Quantitative Methods Major Project - Task 2

Task 2 – 50% of project grade:

You have been hired by John, the wealthy owner of a house on Elm Street in Loxton (not included in the data set) to predict the price at which his house will sell. His house has two stories, is in Claygate, is 205 square metres large, is not near a shopping precinct and is 10 km from the town centre. He estimates that the house is about 12 years old and in a high crime area according to his experiences. John inherited the house from his aunt and is therefore unsure when it was last sold. Some other features of the property can be seen below:

Views of and from the house whose sale price you are to predict. You are expected to build a regression model of house prices. In doing so, make sure that you use an appropriate number of predictors to develop your estimates. Once you have constructed an appropriate model, use it to obtain and provide for John’s house:
1. A point prediction of the sales price which it can be expected to fetch
2. A 95% interval prediction for this sale price
3. An estimate of the marginal effect of house size on this sale price
4. Financial advice on whether John should use “W&M” or “A&B” to sell his house. “W&M” charges a commission of 5% whereas “A&B” charges a commission of 10% of the final sale price.
John, who claims to have some knowledge of regression analysis, has stressed that he thinks you should use a regression model with an R2 of at least 80%.