Implicit Price

Abstract

The implicit price of a characteristic is the partial derivative of the hedonic price function with respect to that characteristic; it represents the marginal market price of an incremental unit of the characteristic, holding all other characteristics fixed. This fourth entry in the Foundations department of The Valuation Engineer is the appraisal-relevant payoff of the hedonic framework: every sales-comparison adjustment is, in principle, an estimate of an implicit price multiplied by a characteristic difference. The entry exercises the implicit-price decomposition on the issue's running Pacifica dataset, recovers a $127,039 contribution to the Comp A vs. Comp B price difference from view and lot alone, and emphasizes the distinction between marginal implicit price and total characteristic contribution.