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Real estate market dynamics during capital market imbalances

Real estate market dynamics during capital market imbalances 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Investment & Finance Emerald Publishing

Real estate market dynamics during capital market imbalances

Thomas Hamilton
Journal of Property Investment & Finance , Volume 29 (4/5): 13 – Jul 12, 2011
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References (3)

Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1463-578X
DOI
10.1108/14635781111150295
Publisher site
See Article on Publisher Site

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.

Journal

Journal of Property Investment & Finance – Emerald Publishing

Published: Jul 12, 2011

Keywords: Prices; Asset valuation; Cash equivalence; Bubble; Disequilibrium; Capital markets

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