Property Valuers Research Articles

Accuracy of Swedish property appraisers’ forecasts of net operating income

This study addresses how property appraisers forecast one important component of the commercial property valuation model: net operating income. We compare appraisers’ ex ante forecasts with corresponding ex post figures from company financial reports. The data are from the Swedish Property Index, 1998–2005, and comprise over 7000 observations. The findings indicate that the appraisers’ forecasts are somewhat forward looking and almost as accurate as those obtained using mechanical autoregressive models. However, the forecasts are biased, as appraisers systematically overestimate future net operating income. There was also evidence of decreasing accuracy over the study period.

Professional standards: RICS Valuer Registration Scheme

PurposeIn the last ten years, there has been much debate about the need for the licensing and regulation of property valuers in Europe. The European Union has “hinted” at the need for a pan‐European licensing scheme in keeping with the model of licensing in the USA. This paper seeks to discuss the option of regulation available and the role of the RICS in introducing a comprehensive self‐regulatory process.Design/methodology/approachThis paper looks at the evolution of the “RICS Valuers Registration Scheme” and the potential impact it will have on raising the standards of valuations not just in the UK but worldwide.FindingsThe RICS Standards require the valuer to undertake valuations in an appropriate and professional manner. The potential impact of the “RICS Valuers Registration Scheme” is that it will educate the profession and thus increase overall standards. Although the system does have sanctions, if required, the intent is not to penalise but to encourage and promote good practice.Originality/valueThis paper is a review of the “RICS Valuers Registration Scheme”. It outlines the history of the development of the scheme and the potential impact that it will have on the quality of valuations worldwide.

Urban Crises and Rental Values Differential in Kaduna Metropolis

The incessant outbreak of violent conflicts in Kaduna metropolis led to enmasse intrametropolitan population mobility and change of residence to areas perceived to be relatively safer for lives and property. The emergent of change residents has affected the values of rental properties in the metropolis. This paper examines the changes in rental values in the different residential areas as a consequence of the mobility that resulted from sectarian crises that occurred in February and May 2000. Data collected are on two time periods: mid-1999 (pre crisis period), and mid-2005 (post crisis-year) were obtained from the Estate surveyors and Property Valuer agents from 27residential areas vulnerable to violent conflicts occurrence. The analysis of the data reveals three groups of residential areas. These are areas with increased rental values (net-population gain) which experienced higher demand for accommodation, areas with net-population loss which experienced low demand for residential apartments, as the number of people moving out from the areas out-numbered the in-coming group, hence, rental values were generally lower, areas that changed little if at all, as the number of movements into or out of the areas were fairly even. Key Words: Urban crisis, rental values, Kaduna metropolis, violent conflicts

Correlation of Pool Drowning Deaths with Number of Residential Swimming Pools by County in Florida, 2005-2007

Drowning in residential swimming pools is a significant public health problem in Florida. This study aimed to determine the relationship between the number of pools and pool drowning deaths by county in Florida. County property appraisers’ offices were surveyed to obtain a statewide census of appraised residential pools. The number of pool drowning deaths was obtained from death certificate records. Approximately 1.1 million residential pools were appraised in 2006, and 262 unintentional, confirmed pool drowning deaths occurred from 2005 through 2007. Statistical modeling showed that for every 10,000 residential pools that a county has, 2.4 additional pool drowning deaths can be expected to occur over three years. This relationship was therefore determined to be linearly correlated. Greater public health impact may be achieved by focusing drowning prevention efforts, especially among young children, in counties with more residential pools, and thus a greater risk of pool drowning. Drowning is a perennial and endemic problem of public health significance in Florida. Every year, more people drown in Florida than in any other state except California. Florida also has the highest rate of children ages one to four who drown (Centers for Disease Control and Prevention, National Center for Injury Prevention and Control, 1999–2006). While both natural and human-made bodies of water are abundant in Florida and both pose drowning hazards, single-family residential swimming pools are a particular problem. Out of 245 unintentional (accidental) pool drowning deaths of older children and adults ages five and above in Florida from 2005 through 2007, 136 (55.5%) drowned in a confirmed, single-family residential swimming pool; 25 (10.2%) drowned in a public or private community pool; 21 (8.6%) drowned in a pool at a hotel or motel; 19 (7.8%) drowned in a pool at a condominium; 16 (6.5%) drowned in a pool at an apartment complex; two (0.8%) drowned in an above-ground pool at home; and one (0.4%) drowned in a pool at a duplex residence (Florida vital statistics: Death certificate file, 2005–2007 ; Florida Department of Revenue, 2006). The remaining 25 (10.2%) drowned in a swimming pool where either its given residential street address could not be confirmed, or

