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Can Institutional Investors Bias Real Estate Portfolio Appraisals? Evidence from the Market Downturn

Author

Listed:
  • Neil Crosby

    (University of Reading)

  • Steven Devaney

    (University of Reading)

  • Colin Lizieri

    (University of Cambridge)

  • Patrick McAllister

    (University of Reading)

Abstract

This paper investigates the extent to which institutional investors may have influenced independent real estate appraisals during the financial crisis. A conceptual model of the determinants of client influence on real estate appraisals is proposed. It is suggested that the extent of clients’ ability and willingness to bias appraisal outputs is contingent upon market and regulatory environments (ethical norms and legal and institutional frameworks), the salience of the appraisal(s) to the client, financial incentives for the appraiser to respond to client pressure, organisational culture, the level of moral reasoning of both individual clients and appraisers, client knowledge and the degree of appraisal uncertainty. The potential of client influence to bias ostensibly independent real estate appraisals is examined using the opportunity afforded by the market downturn commencing in 2007 in the UK. During the market turbulence at the end of 2007, the motivations of different types of owners to bias appraisals diverged clearly and temporarily provided a unique opportunity to assess potential appraisal bias. We use appraisal-based performance data for individual real estate assets to test whether there were significant ownership effects on performance during this period. The results support the hypothesis that real estate appraisals in this period reflected the differing needs of clients.

Suggested Citation

  • Neil Crosby & Steven Devaney & Colin Lizieri & Patrick McAllister, 2018. "Can Institutional Investors Bias Real Estate Portfolio Appraisals? Evidence from the Market Downturn," Journal of Business Ethics, Springer, vol. 147(3), pages 651-667, February.
    • Handle: RePEc:kap:jbuset:v:147:y:2018:i:3:d:10.1007_s10551-015-2953-1
    DOI: 10.1007/s10551-015-2953-1
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    Cited by:

    1. Agnieszka Małkowska & Małgorzata Uhruska & Mateusz Tomal, 2019. "Age and Experience versus Susceptibility to Client Pressure among Property Valuation Professionals—Implications for Rethinking Institutional Framework," Sustainability, MDPI, vol. 11(23), pages 1-23, November.
    2. Bhattacharya, Abhi & Sardashti, Hanieh, 2022. "The differential effect of new product preannouncements in driving institutional and individual investor ownership," Journal of Business Research, Elsevier, vol. 149(C), pages 811-823.
    3. Akshita Singh & Shailendra Kumar & Utkarsh Goel & Amar Johri, 2023. "Behavioural biases in real estate investment: a literature review and future research agenda," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
    4. Hsueh-Fei Liao & Nan-Yu Chu & Chien-Wen Peng, 2018. "Awareness of Independence of Real Estate Appraisers: An Empirical Analysis," International Real Estate Review, Global Social Science Institute, vol. 21(3), pages 295-316.
    5. Bing Zhu & Colin Lizieri, 2021. "Connected markets through global real estate investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 618-654, September.
    6. Odilon Costa & Wesley Mendes-da-Silva, 2016. "The Recent Slowdown in Sao Paulo’s Office Market: A Comparison of Hedonic Indices," LARES lares-16-costa_therecent_, Latin American Real Estate Society (LARES).

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