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Optimal Comparable Selection and Weighting in Real Property Valuation

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  • Kerry D. Vandell

Abstract

This paper formalizes certain aspects of the sales comparison approach to valuation that heretofore have been quite ad hoc. Specifically, it applies statistical theory to decisions about how many comparables to select, what the criteria for comparable selection should be, and how the proper weights for each adjusted value estimate can be determined such that the final value estimate is both unbiased and of minimum variance. Several results are derived that run counter to conventional practice; for example, it may not always be optimal to consider first the "best" comparables because of a lack of independence among their adjusted value estimates. Furthermore, it is always desirable to consider more comparables (regardless of how "bad") so long as their adjusted value estimates are optimally weighted in the final value estimate. Finally, weights usually selected for "inferior" comparables are typically too small. A final exercise empirically applies the methodology to a sample of sales. Copyright American Real Estate and Urban Economics Association.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 19 (1991)
Issue (Month): 2 ()
Pages: 213-239

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Handle: RePEc:bla:reesec:v:19:y:1991:i:2:p:213-239

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Cited by:
  1. Donald R. Epley, 1997. "A Note on the Optimal Selection and Weighting of Comparable Properties," Journal of Real Estate Research, American Real Estate Society, vol. 14(2), pages 175-182.
  2. James A. Bryant & Donald R. Epley, 1998. "Cancerphobia: Electromagnetic Fields and Their Impact on Residential Loan Values," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 115-129.
  3. Timothy Riddiough & Paul Childs & Steven Ott, 2001. "Noise, Real Estate Markets, and Options on Real Assets: Theory," Wisconsin-Madison CULER working papers 01-07, University of Wisconsin Center for Urban Land Economic Research.
  4. David M. Geltner & Richard A. Graff & Michael S. Young, 1994. "Random Disaggregate Appraisal Error in Commercial Property: Evidence from the Russell-NCREIF Database," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 403-420.
  5. R. Kelley Pace, 1998. "Total Grid Estimation," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 101-114.
  6. Zhenguo Lin & Eric Rosenblatt & Vincent Yao, 2009. "Spillover Effects of Foreclosures on Neighborhood Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 38(4), pages 387-407, May.
  7. George H. Lentz & Ko Wang, 1998. "Residential Appraisal and the Lending Process: A Survey of Issues," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 11-40.

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