Kotaka's Model in land acquisition for infrastructure provision in Malaysia

PurposeThe purpose of this paper is to explain the definition of adequate compensation from the viewpoints of affected landowners, property valuers and land administrators using Kotaka's Model with special application in Kedah, Malaysia. The fact is that land is a factor of production and must be made available for the provision of infrastructure. In acquiring land for real estate development, compensation must be paid to the affected landowners. An adequate compensation in land acquisition is referred to the open market value of the land taken plus its consequences including severance, injurious affection and disturbances.Design/methodology/approachQuestionnaires are distributed to the affected 40 landowners, ten property valuers and six land administrators of randomly selected land acquisition projects for public infrastructure land development in the case study areas. Data gathered are analyzed using qualitative descriptive analysis to identify elements of dissatisfactions of landowners upon compensation offered to them.FindingsThe findings show that there are elements of dissatisfactions to the affected landowners by way of the value of land taken, severances, injurious affections, disturbances, delivery of notices and technique of valuation. These dissatisfactions reflect the amount of adequate compensation to the affected landowners and cross‐examined with property valuers and land administrators.Originality/valueThe outcome of the paper will assist landowners, public, and private valuers, land administrators and other stakeholders to understand the elements of dissatisfactions in estimating adequate compensation in land acquisition for infrastructure provision. Otherwise, the affected landowners may refuse to be apart from their lands, hence, restrict the flow of land supply for real estate development. This indicates that Kotaka's Model offers an explanatory power to understand the elements of adequate compensation in land acquisition for infrastructure provision and real estate development.

David A. Reingold's response to Charles E. Metcalf

Charles Metcalf provides a thoughtful overview of the challenges evaluation and policy research firms face when trying to maintain credibility and independence within the current contracting environment. We are in agreement that independence in government-supported program evaluation and policy research is a function of the selection process used to identify the firm to complete the research, as well as ownership (or control) of intellectual property produced during the course of conducting program evaluation and policy research. However, we disagree on the nature and extent to which current arrangements adequately safeguard the field of program evaluation from these threats to independence. It is inconsistent to argue that contracted program evaluation can be independent when the agency purchasing the evaluation owns (or controls) the research question and design, the method of data collection, the strategy of analysis, the data, the final report, and the rules governing the dissemination of results. In this environment, it is not clear what aspects of program evaluation conducted in this manner are independent. And the examples illustrated by Metcalf seem to reinforce the point that norms of independence in contracting evaluation are weak and must be enforced by other institutions (such as the press and various watchdog groups), because the firm conducting contract-based evaluation and policy research has little or no power relative to the client or agency purchasing the services to complete studies free from bias and interference from the agency or program being evaluated. Program evaluation is not the only domain of scientific inquiry subject to the problem of contracting bias. The long-standing struggles over the independence of medical research sponsored by the pharmaceutical and tobacco industries and environmental research sponsored by the energy industry share the same potential threats to independence as contracted evaluation and policy research. Similarly, threats to independence can be found in the auditing practices of financial firms following the Enron meltdown (among other firms that collapsed). More recently, concerns over the independence of bond rating firms and the lack of independence among property appraisers are thought to be important causes of the current financial credit crisis and the meltdown in the U.S. housing market. All of these situations share a common underlying theme: reliance on experts to produce independent facts when these experts have substantial incentives to accommodate clients' interests rather than the public good. The misalignment of incentives, combined with a lack of control (or ownership) of intellectual property, create real threats to the independence of contracted program evaluation and policy research. A defense of the status-quo arrangement is contradictory, given the importance private evaluation and policy research firms place on independence and objectivity. In other words, if these firms really care about independence and objectivity, why are they content working within the current institutional arrangements when their organizational values continually bump up against conflicting practices in the implementation of program evaluation and policy research? Perhaps short-term profits or revenue are clouding the judgment of those in the contract research firms. Maybe these firms fear that any discussion of these issues will harm long-run support for program evaluation among policymakers. Possibly there is an implicit agreement among executive branch agencies and evaluation firms that both benefit

