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A Longitudinal Examination of the Appraisal Smoothing Hypothesis

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  • Julian Diaz
  • Marvin L. Wolverton

Abstract

Appraisal smoothing, the reduced variability of real estate return series, has been attributed to appraisers being influenced by their own previous value estimates. This hypothesis is tested experimentally. Expert apppraisers from Atlanta were asked to value a hypothetical apartment project in Phoenix. Eight months later, these experts were asked to update their original appraisals given certain market and property changes. At this time, an independent group of Atlanta experts was asked to appraise the property based on the updated conditions. Results support the hypothesis of insufficient adjustment from previous value judgments. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:reesec:v:26:y:1998:i:2:p:349-358
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    Cited by:

    1. Einiö, Mikko & Kaustia, Markku & Puttonen, Vesa, 2008. "Price setting and the reluctance to realize losses in apartment markets," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 19-34, February.
    2. Martin Greiner & Matthias Thomas, 2014. "Continuity of the valuation of property portfolios with stratified sampling: a case study," Journal of Property Research, Taylor & Francis Journals, vol. 31(2), pages 154-179, June.
    3. Ytzen van der Werf & Fred Huibers, 2015. "Effect of changing valuer on real estate portfolio valuations," ERES eres2015_166, European Real Estate Society (ERES).
    4. Chang, Chuang-Chang & Chao, Ching-Hsiang & Yeh, Jin-Huei, 2016. "The role of buy-side anchoring bias: Evidence from the real estate market," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 34-58.
    5. J. Andrew Hansz, 2005. "Prior transaction price induced smoothing: testing and calibrating the Quan--Quigley model at the disaggregate level," Journal of Property Research, Taylor & Francis Journals, vol. 21(4), pages 321-336, April.
    6. 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.
    7. Masaki Mori & Julian Diaz III & Alan J. Ziobrowski, 2009. "Why Do Borrowers Choose Adjustable-Rate Mortgages over Fixed-Rate Mortgages? : A Behavioral Investigation," International Real Estate Review, Asian Real Estate Society, vol. 12(2), pages 98-120.
    8. repec:kap:jrefec:v:55:y:2017:i:3:d:10.1007_s11146-016-9587-7 is not listed on IDEAS
    9. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Asian Real Estate Society, vol. 18(1), pages 1-43.
    10. Yun W. Park & Doo Won Bang, 2013. "Valuation of Brokers over Real Estate Cycles: Korean Evidence," International Real Estate Review, Asian Real Estate Society, vol. 16(2), pages 166-188.
    11. David Geltner & David C. Ling, 2006. "Considerations in the Design and Construction of Investment Real Estate Research Indices," Journal of Real Estate Research, American Real Estate Society, vol. 28(4), pages 411-444.
    12. Deborah S. Levy & Catherine Frethey‐Bentham, 2010. "The effect of context and the level of decision maker training on the perception of a property's probable sale price," Journal of Property Research, Taylor & Francis Journals, vol. 27(3), pages 247-267, July.
    13. Steven Devaney & Stephen Lee & Michael Young, 2004. "Serial Persistence in Individual Real Estate Returns in the UK," Real Estate & Planning Working Papers rep-wp2004-13, Henley Business School, Reading University.
    14. Yu Liu & Paul Gallimore & Jonathan Wiley, 2015. "Nonlocal Office Investors: Anchored by their Markets and Impaired by their Distance," The Journal of Real Estate Finance and Economics, Springer, vol. 50(1), pages 129-149, January.
    15. Diego A. Salzman & Remco C.J. Zwinkels, 2013. "Behavioural Real Estate," Tinbergen Institute Discussion Papers 13-088/IV/DSF58, Tinbergen Institute.
    16. Christian Weistroffer & Steffen Sebastian, 2015. "The German Open-End Fund Crisis – A Valuation Problem?," The Journal of Real Estate Finance and Economics, Springer, vol. 50(4), pages 517-548, May.
    17. Peter Öhman & Bo Söderberg & Ola Uhlin, 2011. "Accuracy of Swedish property appraisers’ forecasts of net operating income," Journal of Property Research, Taylor & Francis Journals, vol. 29(2), pages 103-122, November.
    18. Marvin L. Wolverton & Paul Gallimore, 1999. "Client Feedback and the Role of the Appraiser," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 415-432.
    19. Diego Salzman, 2013. "Behavioural Real Estate," ERES eres2013_334, European Real Estate Society (ERES).
    20. 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.
    21. O. Alan Tidwell & Paul Gallimore, 2014. "The influence of a decision support tool on real estate valuations," Journal of Property Research, Taylor & Francis Journals, vol. 31(1), pages 45-63, March.
    22. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2014. "Matching indices for thinly-traded commercial real estate in Singapore," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 86-98.
    23. Martin Hoesli & Jon Lekander & Witold Witkiewicz, 2004. "New International Evidence on Real Estate as a Portfolio Diversifier," Journal of Real Estate Research, American Real Estate Society, vol. 26(2), pages 161-206.
    24. Deborah Levy & Zhi Dong & James Young, 2016. "Unintended consequences: the use of property tax valuations as guide prices in Wellington, New Zealand," Housing Studies, Taylor & Francis Journals, vol. 31(5), pages 578-597, July.

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