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A Simulation Approach to the Appraisal of Income Producing Real Estate

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  • Larry E. Wofford

Abstract

The income approach to appraising real property has been criticized in at least three general areas: the use of point estimates for input variables and market value, the failure to use an after‐tax valuation model, and the ability of a single valuation model to capture the market for a given property. The objectives of this study are the development of an analytical framework and computer model to overcome these criticisms. The computer model is developed using Monte Carlo simulation and allows the appraiser to consider uncertainty, after‐tax cash flows and numerous valuation models. The ability of appraisers to generate the necessary inputs and the interpretation of the output from the model are demonstrated using a case study.

Suggested Citation

  • Larry E. Wofford, 1978. "A Simulation Approach to the Appraisal of Income Producing Real Estate," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 6(4), pages 370-394, December.
    • Handle: RePEc:bla:reesec:v:6:y:1978:i:4:p:370-394
    DOI: 10.1111/1540-6229.00187
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    Cited by:

    1. Charles‐Olivier Amédée‐Manesme & Fabrice Barthélémy & Michel Baroni & Etienne Dupuy, 2013. "Combining Monte Carlo simulations and options to manage the risk of real estate portfolios," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 31(4), pages 360-389, July.
    2. Werner Gleißner & Tobias Just & Endre Kamarás, 2017. "Simulationsbasierter Ertragswert als Ergänzung zum Verkehrswert [Simulation-based earnings value as a supplement to the market value]," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 3(1), pages 21-48, April.
    3. Martin Hoesli & Elion Jani & André Bender, 2005. "Monte Carlo Simulations for Real Estate Valuation," FAME Research Paper Series rp148, International Center for Financial Asset Management and Engineering.

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