Means, Motive and Opportunity? Disentangling Client Influence on Performance Measurement Appraisals

There is a longstanding body of literature that discusses the potential for clients to influence the outcome of the property appraisal process. In the market downturn of 2007-9, it is clear from a number of practitioner conferences and articles that some market participants such as investment agents or fund managers are sceptical about the ability of real estate appraisers to produce valuations that record ad reflect accurately the timing and extent of market price changes (see, for example, EG Capital, 2008; IPE Real Estate, 2009) It is also apparent from the same sources that different types of investors may have different motivations to attempt to influence appraisers. For example, due to their requirement to provide liquidity, open-ended real estate funds have major incentives to ensure that the appraisals of their property assets accurately reflected current market levels. Evidence of runs on the funds in Germany in 2006 and the UK in 2007/2008 can be partly attributed to perceptions of over valuation of the units. As a result, their major motivation is to ensure that appraisals reflected current market conditions. On the other hand, closed-ended funds, investment institutions and REITs/property companies, who did not have similar pressures to meet investor redemptions might to be much more resistant to downward adjustment in valuations without strong supporting evidence from transactions. In order to shed some light on the ability of clients to influence the outcome of their appraisals, in this paper, using data from IPD for the UK universe and with a particular focus on the latter half of 2007, we analyse the patterns in the changes in their appraisal-based returns for different investor types.