The Condo Sales Case

According to the text authors:

“This case involves an investigation of the factors that affect the sale price of oceanside condominium units. It represents an extension of an analysis of the same data by Herman Kelting (1979). Although condo sales prices have increased dramatically over the last twenty years, the relationship between these factors and sales price remain about the same. Consequently, the data provide valuable insight into today’s condominium sales market.

The sales data were obtained for a new oceanside condominium complex consisting of two adjacent and connecting eight-floor buildings. The complex contains 200 units of equal size (approximately 500 square feet each). The locations of the buildings relative to the ocean, the swimming pool, the parking lot, etc. are shown in the accompanying figure (See the “artist’s” rendering here). There are several features of the complex that you should note:

1. The units facing south, called ocean-view, face the beach and ocean. In addition, units in building 1 have a good view of the pool. Units in the rear of the building, called bay-view, face the parking lot and an area of land the eventually borders a bay. The view from the upper floors of these units is primarily of wooded, sandy terrain. The bay is very distant and barely visible.

2. The only elevator in the complex is located at the east end of building 1, as are the office and game room. People moving to or from the higher floor units in building 2 would likely use the elevator and move through the passages to their units. Thus, units on the higher floors and at a greater distance from the elevator would be less convenient; they would require greater effort in moving baggage, groceries, etc. and would be further away from the game room, the office, and the swimming pool. These units also possess an advantage: there would be the least amount of traffic through the hallways in the area and hence are the most private.

3. Lower-floor, oceanside units are most suited to active people; they open onto the beach, ocean and pool. They are within easy reach of the game room and they are easily reached from the parking area.

4. Checking the layout of the condominium complex, you discover that some of the units in the center of the complex, units ending in numbers 11 and 14, have part of their view blocked.

5. The condominium was completed at the time of the 1975 recession; sales were slow and the developer was forced to sell most of the units at auction approximately 18 months after opening. Consequently, the auction data are completely buyer-specified and hence consumer oriented in contrast to most other real estate sales data which are, to a high degree, seller and broker specified.

6. Many unsold units in the complex were furnished by the developer and rented prior to the auction. Consequently, some of the units bid on and sold at auction had furniture, others did not.

This condominium complex is obviously unique. For example the single elevator located at one end of the complex produces a remarkably high level of both inconvenience and privacy for the people occupying the top floors in building 2. Consequently, the developer is unsure of how the height of the unit (floor numbers), distance of the unit from the elevator, presence or absence of an ocean view, etc. affect the prices of the units sold at auction. To investigate these relationships, the following data were recorded for each of the 106 units sold at auction (actually 209 observations):

1. Sale price. Measured in hundreds of dollars and adjusted for inflation.

2. Floor height. The floor location of the unit; the variable levels are 1, 2, … , 8.

3. Distance from elevator. This distance, measured along the length of the complex, is expressed in the number of condominium units. An additional two units of distance was added to the units in building 2 to account for the walking distance in the connecting area between the two buildings. Thus, the distance of unit 105 from the elevator would be 3, and the distance between unit 113 and the elevator would be 9. The variable levels are 1, 2, … , 15, and are given on the figure.

4. View of the ocean. The presence or absence of an ocean view is recorded for each unit and specified with a dummy variable (1 if the unit has an ocean view, 0 if not). Note that the units not possessing an ocean view would face the parking lot.

5. End unit. We expect the partial reduction of view of end units on the ocean side (numbers ending in 11) to reduce their sale price. The ocean view of these end units is partially blocked by building 2. This qualitative variable is also specified with a dummy variable (1 for units ending in 11, 0 if not).

6. Furniture. Units furnished by the developer are indicated by a dummy variable (1 if furnished, 0 if not).

Your objective for this project is to build a regression model that accurately predicts the sale price of a condominium unit sold at auction. Prepare a professional document that presents the results of your analysis. Include graphs that demonstrate how each of the independent variables in your model affects price.”

Do not assume a great deal of knowledge about multivariate analysis by the lay readers of this document. Explain carefully what the results mean. Also interpret the output. You just need to perform the five t-tests and an F-test as explained in class. All the statistics needed are provided on the printout of the regression program. Also calculate the predicted price of unit 412, which was not furnished.

[Important note: You may want to consider cross-product terms of the form x₁x₂ in your model. The terms, called interaction terms, allow the relationship between y and one of the independent variables, say x₁, to change as the value of the other independent variable, x₂ changes.]

Click HERE for the data.