What is a Market Value Index?

market-value weighted index Definition A stock index in which each stock affects the index in proportion to its market value. Examples include Nasdaq Composite Index, S&P 500, Wilshire 5000 Equity Index, Hang Seng Index, and EAFE Index. also called capitalization weighted index. We use the term to find out the value of the property we intend to purchase and resell. It is our formula for purchasing and reselling property. Unlike most of you we do not use the real estate brokers to price out our purchases and do not always rely upon the comparable sales method used by brokers. In fact we see a conflict (tension) between the real estate broker and us as investors that can not be resolved. The broker wants a listing and will try to get you the highest and best price for the property. This may take months to do and may wreak havoc on your cash flow waiting to make a few thousand dollars more. It also is simply not right to use the opinion of somebody who has no skin ($) in the deal. We instead follow a sales index based upon the history of the street, block, ward or if need be neighborhood to give us a bigger picture of the actual value of the property. We did not invent the sales index and in fact borrowed the idea from the writings of many economics experts. Two of the most notable are Case and Schiller. They are the economic guru's who created the repeat sales index that is used by the Government Service Enterprises as well as others. We simply analyzed the writings (ten years ago) and began testing a localized model using a history of all sales on the street from 1985 forward. We then took into consideration the square footage, interest rates and a couple of other items to equalize the properties. This then gave us the price that the property should sell for (a conservative price) and the price we should purchase the home for based upon our profit requirements, carrying costs and capital costs. We then added in the mix the cost of a rehabilitation of a home based upon post mortems and we were off to the races. Type in or automatically gather the sales (depends on the county) then you have the value of the home.The second calculation targets the remaining costs based upon prior dealings with the lenders, brokers and rehabilitation to tell you what you can expect as a gross profit. As a FrontGate client you will learn how to use this index and only ask your broker for a reassuring opinion of value. Never will you feel nervous about making offers. So do yourself a favor and learn to do a market value index on every property you purchase. Or let us teach you to perform them. http://frontgateconsulting.com/