Valuation accuracy across Europe: a mass appraisal approach

ABSTRACT

The aim of this paper was to compare valuation accuracy of eight European markets, using the same time period, data source and methodology. The emphasis was placed on the accuracy of held properties because previous studies showed that sold properties tend to be valued closer to the market. Real sales data was used to derive hedonic sale prices. The Heckman correction was employed to correct for sample selection bias. A comparison of simple differences between actual valuations and fitted prices showed that valuations were on average below fitted prices in all countries except the Netherlands, indicating a possible overvaluation problem of held properties in Europe. A comparison of the absolute difference showed that the Netherlands and Switzerland displayed the highest valuation accuracy. Italy and Sweden on the other hand were the markets with the lowest median valuation accuracy and largest spreads of observations. All countries, except Sweden, had a majority of observations within an absolute difference of 20%. The two most interesting conclusions from the analysis were that Germany and Switzerland did not differ significantly from other markets in terms of valuation accuracy and that Sweden was consistently the market with the lowest valuation accuracy.

KEYWORDS:

• Valuation
• valuation accuracy
• mass appraisal
• Europe
• Heckman

Acknowledgments

Many thanks to MSCI/IPD for the access to their databank. Many thanks also to Steffen Sebastian from the University of Regensburg. No research funding from external sources has been used in this research.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. In subsequent parts, actual was used to refer to the original valuation or sale price and hedonic or fitted was used to refer to values derived from regressions.

2. ‘The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.’

3. 1 GBP = 1.203 EUR, 1 SEK = 0.113 EUR, 1 CHF = 0.815 EUR.

Additional information

Notes on contributors

Jan Reinert

Jan Reinert is currently employed at Heitman in Frankfurt, Germany and an external PhD candidate at IREBS, Regensburg University, Germany.