Accuracy of Swedish property appraisers’ forecasts of net operating income

Abstract

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.

Keywords:

• property forecast
• forecast accuracy
• appraisal bias
• net operating income

Acknowledgements

Constructive critique of the manuscript by Christian Janssen and four anonymous reviewers is gratefully acknowledged.