Real time valuation

Date01 June 2002
Published date01 June 2002
AuthorJeffrey D. Fisher
Subject MatterProperty management & built environment
Academic papers:
Real time
Journal of Property Investment &
Finance, Vol. 20 No. 3, 2002,
pp. 213-221. #MCB UP Limited,
DOI 10.1108/14635780210433463
Real time valuation
Jeffrey D. Fisher
Dunn Professor of Real Estate, Director, Indiana University Center for
Real Estate Studies, Bloomington, USA
Keywords Valuations, Appraisal, Reliability, Property portfolio
Abstract The purpose of this paper is to stimulate thinking as to how we might produce timely
and more reliable estimates of changes in the value of portfolios, price indices based on a portfolio
of properties, and other aggregate measures of trends in property values. It is argued that a
traditional market value appraisal of each individual property may not be necessary or optimal
when the objective is to value portfolios or get a leading indicator of shifts in market value at an
aggregate level. Rather, it is more important to use a critical mass of current market data that
captures systematic movements in property values. Although a traditional market value appraisal
is always more likely to capture the unique unsystematic characteristics of an individual property,
automated valuation models using a database of valuation data may provide the best way to get
real time interim updates of real estate portfolios and create more timely real estate indices.
Real estate is usually considered an ``asset class'' that should be included in a
multi-asset portfolio along with stocks and bonds. Academic research suggests
that real estate investments are not highly correlated with stocks and bonds
and offer diversification benefits. The size of the real estate asset class is such
that even a naõÈve diversification strategy of including assets in proportion to
their weight in the ``market portfolio'' would suggest institutional investors
such as pension funds should include a significant amount of real estate in their
portfolios. Yet most pension funds have a relatively small amount of real estate
in their portfolios compared to stocks and bonds.
There are several possible explanations for the low proportion of real estate
that institutional investors actually hold. One answer is certainly the lack of
liquidity of private real estate investments compared with stocks and bonds.
But to the extent that there is a liquidity risk premium in expected returns for
real estate investments, investors who do not necessarily need liquidity for the
real estate portion of their portfolio can benefit by earning this risk premium.
At a recent meeting of a Pension Fund Advisory Committee of the National
Council of Real Estate Investment Fiduciaries (NCREIF)[1] the participants
pointed out that one of the major problems with real estate is that information
regarding the performance of real estate is not available as quickly as it is for
stocks and bonds. Whereas the performance of publicly-traded stocks and
bonds can be tracked on a real-time basis, information on the performance of
real estate is at best on a quarterly basis when the property is appraised[2].
The research register for this journal is available at
The current issue and full text archive of this journal is available at
This paper was originally prepared for presentation at the World Valuation Conference,
26 April 2001, Singapore.

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