The impact of Feng Shui on residential property prices in Western cultures

PurposeTo determine if the ancient Chinese tradition of Feng Shui affects residential property prices in a Western setting (“Western” and “the West” refers to the cultures and peoples of the mainlands Europe, the Americas, Australia, and New Zealand.)Design/methodology/approachTwo approaches were adopted to measure the impact of Feng Shui design principles on property prices. First, a case study approach using a paired sales analysis was adopted to compare sales transaction prices of Feng Shui designed condominiums with sales prices of condominiums that were built without this design feature. Second, sales transaction data were analysed using multiple regression analysis in a hedonic pricing framework.FindingsThe results were mixed but provide preliminary evidence that Feng Shui impacts positively on property prices in the West.Research limitations/implicationsFirstly, the units were sold as “designer ready”. Prices for these units exclude floor coverings, painting, kitchen and bathroom fittings, appliances, counter tops and plumbing fixtures. A more precise adjustment was not able to be made as the actual build‐out cost for each unit was not available. However, it was felt that the average rate was a reasonable proxy for the cost of a build‐out. Secondly, the case study includes sales of Feng Shui designed units in only one building. A more reliable result would have been achieved had the data set included several buildings constructed using the principles of Feng Shui.Practical implicationsWith the rise in popularity of the use of Feng Shui design in Western homes, understanding the effects of this on property values is important to both property valuers and investors of such property.Originality/valueResearch on the impact of cultural beliefs on residential property values in the West is limited. This paper provides a contribution to understanding the value affects of such beliefs, specifically those relating to Feng Shui.

The response of Nigerian valuers to increasing sophistication in investors' requirements

Purpose – The purpose of paper is to show how the changing property investment landscape in the past 40 years – for example the new requirements of valuation accuracy, rationality and the risk analysis, etc. – requires a corresponding response from property valuers (academia, professionals and regulatory institutions) in technique development. The issue has however not received sufficient examination in African real estate literature. This study aims to address the concern with a focus on Nigeria.Design/methodology/approach – The paper reasoned that the process of Nigerian technique development and assimilation into practice could be motivated through a study of issues that triggered off transition towards sophistication in the parent valuation profession in the UK. Accordingly, the paper worked out a seven‐stage model of UK valuation transition in the past 40 years, and used this in diagnosing the level of progress achieved in the Nigerian valuation Industry in the areas of accuracy, rationality and risk...

Real property valuation decision support system

This paper describes a project research regarding the use of the Hedonic Price Model (HPM) for mass real property appraisal. This project aims at developing a series of HPM equations for a major Hong Kong real estate surveyor. The main housing estates in Hong Kong are based on historical transaction data and other value-added property attributes. The outcomes meet with the stringent requirement of professional property appraisers in Hong Kong. On top of nominal HPM equation valuation figures, two indices will be used to qualify them to the satisfied valuation. A comprehensive building address database and the equations have been developed for most major Hong Kong housing estates. The system can be adopted by foremost institutions with large property portfolios, so they can evaluate the total capitalisation of their assets on the fly. REIT fund managers may also find it helpful to investors for making more informed decisions.

High-voltage Overhead Power Lines and Property Values: A Residential Study in the UK

The effect of electricity distribution equipment, in particular high-voltage overhead transmission lines (HVOTLs), on the value of residential property in England remains relatively unexplored due, in part, to the lack of available transaction data for analysis. This paper compares the results of two UK studies undertaken by the authors. The first is a national survey of property valuers' perceptions (Chartered Surveyors and members of the National Association of Estate Agents) of the presence of distribution equipment in close proximity to residential property. The results from this study are then compared with an analysis of transaction data from a case study in Scotland. This paper presents the initial findings from these studies.

