Question
Property valuation The government plans to build a new subway and rail terminal, and is oering compensation to the land property owner where the terminal
Property valuation
The government plans to build a new subway and rail terminal, and is oering compensation to the land property owner where the terminal is to be developed. The government claims that the oered compensation amount is based on market prices. The property owner believes that the new development would add substantial value to the properties around it, and that she should be compensated for that as well. She obtained results of two simple regressions; both regression outputs are in the worksheetPropertyValuationof the Excel workbookFinalExam Outputs.
Regression 1 has the current market value of properties (variable nameValue, in hundreds of thousands of dollars, i.e., measured in units of$100,000) as the dependent variable, and the size of the property (variable nameSize, measured in acres; 1 acre4,047 square meters) as the independent variable. Regression 2 uses the same independent variableSize, but it uses percentage increase in the property value based on the size of the property after similar government developments occurred (variable nameIncrValue, in percentage points, i.e., a decrease in value of 12% would correspond toIncrValue= -12).
18.(Property valuation, 2 points)The government oered$1 million compensation to the owner of a three acre property where the terminal will be built. The owner is considering an appeal based on the argument that she also needs to be compensated for the increase in property values. However, government ocials only consider counter-oers that are NOT extreme in the context of the argument of the appeal, so the counter-oer must be within the 95% range of valuations of comparable properties within each model used to support the argumentation provided with the appeal. What is the largest potential counter-oer amount supported by the two regression models (Regression 1 and Regression 2) that will be considered by the government ocials?
19.(Property valuation, 6 points)Explain how you constructed the counter-oer amount entered in Question 18, and whether the property owner should submit such counter-oer or just accept the original$1 million compensation oer. (250 words max.)
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