On the reliability of commercial appraisals: An analysis of

• Published in: Real Estate Finance Vol. 11; no. 1; p. 62
• Main Author: Webb, R Brian
• Format: Trade Publication Article
• Language: English
• Published: New York Aspen Publishers, Inc 01.04.1994
• Subjects: Appraisals; Appraisers; Bias; Commercial real estate; Commingled funds; Estimates; Impacts; Prices; Real estate appraisal; Reliability; Return on investment; Sales; Studies; United States > US
• ISSN: 0748-318X

Pension funds have invested billions of dollars in commercial real estate through investments in open-ended commingled funds. Because these investments are based on the appraised values of the properties in the funds, the reliability of commercial appraisals is a major concern. The data used to construct the widely-cited Russell-NCREIF (National Council of Real Estate Invesment Fiduciaries) Property Index provides 15 years of sales experience on a diversified sample of US industrial and commercial properties held in commingled funds. In general, contributors to this Index have appraisals performed by independent appraisers. When a property is sold, its sale price can then be compared to the appraisal value. An analysis reveals that appraised values appear to lag market prices during the course of the real estate cycle, but it does not necessarily follow that the appraisal process is flawed. The lag may be due to limited information rather than a flaw in the methodology employed.