Indoor Positioning Systems (IPSs) are used to locate mobile devices in indoor environments. Model-based IPSs have the advantage of not having an exhausting training and signal characterization of the environment, as required by the fingerprint technique. However, most model-based IPSs are done using fixed model parameters, treating the whole scenario as having a uniform signal propagation. This might work for most small scale experiments, but not for larger scenarios. In this paper, we propose PoDME (Positioning using Dynamic Model Estimation), a model-based IPS that uses dynamic parameters that are estimated based on the location the signal was sent. More specifically, we use the set of anchor nodes that received the signal sent by the mobile node and their signal strengths, to estimate the best local values for the log-distance model parameters. Also, since our solution depends highly on the selected anchor nodes to use on the position computation, we propose a novel method for choosing the three best anchor nodes. Our method is based on several data analysis executed on a large-scale, Bluetooth-based, real-world experiment and it chooses not only the nearest anchor but also the ones that benefit our least-square-based position computation. Our solution achieves a position estimation error of 3 m, which is 17% better than a fixed-parameters model from the literature.