Real estate valuation according to standardized methods: An empirical analysis
Appraisals are needed for decision-making and for performance evaluation. Knowledge on the accuracy of valuation methods is of general interest for banks and investors. We assess the accuracy of the German Regulation on Valuation with monthly data on appraisals and prices for commercial apartment houses in Berlin, Germany from 1980 to 2000. The appraisals are compared with outcomes of the simpler capitalization method and are ranked better according to several prediction error measures. Nonparametric density estimates give the error distributions and investors can decide which method is preferable. Eventually, we explain short-run deviations between prices and appraisals by incompletely appraised object-specific factors and by market indicators.
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