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The accuracy of long-term real estate valuations

Author

Listed:
  • Schulz, Rainer
  • Staiber, Markus
  • Wersing, Martin
  • Werwatz, Axel

Abstract

By using a unique data set of single-family house transactions, we examine the accuracy of the cost and sales comparison approach over different forecast horizons. We find that sales comparison values provide better long-term forecasts than cost values if the economic loss function is symmetric. A weighted average of both sales comparison value and cost value can reduce this loss even further. If the economic loss function is asymmetric, however, cost values might provide better long-term forecasts.

Suggested Citation

  • Schulz, Rainer & Staiber, Markus & Wersing, Martin & Werwatz, Axel, 2008. "The accuracy of long-term real estate valuations," SFB 649 Discussion Papers 2008-019, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2008-019
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    References listed on IDEAS

    as
    1. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    2. Roger E. Cannaday & Mark A. Sunderman, 1986. "Estimation of Depreciation for Single‐Family Appraisals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(2), pages 255-273, June.
    3. Shiller, Robert J & Weiss, Allan N, 1999. "Evaluating Real Estate Valuation Systems," The Journal of Real Estate Finance and Economics, Springer, vol. 18(2), pages 147-161, March.
    4. Mark G. Dotzour, 1990. "An Empirical Analysis of the Reliability and Precision of the Cost Approach in Residential Appraisal," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 67-74.
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    More about this item

    Keywords

    prediction accuracy; mortgage underwriting; risk management;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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