A Realtor Wants to Predict and Compare the Prices of Homes

question 109

Short Answer

A realtor wants to predict and compare the prices of homes in three neighboring locations. She considers the following linear models:
Model A: Price = β₀ + β₁ Size + β₂ Age + ε
Model B: Price = β₀ + β₁ Size + β₃ Loc1 + β₄ Loc2 + ε
Model C: Price = β₀ + β₁ Size + β₂ Age + β₃ Loc1 + β₄ Loc2 + ε
where,
Price = the price of a home (in $1,000s)
Size = the square footage (in sq. feet)
Loc1 = a dummy variable taking on 1 for Location 1, and 0 otherwise
Loc2 = a dummy variable taking on 1 for Location 2, and 0 otherwise
After collecting data on 52 sales and applying regression, her findings were summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Which of these three models would you choose to make the predictions of the home prices?

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Definitions:

Child Custody

Child custody is a legal term regarding guardianship which is used to describe the legal and practical relationship between a parent or guardian and a child in that person's care.

Parents

Mothers and fathers, or caregivers, who are responsible for raising and caring for their children.

Geographic Closeness

The physical proximity between places or entities, which can influence various social, economic, or environmental interactions.

Adult Children

Individuals who are legally adults but may still be considered children by their parents, often in terms of dependency or relational dynamics.