Real estate valuation with self-organizing maps in Germany | by Viktor Kreschenski | Jun, 2024

Throughout the ever-evolving precise property market, exactly determining property values is a complicated drawback. Typical valuation methods normally fall transient in capturing the nuanced and dynamic nature of precise property. That’s the place superior machine finding out strategies, like Self-Organizing Maps (SOM), come into play. SOMs current an advanced methodology to visualizing and analyzing superior information, making them considerably applicable for precise property valuation.

What are Self-Organizing Maps?

Self-Organizing Maps, launched by Teuvo Kohonen, are a sort of artificial neural group expert using unsupervised finding out to provide a low-dimensional, discretized illustration of the enter space (Kohonen, 2001). They’re extensively used for clustering, visualization, and abstraction of high-dimensional information.

“Self-Organizing Maps (SOM) are a sort of artificial neural group that are expert using unsupervised finding out to provide a low-dimensional illustration of the enter space.” (Kohonen, 2001)

Software program of SOM in Precise Property

In precise property, SOMs can take care of big, spatially distributed datasets, uncover hidden patterns, and provide priceless insights for property valuation (Hagenauer & Helbich, 2022). As an illustration, SOMs can cluster properties based on traits equal to location, measurement, and age, serving to to determine tendencies and outliers on the market.

“Self-Organizing Maps are considerably useful in precise property valuation for his or her functionality to take care of big, spatially distributed datasets and reveal underlying patterns.” — Hagenauer, J., and Helbich, M. (2022).

Introducing SOMantic: Revolutionizing Precise Property Valuation in Germany

To leverage the ability of SOMs, we (Kretronik GmbH) developed SOMantic, an precise property crawler and aggregator designed to streamline property search and valuation in Germany. Somantic aggregates listings from all primary precise property platforms, providing prospects with a single, full platform to look out properties. Clients can save their filters and procure real-time notifications by the use of Telegram and/or e-mail when new properties matching their requirements are listed, giving them a aggressive edge in contacting sellers first.

How Somantic makes use of SOM for Property Valuation

Somantic employs SOMs to calculate the Return on Funding (ROI) and cash motion of properties by modeling their value and rent. The strategy entails the following steps:

1. Data Aggregation: Somantic crawls and aggregates information from assorted precise property platforms in Germany.
2. Operate Extraction: Key choices equal to latitude, longitude, sq. meters, room rely, and age of the property are extracted.
3. SOM Teaching: These choices are used to educate the SOM, which clusters comparable properties collectively.
4. Price and Lease Modeling: For a given property, Somantic identifies the perfect matching unit (BMU) all through the SOM. The standard value and rent of properties on this BMU are calculated to estimate the market value.

“The Self-Organizing Map (SOM) algorithm gives a novel methodology to visualizing high-dimensional information by its topology-preserving mapping.” (Kohonen, 2013)

By means of the usage of comparable properties in a node for valuation, Somantic ensures that the estimated value and rent are reflective of the current market conditions.

Property Valuation in Munich use case

Throughout the screenshot beneath we’ll analyze the market value and the ROI for a 96.19m² property in Munich. We are able to additionally see comparable rent and promote properties on a map which could assist us in our alternative making.

For patrons a really highly effective metrics are cash motion and the ROI of the property. The ROI is calculated by dividing the estimated yearly rent by the value of the property. On this case we assume our rent earnings per 12 months is 22.331,28 € (= 1.860,94€ * 12 which is estimated by the SOM) and divide it by the exact value of 1.299.000 € so that we get 1,72% (22.331,28 €/1.299.000 €). To be worthwhile the rule of thumb is to have a minimal of 5% which on this case makes the property a nasty funding and thus can shortly be filtered out.

What regarding the cash motion?

To calculate the cash motion we’re making three assumption which can be modified by the buyer:

1. Equity: How a variety of the value can I pay myself plus the closing costs? In Germany when making use of for a mortgage with a monetary establishment it’s normal to pay the closing costs out of your private pocket. Proper right here we assume we paid the closing costs + 20% of the value (259.800 €). Which means we’ve got to borrow “solely” 1.039.200 € from the monetary establishment.
2. Curiosity Cost: The current charges of curiosity in Germany are nonetheless rising nevertheless proper right here we assume 3% for long term contracts.
3. Compensation Cost: For the compensation charge we assume the normal 2% charge.

Which means if we borrow 1.039.200 € we’ve got to pay the monetary establishment 51.960 € (=1.039.200 € * 5%) per 12 months or 4.330 € / month. There’s moreover the value of the maintenance value of which 40% the proprietor pays and 60% the renter which for a 96.19m² apartment could possibly be spherical 173,14 € (=96.19m²*4,5€*40%) month-to-month. The maintenance value for an apartment is on a regular basis one factor in between 3€ — 4,5€ per sq. meter. That leads us to a cash motion of -2642,20€ (=1860,94€-4.330€-173,14€) which is unfavorable. We must always all the time solely buy properties with constructive cash motion that means we should always all the time modify our parameters (improve our equity proportion), negotiate a smaller value or look for one different worthwhile apartment.

Advantages of Using SOMantic

• Full Aggregation: Entry all precise property listings in Germany on one platform.
• Precise-Time Notifications: Preserve ahead with instantaneous updates on new listings.
• Right Valuation: Revenue from superior SOM-based fashions for actual property valuation.
• Funding Insights: Calculate ROI and cash motion to make educated funding alternatives.

Conclusion

The blending of Self-Organizing Maps by SOMantic in precise property valuation ought so as to add transparency to the enterprise and simplify fast alternative making. By leveraging SOMs, Somantic not solely aggregates listings however as well as gives actual valuation and funding analysis, making it a helpful gizmo for patrons and sellers.

For further knowledge, go to Somantic and uncover the way in which it may well rework your precise property experience. Try the value and rent estimation your self:

References:

1. Kohonen, T. (2001). Self-Organizing Maps.
2. Nguyen, T. V., & Cripps, A. (2001). Predicting Housing Price: A Comparability of Various Regression Analysis and Artificial Neural Networks. Journal of Precise Property Evaluation, 22(3), 313–336.
3. Kohonen, T. (2013). Requirements of the Self-Organizing Map. Neural Networks, 37, 52–65.
4. Hagenauer, J., & Helbich, M. (2022). A Comparative Look at of Machine Learning Classifiers for Modeling Spatial Data. ISPRS Worldwide Journal of Geo-Information, 11(1), 1–26.
5. Bação, F., Lobo, V., & Painho, M. (2005). The Self-Organizing Map, the Geo-SOM, and associated variants for geosciences. Pc methods & Geosciences, 31(2), 155–163.
6. Kohonen, T. (1995). Self-Organizing Maps and their Capabilities. Neural Networks, 8(3), 477–493.
7. Hamnett, C. (1991). The Blind Males and the Elephant: The Clarification of Gentrification. Transactions of the Institute of British Geographers, 16(2), 173–189.