A Mean-Variance Optimization Approach for Residential Real Estate Valuation

This paper introduces a new approach to the sales comparison model for the valuation of real estate that can objectively estimate the coefficients associated with the explanatory price variables. The coefficients of the price adjustment process are estimated from the formulation of a quadratic programming model similar to the mean-variance model in the portfolio selection problem and are shown to be independent of the property to be valued. It is also shown that the sales comparison model should minimize the variance of the adjusted prices, and not their coefficient of variation as indicated by some national and international valuation regulations. The paper concludes with a case study on the city of Medellín, Colombia.