Question

A realty company in Phoenix, Arizona is interested in analyzing how the square footage (Sqft), number of bedrooms (Bedrooms), and number of bathrooms (Bathrooms) affects a home’s sales price in dollars (Price). They collected data on homes that recently sold using Truilia.com and Zillow.com and used it to obtain the following estimated regression equation:

Priceˆ=97,348.27+112.12Sqft+7,589.20Bedrooms+4,056.98Bathrooms

A recent home in the Phoenix area sold for $290,000. It was 1500 square feet, had 2 bedrooms, and 1.5 bathrooms. Use this information to calculate the residual/error from your model. Note, indicate an under-prediction by using the negative sign (-). Round your answer to 2 decimals.

Answer 1

Solution :

Given model for prediction is,

Priceˆ=97,348.27+112.12(Sqft)+7,589.20(Bedrooms)+4,056.98(Bathrooms)

We have given that,

Estimate of house price: $290,000

And area=1500 square feet

No. of bedrooms: 2

No. of bathrooms:1.5

By using the above predictors our model will be,

Priceˆ=97,348.27+112.12*1500+7,589.20*2+4,056.98*1.5

           =286792

By using this model stimated price of house is: $286792

And using the information above, actual price of home(sold price)= $290,000

Error from the model is given as,

Error=Actual value-Estimated value

         =$290,000-$286792

=$3208