THE PROFESSIONAL AND ETHICAL POTENTIAL OF LITHUANIAN PROPERTY VALUERS

Lithuania is a small developing market economy which inherited the specific soviet economic structure and so‐called “homus sovieticus” mentality which excluded a possibility for business of property valuation. Within a historically short period of time Lithuania moved from the closed soviet economic area into the area of global economy, which presented different business valuation criteria. Taking the above into account, let us evaluate the professional and ethical potential of Lithuanian property valuers, who have played and will be playing a significant role in the country's economic development, and see whether this potential will enable them to become full‐fledged members of the Western property valuers’ community.

Accounting standards and the property manager: a case study

Traditionally in the UK, accountants and their concepts of value have held little interest for those involved with the technical aspects of property management. Indeed, property valuers and accountants have traditionally adopted differing professional approaches towards the concept of valuation, despite nominally agreed valuing practices dating back to 1974. Most particularly, notwithstanding these agreements, the accounting profession has regarded the theory of property valuation for company accounts as a monopoly of its professional domination of the creation and implementation of accounting standards. Because of the lack of a codified conceptual framework, property assets were regarded identically to other assets. Equally, property managers attended to technical, infrastructural and legal aspects of managing properties. Examined in this paper, the development process behind Financial Reporting Standard 15: Tangible Fixed Assets (FRS 15) provided a realistic and fundamental shift of attitude. Not only were the opinions of valuers actively sought over the issue, but also the final standard adopted the definitions of value created by The Royal Institution of Chartered Surveyors (RICS). Moreover, property assets now figure prominently in financial statements and so impinge directly on the net asset value and borrowing capability of the firm. Property management and modes of holding property have become central to running the business. This paper examines some of the arguments presented within the discussion process undertaken in the creation of FRS 15, highlighting the different approaches to the issue, and noting the likely negotiations to the standard to follow.

E‐business and its impact on commercial property valuation in private practice firms

AbstractThe use of the Internet has grown significantly in private practice surveying firms in recent years. Initially used as a research and communication device, the industry is finding new ways of using this technology. Property valuers have an important role to play in the development of the profession and in some cases it has been suggested that the Internet and new technology may render obsolete the traditional role of the valuer in private practice. This paper sets out to explore whether the suggestions carry any weight. Copyright © 2001 Henry Stewart Publications

Decision making in small property companies

The literature on investor decision‐making behaviour in property investment is sparse, loosely integrated and focused principally upon large, institutional investors. It reflects rational, normative models that treat investor behaviour as highly structured and formalised. By contrast, behavioural psychology suggests that individuals frequently act sub‐optimally. These ideas have been explored in financial decision making and have been found in the actions of property valuers and property lenders. This paper addresses this neglected area of property investment decision‐making. Semi‐structured interviews were conducted with a sample of property investment directors of smaller property companies. The interviews investigate the decision‐making structures in these companies, the process by which investment strategy is formulated, the investment “screening” process and the determinants of purchase/sell decisions. The findings are discussed and related to the literature on decision making under uncertainty.

Property Investment Appraisal

ABSTRACTThis paper considers the application of discounted cash flow (DCF) techniques to the analysis of the property investment market. The traditional method of property valuation is briefly outlined and its shortcomings highlighted. An alternative DCF procedure is derived to calculate the present value of a property investment. This method will be familiar to actuaries, but is not always used in property disciplines. The sensitivities of this formulation to changes in the force of real interest, force of real rental growth and force of inflation are derived. It is suggested how these formulae may be used for property investment appraisal and risk analysis. We conclude that DCF offers a more flexible and accurate means of estimating the value of a property, and that property valuers, financial economists and actuaries should work jointly to develop practical DCF methods. However, so long as traditional methods of valuation prevail, a rational investor must use both methods to identify mispriced property assets. There have been few property contributions to the actuarial literature in the United Kingdom; this paper is intended to build on the few previous papers and suggests directions for future work.

