IDEAS home Printed from https://ideas.repec.org/p/arz/wpaper/eres2017_274.html
   My bibliography  Save this paper

Correction Procedures for Appraisal-Based Real Estate Indices

Author

Listed:
  • Andreas Gohs

Abstract

This study reviews and critically discusses correction-procedures (also called "unsmoothing-procedures") for appraisal-based indices.Indices tracking values of direct commercial real estate investments are in custom constructed in an "appraisal-based style" : Since transaction prices are scarce, values from regular intervals of appraisals for each "index property" are taken for index calculation. Alas, appraisal-values not necessarily match transaction-prices or true market values of properties. Instead they deviate from market-values due to biases which result from surveyors’ behaviour in appraisals and index construction processes. In the past, some scientific authors suggested to correct (or "unsmooth") appraisal-based indices from several types of biases. They claim that the corrected index returns should rather match the returns of the true market values than the original index returns.Primarily appraisal-based indices were calculated and published for the USA and UK as convenient target markets for investors. So one long series of an appraisal-based index which is appropriate for time series analysis is the NCREIF Property Index for U.S.-properties. The total index is composed of an income and a capital/appreciation component. The application of the correction procedures and the focus of this study is the NCREIF Appreciation Index. The techniques of the correction-procedures are discussed referring to the NPI and meaningful modifications are proposed.

Suggested Citation

  • Andreas Gohs, 2017. "Correction Procedures for Appraisal-Based Real Estate Indices," ERES eres2017_274, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2017_274
    as

    Download full text from publisher

    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2017-274
    Download Restriction: no

