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How Does Appraisal Smoothing Bias Real Estate Returns Measurement?

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Author Info
Robert Edelstein ()
Daniel Quan ()
Abstract

This paper examines and clarifies several related issues about real estate return indexes. Specifically, even if real estate valuation smoothing exists at the individual property level, such errors may offset in the aggregate. Using data from commercial property appraisals and corresponding transactions, appraisal smoothing errors engender an underestimation of both the first and second moments for real estate returns. After correcting for these “underestimations,” real estate mean returns and the variance appear to be quite similar to those of stocks. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s11146-005-5177-9
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Publisher Info
Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 32 (2006)
Issue (Month): 1 (February)
Pages: 41-60
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jrefec:v:32:y:2006:i:1:p:41-60

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Web page: http://www.springerlink.com/link.asp?id=102945

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: appraisal smoothing; error aggregation; real estate returns;

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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. Tsong-Yue Lai & Ko Wang, 1998. "Appraisal Smoothing: The Other Side of the Story," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 511-535. [Downloadable!] (restricted)
  2. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November. [Downloadable!] (restricted)
  3. Yoon Dokko & Robert H. Edelstein & Marshall Pomer & E. Scott Urdang, 1991. "Determinants of the Rate of Return for Nonresidential Real Estate: Inflation Expectations and Market Adjustment Lags," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(1), pages 52-69. [Downloadable!] (restricted)
  4. Richard A. Graff & Michael S. Young, 1999. "The Magnitude of Random Appraisal Error in Commercial Real Estate Valuation," Journal of Real Estate Research, American Real Estate Society, vol. 17(1), pages 33-54. [Downloadable!]
  5. Geltner, David & Goetzmann, William, 2000. "Two Decades of Commercial Property Returns: A Repeated-Measures Regression-Based Version of the NCREIF Index," The Journal of Real Estate Finance and Economics, Springer, vol. 21(1), pages 5-21, July. [Downloadable!] (restricted)
  6. David Geltner, 1989. "Bias in Appraisal-Based Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(3), pages 338-352. [Downloadable!] (restricted)
  7. Cho, Hoon & Kawaguchi, Yuichiro & Shilling, James D, 2003. "Unsmoothing Commercial Property Returns: A Revision to Fisher-Geltner-Webb's Unsmoothing Methodology," The Journal of Real Estate Finance and Economics, Springer, vol. 27(3), pages 393-405, November. [Downloadable!] (restricted)
  8. Geltner, David Michael, 1991. "Smoothing in Appraisal-Based Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 4(3), pages 327-45, September.
  9. David Geltner, 1989. "Estimating Real Estate's Systematic Risk from Aggregate Level Appraisal-Based Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 463-481. [Downloadable!] (restricted)
  10. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354. [Downloadable!] (restricted)
  11. Jim Clayton & David Geltner & Stanley W. Hamilton, 2001. "Smoothing in Commercial Property Valuations: Evidence from Individual Appraisals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(3), pages 337-360. [Downloadable!] (restricted)
  12. Carmelo Giaccotto & John Clapp, 1992. "Appraisal-Based Real Estate Returns under Alternative Market Regimes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 1-24. [Downloadable!] (restricted)
  13. Fisher, Jeffrey D & Geltner, David M & Webb, R Brian, 1994. "Value Indices of Commercial Real Estate: A Comparison of Index Construction Methods," The Journal of Real Estate Finance and Economics, Springer, vol. 9(2), pages 137-64, September.
  14. Daniel C. Quan & John M. Quigley, 1989. "Inferring an Investment Return Series for Real Estate from Observations on Sales," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 218-230. [Downloadable!] (restricted)
  15. R. Brian Webb & Mike Miles & David Guilkey, 1992. "Transactions-Driven Commercial Real Estate Returns: The Panacea to Asset Allocation Models?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 325-357. [Downloadable!] (restricted)
  16. Mark G. Dotzour, 1988. "Quantifying Estimation Bias in Residential Appraisal," Journal of Real Estate Research, American Real Estate Society, vol. 3(3), pages 1-11. [Downloadable!]
  17. S. Michael Giliberto, 1988. "A Note on the use of Appraisal Data in Indexes of Performance Measurement," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(1), pages 77-83. [Downloadable!] (restricted)
  18. 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)
  19. David Hartzell & John Hekman & Mike Miles, 1986. "Diversification Categories in Investment Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(2), pages 230-254. [Downloadable!] (restricted)
  20. J. Andrew Hansz & Julian Diaz III, 2001. "Valuation Bias in Commercial Appraisal: A Transaction Price Feedback Experiment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(4), pages 553-565. [Downloadable!] (restricted)
  21. Mike Miles & Tom McCue, 1984. "Commercial Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 355-377. [Downloadable!] (restricted)
  22. James R. Follairi, 1989. "Inferring an Investment Return Series for Real Estate from Observations on Sales," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 231-234. [Downloadable!] (restricted)
  23. David Geltner, 1993. "Temporal Aggregation in Real Estate Return Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(2), pages 141-166. [Downloadable!] (restricted)
  24. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 175-90, June.
  25. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242. [Downloadable!] (restricted)
Full references

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. Neil Crosby, 2007. "German Open Ended Funds: Was there a Valuation Problem?," Real Estate & Planning Working Papers rep-wp2007-05, Henley Business School, Reading University. [Downloadable!]
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