MULTIPLE
REGRESSION ANALYSIS (MRA)
Multiple
regression analysis (MRA) is a statistical tool that allows the
construction of a model derived from sales using selected and
relevant variables affecting value.
The
model requires the correct identification and quantitative measures
of the independent variables used. MRA Is not a valuation method for
the same reasons that apply to the discounted cash flow method
(Albany v Commonwealth (1976)12 ALR 201 ). However, It can
provide a useful proxy of value in areas such as mass valuation.
Important and inherent problems that are usually ignored by the
proponents of MRA are:

MULTICOLLINEARITY:
The
use of different variables which effectively, measure the same thing.

BEING
A STATISTICAL METHOD, it determines a predicted range of values at a
certain probability level. That is, it provides a range as the answer
rather than a single figure. This raises problems with valuation
clients who generally, require a single valuation figure.

THE
PROVISION OF A RANGE OF VALUES raises a number of legal problems.
Advocates
of MRA claim that it is more objective than other valuation methods,
however and typically, the MRA model includes a number of subjective
scores. For example, architectural style and condition are usually
assigned a score out of 10 or 5. This, together with the selection of
the independent variables themselves, results in a model not as
objective as many of it's advocates maintain.
EXAMPLE
After
analyzing the weight and importance of a number of variables that
affect the value of residential houses from sales evidence, a
valuation model is constructed using the following independent
variables:

land
area

effective
area of the house

architectural
style

condition

number
of rooms.

distance
from public transport.
Details
of the method are not covered here but the analysis can be carried
out using an EXCEL spreadsheet. Its main use is as a tool to aid the
valuer, for research purposes, in mass valuations and as a predictor
of value. The variables used above are those used by a Valuer
General.
Note
however that the number of rooms and effective area may be
multicollinear.