Application of the Hedonic pricing model in real estate valuation in Nairobi County : a study of the Hedonic model

Abstract

Housing occupies an important position in the Kenyan psyche along with the concept of home ownership. The residential developments and investments attract both institutional, corporate organizations as well as private individuals. There are indications that the residential market in Nairobi is very active and that most of the valuation firms in Nairobi carry out market-based valuation of residential properties. The study is about the relevance of the hedonic pricing model in Nairobi and in particular to assess what kind of pricing methodology is used in the valuation of property in Nairobi County. The study attempted to determine the various attributes that are considered in the pricing models used in the County. The study was carried out in Lavington and Riverside estates, which are up-market residential estates of Nairobi. The research was qualitative and was conducted using information gathered from questionnaires, interviews and secondary material from Institution of Surveyors Kenya. The study found out that the significant factors that determine the value of a residential property are size of plot, location, services, developments, land reference number and the characteristics of the plot. The study as well found out that the most preferred method of valuation used in Nairobi is the Cost approach, however, comparable sales are adopted to justify the final outlook of the value.