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The Magnitude of Random Appraisal Error in Commercial Real Estate Valuation

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Author Info
Richard A. Graff (Electrum Partners 400 North Michigan Avenue Suite 1200 Chicago, Illinois 60611)
Michael S. Young (The RREEF Funds 650 California Street Suite 1800 San Francisco, California 94108)

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Abstract

Analysis of more than seven hundred pairs of simultaneous independent appraisals of institutional-grade commercial properties shows that the standard deviation of the random component of appraisal error is approximately 2%. Random appraisal error appears constant across both time and the institutional-grade investment universe, except during infrequent periods of real estate market gridlock. Most appraisal error is deterministic in nature, even though it usually appears random in routine cross-sectional analysis. Such appraisal error can be constrained and reduced by investment management control systems.

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File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol17n01/v17p033.pdf
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Publisher Info
Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 17 (1999)
Issue (Month): 1 ()
Pages: 33-54
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Handle: RePEc:jre:issued:v:17:n:1:1999:p:33-54

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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Find related papers by JEL classification:
L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Julian Diaz & Marvin L. Wolverton, 1998. "A Longitudinal Examination of the Appraisal Smoothing Hypothesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(2), pages 349-358. [Downloadable!] (restricted)
  2. Julian Diaz, III, 1997. "An Investigation into the Impact of Previous Expert Value Estimates on Appraisal Judgment," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 57-66. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!] (restricted)
  2. Philippe Cyrenne & Robert Fenton & Joseph Warbanski, 2006. "Historic Buildings and Rehabilitation Expenditures: A Panel Data Approach," Journal of Real Estate Research, American Real Estate Society, vol. 28(4), pages 349-380. [Downloadable!]
  3. Michael Young, 2008. "Revisiting Non-normal Real Estate Return Distributions by Property Type in the U.S," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 233-248, February. [Downloadable!] (restricted)
  4. 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. [Downloadable!]
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