Essays in Real Estate Appraisal

This is an academic dissertation submitted in partial fulfilment of the requirements for the degree of Doctor of Technology. The dissertation consists of a short summary and discussion of seven enclosed essays. All seven papers are devoted to central issues within real estate appraisal and valuation, with emphasis on the market for income property. Essay I analyses the market prices for mixed-use income properties, with mainly residential use. A hedonic price equation is estimated based on market transactions. The time period under study is 1992—1994. The geographical sub-market analysed is the city of Stockholm. The hedonic technique is also used for estimating an assessment equation. Certain types of properties were found to be systematically under-assessed. Essay II is an inquiry into the topic of choosing a relevant functional form for the hedonic equation applied to income property. Certain characteristics of two common model specifications are identified. The shortcomings and advantages are illustrated through the application of the two models to empirical data. Essay III investigates if the distance to CBD affects the property prices, i.e. if there are (negative) distance gradients. The sub-market analysed is that of mainly residential income properties, though the residential market is subject to a rent control system. The distance gradient on rents was insignificant. However, there is a significant negative price gradient. With one exception (direction east), there is also a significant negative assessment gradient. Essay IV deals with cycles on the market for income property. The time-period under study is 1979—1992, which includes the Swedish property crisis. The use of the gross income multiplier (GIM) as an indicator of the phases of the property cycle is suggested. The analyses indicate that the property boom during the late 1980s may have been partly driven by a speculative price bubble. Essay V analyses the determinants of the rent level and the rent drift on the residential rental market, which is subject to rent control. Furthermore, the rate of return on investment, as well as maintenance input (for increasing the quality of the property) is estimated. The micro-location is found to affect the rent level, but not the age of the building. The return on quality-improving investments and maintenance was found to be reasonable. The rent increases were slightly larger than what was agreed upon in official negotiations. Essay VI analyses the total rate of return (TRR) over the time-period 1979—1997 within a portfolio of mixed-use income …