Urban Waterfront Regeneration in the Mersey Basin, North West England

The economic decline of traditional dockland areas has released considerable areas of land for redevelopment, much of which is close to the heart of city centres. The property development industry has capitalized upon these assets to the extent that port-related redevelopmentis a common feature throughout North America and Europe. This paper explores the experience of the Mersey Basin in North West England which, under the Mersey Basin Campaign initiative, has sought to explicitly connect improvements in water quality to economic regeneration. A small survey of commercial property valuers was used to explore this relationship and revealed the importance of water in the property development process, through potential increases in value and an enhancement of the marketability of property adjacent to water. Equally, improved water quality is revealed as an important precursor to waterside economic regeneration. Here, investment must, as with the preparation of derelict and contaminated land for redevelopment, be regarded as a public good, nurturing good water quality as an asset for the benefit of future generations and as a part of realizing the full potential of waterfront regeneration.

Public and professional perceptions of HVOTL risks: the problem of circularity

Property valuers in the UK are cautioned to consider the possible impact of public perception of the risk of living near high voltage overhead power transmission lines (HVOTLs). Direct evidence of this impact should be found in transaction prices of properties close to HVOTLs. These transactions, however, will likely have been conditional upon valuation advice that will have been formulated with the HVOTL-risk caution in mind. There exists, therefore a potential for circularity, the likelihood of which will increase if valuers perceive these risks differently to the public. Evidence is presented to suggest that such a difference may well exist. The implications of this finding for the specific problem and for a wider understanding of the valuation process are both discussed.

Towards an intelligent residential appraisal model

In the UK, and indeed in many countries, Direct Capital Comparison (DCC) remains central to the practice of residential property valuers. Theoretically well founded, statistically or heuristically-based alternatives, usually embodying regression techniques, have failed to penetrate professional practice despite long pedigrees. For several years, neural networks, in which values are not so much derived or assigned but discovered, have also been propounded as potential alternatives. Yet DCC clings to its pre-eminent position because it is readily understood and it is thought to produce more accurate results. In order to improve upon DCC, complementary or alternative methods will need to enhance accuracy, and be equally intelligible and transparent. This paper reports empirical findings, discusses some of the obstacles that will need to be overcome and some of the constituents that may comprise an improved model.

Client perception of property investment valuation reports in the UK

Property appraisers and the appraisal/valuation process have recently been the focus of attention in many parts of the world. This paper concentrates on one part of the valuation process: the final valuation report submitted to the client. The paper presents the results of a questionnaire survey conducted in December 1994 of clients who commission valuation reports from external valuers in the United Kingdom (UK). Generally, UK clients are satisfied with valuation reports received from external valuers. Where the users of valuation reports are themselves valuers, the level of satisfaction is more pronounced. However, there is a common criticism that valuers provide more information on the factual elements within a report - for example, the physical location and the layout and measurements of the building - than they do on the valuation methodology and the state of the market. While over half the respondents wanted to see more regulation of valuers through professional institutional guidelines, very few requested more government regulation. The findings imply that there is room for improvement in the provision of information within valuation reports. Valuers need to provide additional information in valuation reports concerning conditions and trends in property and wider markets, and provide comparable transactions data on which the valuation is based. Research should be focused on how such information can be provided in a market that restricts data and where valuers are increasingly litigated against for alleged professional negligence.

Comparing net with gross rents

In some circumstances, property valuers (appraisers) must compare net and gross rents. Suggests a number of ways in which this can be done and describes the difficulties of adjusting rents to reflect the liability for property operating costs. Outlines several reasons why the equivalent gross rent is often not the sum of the net rent and the operating costs (the principal reason being the unwillingness of either the landlord or the tenant to bear the uncertainty of these costs). There may also be difficulties in estimating expected operating costs over the period of the lease. Contends that the evidence of recent lettings will rarely enable the valuer to isolate the effect of the basis of leasing on the rents. The views of landlords and tenants on switching from gross to net rents are often unclear. Outlines a single‐period theoretical model of the expected adjustment between gross and net rents (based on compensation for bearing the risks of the running costs). However, there are grave dangers in the valuer adopting such a model which may not reflect market practice. It is no more reliable than resorting to an arbitrary rule of thumb. As well as rental valuations, counselling and advice on lease negotiations may require that the difference between gross and net tenancies is considered. With international comparisons of rental levels becoming more important to footloose businesses, there is a growing need for methods of adjusting rents to reflect the lease conditions that prevail in different countries. Appendices illustrate a theoretical model of rental adjustment and show adjustment methods in practice.