Question

Hedonic Price

Given:

• Your property has 3,000 square feet, 4 bedrooms, 3 baths, a 20,000 square foot lot, brick exterior, and is in “good” condition.
• You propose to sell this property for $200,000.

New Information:

• According to a recently estimated hedonic price regression, the imputed prices of some housing characteristics are estimated as:
  • House size: $50 per square foot;
  • Lot size: $1.25 per square foot;
  • Bedrooms: $4,000 each;
  • Half bathroom: $750 each;
  • Brick exterior: $4,500 more than a frame exterior;
  • Excellent condition: $3,000 more than “good” condition.

Question: (Using New Information)

What is the indicated value of your property?

Answer 1

Property price= $50*3,000= $150,000

Lot price= $1.25*20,000= $25,000

Bedrooms price= $4,000*4= $16,000

Bath price= $750*3= $2,250

Brick exterior: $4,500

Excellent condition: $3,000

Indicated value of new property= $( 150,000+25,000+16,000+2,250+4,500+3,000)

= $200,750

He is considering to sell his property lesser than its current value.