Evaluating Unsmoothing Procedures for Appraisal Data

Abstract

In this paper we investigate alternative methods of adjusting appraisalbased real estate returns to correct for the perceived biases induced in the appraisal process. Since the early work by Geltner (1989), many papers have been written on this topic but remarkably few have provided a detailed statistical evaluation of the proposed unsmoothing methods. To provide a comparison we apply bootstrapping procedures to a sample of individual-property level appraisal data from the Investment Property Database (IPD) to construct aggregate property return series. Applying commonly used unsmoothing methods to these series enables us to draw valuable conclusions about the effectiveness of such procedures in recovering information about the moments of commercial real estate returns.