Method of Indexation (Read about Terminology here)
Variables commonly seen in decision making for a property can be divided into two major categories.
- Intrinsic elements
- Extrinsic elements
Example of intrinsic elements are:
- Size or space
- Number of bedrooms
- Number of bathrooms
- Number of car parks
- Lift or without lift
- Facilities like swimming pools and gym
Example of extrinsic elements are:
- Population density
- Popularity of the area
- Transportation
- Amenities
- Education supports
- Surrounding space or recreational parks
Thus, value of the property depends on many elements. The better each element is the more valuable the whole basket is aggregated together. Therefore, if there is a point system (indexing), it should be able to provide a good value estimate of its worth. Like job interview, education qualification is one element, personality & attitude is another. A certain characteristic of a property should point to its value – this is the key concept. Then, the price should then reflect that value. In simple words, a good property satisfying certain characteristics should fetch a good price.
Conversely, a price ratio to these elements would also give an indication of its value. For example, a condo of RM900 per square foot (psf) comes with swimming pool and other facilities. When compared to another unit at RM700 psf, its facilities should be better of rather than worse of. In such comparison, price psf becomes a comparative index.
Unintentionally, we are already using comparisons in the above examples of price psf. We know that comparing just price is an unfair comparison because properties can be of different sizes. This comparison is based on a ratio (price over area). If we add more elements into this ratio, we can have a new ratio. This ratio – we call it “Inter-Property Index” or “IPI” in short, is the purpose of our research to get a fair comparison in order to help decision making.
Read further into the methods and examples here.