In real estate economics, Hedonic regression is used to adjust for the issues associated with researching a good that is as heterogeneous, such as buildings.
Instead, it is assumed that a house can be decomposed into characteristics such as its amount of bedrooms, the size of its lot, or its distance from the city center.
[1] Aside from its use in housing market estimations, Hedonic regression has also seen use as a means for testing assumptions in spatial economics, and is commonly applied to operations in tax assessment, litigation, academic studies, and other mass appraisal projects.
Appraisal methodology more or less treats hedonic regression as a more statistically robust form of the sales comparison approach,[2] making it a popular means for assessment in any market or economic sector in which valuation between two categorically similar (or same) goods (such as two different kitchenware sets) can differ greatly based on additional factors (such as whether the pots and pans made of copper, cast iron, stone, etc, or what non-stick coating, if any, was applied) or constituent goods (including a steamer basket for one of the pots or having the largest pot be a Dutch oven) that strongly influence or semi-exclusively determine the unified good's value.
[6] The same use of hedonic models when analyzing consumer prices in other countries, however, has shown that non-hedonic methods may themselves misstate inflation over time by failing to take quality changes into account.