    File URL: https://eres.architexturez.net/system/files/274.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Colin Lizieri & Steven Satchell & Elaine Worzala & Roberto Dacco', 1998. "Real Interest Regimes and Real Estate Performance: A Comparison of U.K. and U.S. Markets," Journal of Real Estate Research, Taylor & Francis Journals, vol. 16(3), pages 339-356, January.
    2. David C. Ling & Andy Naranjo & M. Nimalendran, 2000. "Estimating Returns on Commercial Real Estate: A New Methodology Using Latent-Variable Models," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(2), pages 205-231.
    3. Fisher, Jeffrey D & Geltner, David M & Webb, R Brian, 1994. "Value Indices of Commercial Real Estate: A Comparison of Index Construction Methods," The Journal of Real Estate Finance and Economics, Springer, vol. 9(2), pages 137-164, September.
    4. Gourieroux,Christian & Monfort,Alain, 1997. "Time Series and Dynamic Models," Cambridge Books, Cambridge University Press, number 9780521423083, September.
    5. James K. Maitland-Smith & Chris Brooks, 1999. "Threshold autoregressive and Markov switching models: an application to commercial real estate," Journal of Property Research, Taylor & Francis Journals, vol. 16(1), pages 1-19, January.
    6. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    7. Robert Edelstein & Daniel Quan, 2006. "How Does Appraisal Smoothing Bias Real Estate Returns Measurement?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 41-60, February.
    8. Gerald R. Brown & George A. Matysiak, 1998. "Valuation smoothing without temporal aggregation," Journal of Property Research, Taylor & Francis Journals, vol. 15(2), pages 89-103, January.
    9. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273, September.
    10. Cho, Hoon & Kawaguchi, Yuichiro & Shilling, James D, 2003. "Unsmoothing Commercial Property Returns: A Revision to Fisher-Geltner-Webb's Unsmoothing Methodology," The Journal of Real Estate Finance and Economics, Springer, vol. 27(3), pages 393-405, November.
    11. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    12. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 325-346.
    13. Shaun A. Bond & Soosung Hwang, 2007. "Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(3), pages 349-382, September.
    14. Russell Chaplin, 1997. "Unsmoothing valuation-based indices using multiple regimes," Journal of Property Research, Taylor & Francis Journals, vol. 14(3), pages 189-210, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean‐Christophe Delfim & Martin Hoesli, 2021. "Robust desmoothed real estate returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 75-105, March.
    2. Andrey Pavlov & Eva Steiner & Susan Wachter, 2018. "The Consequences of REIT Index Membership for Return Patterns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(1), pages 210-250, March.
    3. David Geltner & Bryan D. MacGregor & Gregory M. Schwann, 2003. "Appraisal Smoothing and Price Discovery in Real Estate Markets," Urban Studies, Urban Studies Journal Limited, vol. 40(5-6), pages 1047-1064, May.
    4. Jaroslav Kaizr, 2019. "Some reflections on commercial real estate indices [Vybrané úvahy nad indexy komerčních nemovitostí]," Oceňování, Prague University of Economics and Business, vol. 12(1), pages 29-41.
    5. Youngha Cho & Soosung Hwang & Yong-ki Lee, 2014. "The Dynamics of Appraisal Smoothing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(2), pages 497-529, June.
    6. Charles-Olivier Amédée-Manesme & Fabrice Barthélémy & Donald Keenan, 2015. "Cornish-Fisher Expansion for Commercial Real Estate Value at Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 50(4), pages 439-464, May.
    7. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2014. "Matching indices for thinly-traded commercial real estate in Singapore," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 86-98.
    8. Colin Lizieri & Charles Ward, 2000. "Commercial Real Estate Return Distributions: A Review Of Literature And Empirical Evidence," Real Estate & Planning Working Papers rep-wp2000-01, Henley Business School, University of Reading.
    9. Pin-te Lin & Franz Fuerst, 2014. "The integration of direct real estate and stock markets in Asia," Applied Economics, Taylor & Francis Journals, vol. 46(12), pages 1323-1334, April.
    10. Shaun A. Bond & Soosung Hwang & Gianluca Marcato, 2006. "An Analysis of Commercial Real Estate Returns: Is there a Smoothing Puzzle?," Real Estate & Planning Working Papers rep-wp2006-17, Henley Business School, University of Reading.
    11. K.W. Chau & Bryan D. MacGregor & Gregory M. Schwann, 2001. "Price discovery in the Hong Kong real estate market," Journal of Property Research, Taylor & Francis Journals, vol. 18(3), pages 187-216.
    12. McKenzie, Michael & Satchell, Stephen & Wongwachara, Warapong, 2014. "Converting true returns into reported returns: A general theory of linear smoothing and anti-smoothing," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 215-229.
    13. Armonat, Stefan & Pfnür, Andreas, 2003. "Asset allocation versus entrepreneurial decisions in real estate investment," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35582, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    14. Malpezzi, Stephen, 1999. "A Simple Error Correction Model of House Prices," Journal of Housing Economics, Elsevier, vol. 8(1), pages 27-62, March.
    15. Felix Schindler, 2014. "Persistence and Predictability in UK House Price Movements," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 132-163, January.
    16. Felix Schindler, 2013. "Predictability and Persistence of the Price Movements of the S&P/Case-Shiller House Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 44-90, January.
    17. Ferentinos, Konstantinos & Gibberd, Alex & Guin, Benjamin, 2023. "Stranded houses? The price effect of a minimum energy efficiency standard," Energy Economics, Elsevier, vol. 120(C).
    18. Jengei Hong & Doojin Ryu, 2023. "Expectations and the housing market: A model of house price dynamics," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 1242-1266, October.
    19. Carolina Fugazza & Massimo Guidolin & Giovanna Nicodano, 2009. "Time and Risk Diversification in Real Estate Investments: Assessing the Ex Post Economic Value," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(3), pages 341-381, September.
    20. Robert Edelstein & Daniel Quan, 2006. "How Does Appraisal Smoothing Bias Real Estate Returns Measurement?," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 41-60, February.

    More about this item

    Keywords

    appraisal-based; appreciation index; correction-procedure; Direct Real Estate; unsmoothing;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arz:wpaper:eres2017_274. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Architexturez Imprints (email available below). General contact details of provider: https://edirc.repec.org/data/eressea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.