You are considering investing your hard-earned money in a residential real estate investment trust (REIT). You have recently graduated from Graduate School, and you only vaguely remember that your former real estate professor was talking about residential house prices in one of her lectures. As you were a diligent student, you took extensive notes in all classes. You are reading through your class notes and suddenly you find a comment that residential house prices are associated with several factors. You look at the statement again and wonder whether you had recorded the information correctly. Because you feel slightly confused, you decide to give Pauline, your former team member in that real estate class, a call to ask her the following questions.

,2.1. List the factors that influence residential house prices.(2marks)

2.2. Why did the professor say associated when talking about the relationship between residential house prices and these factors? Which theoretical issue was she alerting you to? (3 marks)

2.3. Assume that you decided to verify the relationships using all identified factors. What problems might you encounter when estimating your model econometrically? (4 marks)