the relationship between the price and size of the house. The following is a scatter diagram showing the relationship between the size and price of two bedroom houses. The table below shows the data for two bedroom houses and their prices as used in the scatter graph.

Price

Size

Price

Size

Price

Size

213.6

2200

257.2

2100

176.3

2000

139.9

2100

180.4

2000

125

1900

245.4

2100

234

1700

192.2

2400

271.8

2100

207.1

2000

125.9

2400

209

1700

177.1

1900

220.9

2300

194.4

2300

154.3

2000

244.6

2300

173.1

2200

222.1

2100

188.1

1900

187

1900

294

2100

175

2500

Price

Size     

The following data relate to five bedroom houses, sizes and their prices

Size

2300

2100

2400

2200

2200

2200

2200

2200

2500

2300

2300

price

207.5

209.3

247.7

273.2

269.2

236.4

269.9

209.7

186.7

188.3

188.3

 

size

2100

2200

2300

2400

2500

Average price

209.3

251.7

194.7

247.7

186.7

From the results above the graphs could be seen that there is no direct relationship between size of the bedrooms and price of the house. Even after computing the average price for each bedroom, there is a haphazard movement in price which is in no way associated with the size.

Conclusion, Implication and Recommendations

The analysis above shows no direct relationship between price and the size of the house. This means that the alternative hypothesis stands. This implies that the price of the house may be determined by the locality in which it is situated but not by the size of the house. Dealers in the real estate industry are known to compare houses in the same locality when determining the prices. This research has not analyzed house pricing in the same locality, and it recommends a study of house pricing in a certain locality. This will help in affirming the conclusions made from this study.  

Code: Sample20

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