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Real Estate Portfolio Valuation: Annotated Bibliography

2004 words - 8 pages

The Authors studied why valuation estimates are likely to be biased estimates of market values due to clients' influence. The studies were done on the behaviors of clients in the UK, USA, and New Zealand. The authors pointed out that the information found has made a significant contribution to real estate literature, but the purpose of this research was to examine the prevalence of client influence and the impact on valuation in Nigeria. The survey found that nearly 80 percent of estate surveyors and valuers claimed some knowledge of client influence—mostly from private individuals. It did not state whether the clients were successful in influencing the surveyors and valuers to alter the valuation of their properties.
Although the study concentrated on the behaviors of clients' influence in Nigeria, the USA and New Zealand were a part of the experience. The findings from the behavioral experiments used in the survey may or may not be a reality of what is happening in the real world of real estate—as noted by the authors; however, the findings could serve as a framework for improving the way the surveyors and valuers conduct business. Real estate is a lucrative business, and measures should be taken to ensure that customers are receiving accurate information regarding the values of properties. This behavior affects personal and business transactions, especially when companies and or people are willing to invest in communities by renovating existing properties and building new homes or facilities. It is difficult for businesses that are contemplating providing consultation services on real estate renovations, recycling issues if the valuation information is skewed.

Baroni et al researched the possibility of using rent and price dynamics in the future cash flows to improve real estate portfolio valuation. If the design/methodology approach of the Monte Carlo approach were used, it would measure the complex cash generating assets such as real estate assets return distribution. The Monte Carlo simulation inputs were described as using the physical real estate price volatility estimator based on cash flow derived from the residential real estate portfolio to provide more robust valuations than traditional DCF valuations.
It is true that the Monte Carlo simulation method would make the real estate portfolio valuation more attractive. It is likely that the rental real estate cash flow will continue to grow. Why? Because many people have walked away from homes because of upside down mortgages; others lost their homes because of reductions in incomes or loss of jobs; and others because of natural disasters such as Hurricane Katrina, Tsunamis left them homeless. A large number of these people have decided to rent; some who may have never rented before—this creates a demand in renting. Therefore, using rents and price dynamics in real estate portfolios will look attractive, but the question is: Is it the correct way for the data to be presented...

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