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Appraisal Smoothing: The Other Side of the Story

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  • Tsong-Yue Lai
  • Ko Wang
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Abstract

Appraisal smoothing has been widely accepted as an important factor to consider when analyzing real estate returns using appraisal-based data. In this paper, we demonstrate that the general applicability of the appraisal-smoothing arguments developed so far in the literature is limited by the assumptions upon which the arguments are based. We further show that the use of appraisal-based data can result in a higher (not lower) variance than that of true returns. Given this, it might be more fruitful to analyze the unique characteristics of real estate markets as possible explanations for the seemingly low variance observed in appraisal-based (or transaction-based) return indexes. 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): 26 (1998)
Issue (Month): 3 ()
Pages: 511-535

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Handle: RePEc:bla:reesec:v:26:y:1998:i:3:p:511-535

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Cited by:
  1. Armonat, Stefan & Pfnür, Andreas, 2003. "Asset allocation versus entrepreneurial decisions in real estate investment," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35582, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
  2. Simon Stevenson, 2000. "International Real Estate Diversification: Empirical Tests using Hedged Indices," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 105-131.
  3. Shaun A. Bond & Soosung Hwang & Gianluca Marcato, 2006. "An Analysis of Commercial Real Estate Returns: Is there a Smoothing Puzzle?," Real Estate & Planning Working Papers rep-wp2006-17, Henley Business School, Reading University.
  4. Sampagnaro, Gabriele & Battaglia, Francesca, 2010. "Reliability and Heterogeneity of Real Estate Indexes and their Impact on the Predictability of Returns," MPRA Paper 23378, University Library of Munich, Germany.
  5. Martin Hoesli & Colin Lizieri & Bryan MacGregor, . "The Inflation Hedging Characteristics of US and UK Investments: A Multifactor Error Correction Approach," Swiss Finance Institute Research Paper Series 06-04, Swiss Finance Institute.
  6. Colin Lizieri & Charles Ward, 2000. "Commercial Real Estate Return Distributions: A Review Of Literature And Empirical Evidence," Real Estate & Planning Working Papers rep-wp2000-01, Henley Business School, Reading University.
  7. Robert Edelstein & Daniel Quan, 2006. "How Does Appraisal Smoothing Bias Real Estate Returns Measurement?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 41-60, February.
  8. John Knight & Colin Lizieri & Stephen Satchell, 2005. "Diversification When It Hurts? The Joint Distributions of Real Estate and Equity Markets," Real Estate & Planning Working Papers rep-wp2005-16, Henley Business School, Reading University.
  9. Richard A. Graff & Michael S. Young, 1997. "Serial Persistence in Equity REIT Returns," Journal of Real Estate Research, American Real Estate Society, vol. 14(3), pages 183-214.
  10. Yun W. Park & Doo Woan Bahng & Sae Woon Park, 2010. "Are Broker Quotes Too Optimistic? Korean Evidence," International Real Estate Review, Asian Real Estate Society, vol. 13(1), pages 46-78.
  11. Armonat, Stefan & Pfnür, Andreas, 2002. "Basel II and the German credit crunch?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35585, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
  12. Joseph L. Pagliari, Jr. & James R. Webb & Todd A. Canter & Frederich Lieblich, 1997. "A Fundamental Comparison of International Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 13(3), pages 317-348.
  13. Steven H. Ott & Timothy J. Riddiough & Ha-Chin Yi, 2008. "On Demand: Cross-Country Evidence From Commercial Real Estate Asset Markets," International Real Estate Review, Asian Real Estate Society, vol. 11(1), pages 1-37.
  14. Jeff Fisher & David Geltner & Henry Pollakowski, 2007. "A Quarterly Transactions-based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 5-33, January.

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