Valuation of residential properties by hedonic pricing method (HPM)

Abstract

Hedonic Pricing Method (HPM) is used for estimating the value of a commodity or the demand for a commodity. The method has been widely used in real estate and housing market research in the recent past. In this report, Estimation of residential market price by Hedonic Pricing Method due to environmental service is discussed. Environmental services is a concept from the ecological economics literature. Environmental services refer to qualitative functions of natural non-produced assets of land, water and air (including related ecosystem) and their biota, which implies natural environment providing particular important uses or benefits that can be captured under the concept of “services.” It undertake an examination of use of this methodology in the recent real estate and housing literature in the preparation of housing predictive model. The idea behind the HRM is that the commodities are characterized by their constitute properties, hence the value of a commodity can be calculated by adding up the estimated values of its separate properties. Data required that influences the residential property rates will be collect.ed and are analysed using regression analysis which relates to statistically estimate a function that relates property values to the property characteristics, including the distance to open space. Thus, the effects of different characteristics on price can be estimated. The results can be used to evaluate the variations of property rates for small change in characteristics holding all other characteristics constant. Price prediction model is than prepared.