Real estate market dynamics during capital market imbalances
| Pages | 359-371 |
| Date | 12 July 2011 |
| DOI | https://doi.org/10.1108/14635781111150295 |
| Published date | 12 July 2011 |
| Author | Thomas Hamilton |
| Subject Matter | Property management & built environment |
Real estate market dynamics
during capital market imbalances
Thomas Hamilton
University of St Thomas Opus College of Business, Minneapolis,
Minnesota, USA
Abstract
Purpose – The major purpose of this paper is to refocus the appraisal profession on estimating value
rather than explaining price. The appraisal profession itself encompasses many disciplines of
valuation beyond real estate, and transcends disciplines such as economics, the construction trades,
business, finance, law, government, statistics, mathematics, geography, geology, mapping, and
information sciences.
Design/methodology/approach – This paper describes how rapidly changing capital market
conditions greatly affected transaction prices for real estate when underlying economic fundamental
values of these properties remained unchanged. As such, differences between transaction prices and
underlying economic value can be determined when capital markets rapidly expand or contract.
Findings – Most of the concepts, methods, processes, and techniques that appraisers use today are
the direct result of studies performed within the academic community and most often from some other
related field of study, rather than from pure valuation research itself. This is where the problems with
which one is living today have erupted.
Originality/value – Property values and transaction prices are two very different beasts: value is a
concept, whereas price is a reality. Appraisers have somehow forgotten that the price paid for real
estate can be quite different from the value of that same parcel of real estate.
Keywords Prices, Asset valuation, Cash equivalence, Bubble, Disequilibrium, Capitalmarkets
Paper type Conceptual paper
1. The appraiser’s methodology trap
The purpose of this paper is to discuss the interrelationship between the scientific
method of the appraisal process and the processes of market analysis, highest and best
use, and scope of work requirements with concentration on the critical thought process
that can assist appraisers in the process of establishing an estimate of value from the
transaction prices paid for real estate. The scientific method begins with identifying a
problem and then collecting, verifying, analyzing, and synthesizing data to form a
conclusion that addresses the particular problem identified earlier.
As an appraisal educator, I am concerned with not only what students of real estate
appraisal learn about in their courses, but I am equally concerned on how those
students perform as appraisal professionals. Too often the information learned in the
classroom is only memorized for the purposes of completing a required course, or for
passing an exam: regardless whether it is for a course or a state license or a
certification exam. For some reason, passing the exam takes precedence over gaining
and properly employing the learned methods or techniques. This is where the real
danger lies as every appraisal assignment requires a somewhat unique situation
demanding a properly employed thought process to adequately complete that
appraisal assignment – it must not be seen as a cookie-cut ter process. In the case of
The current issue and full text archive of this journal is available at
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Real estate
market dynamics
359
Received December 2010
Accepted March 2011
Journal of Property Investment &
Finance
Vol. 29 No. 4/5, 2011
pp. 359-371
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781111150295
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