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Effect of changing valuer on real estate portfolio valuations

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  • Ytzen van der Werf
  • Fred Huibers

Abstract

Institutional investors in The Netherlands experience a large shift in market value after changing valuer on their portfolio valuations. Examples of differences up to -30% were reported during the period of decreasing values after the GFC.We studied a set of over 22,000 individual valuations on a 6 year period (2008-2013) and found a significant effect of changing valuer for the office property market of nearly -9%. Partially this effect was caused by the nature of the valuation process (desk top versus full valuation) but most of the difference was due to the absence of knowledge of the previous valuation. Retail and residential properties did not exhibit a significant effect of the absence of knowledge. Furthermore when trying to explain the reason for this difference we found that surveyors performing a first time valuation used more recent comparable evidence to underpin their valuations than valuers performing a repeat valuation. Average age of the used comparable transactions in a first time valuation is 8.5 months where the average age of comparable evidence for repeat valuations appears to be nearly 10 months.Anchoring to existing market evidence by repeat valuers seems to be at the heart of the problem. Changing valuer could lead to large differences in the market value of the properties under valuation but appears to be more in line with contemporary market evidence. Institutional investors should investigate the comparables used by valuers performing repeat valuations more thoroughly.

Suggested Citation

  • Ytzen van der Werf & Fred Huibers, 2015. "Effect of changing valuer on real estate portfolio valuations," ERES eres2015_166, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2015_166
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    References listed on IDEAS

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    1. 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, March.
    2. Furnham, Adrian & Boo, Hua Chu, 2011. "A literature review of the anchoring effect," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(1), pages 35-42, February.
    3. 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, June.
    4. 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.
    5. Northcraft, Gregory B. & Neale, Margaret A., 1987. "Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 84-97, February.
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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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