Institutional investors experience a large valuation gap when they change appraiser on their investment properties compared to months or quarters when there is no change of appraiser.
We find that appraiser rotation leads to a significant effect on the valuations of investment properties in the Office and Residential sector in The Netherlands. Comprehensive valuations, performed after a change of appraiser, have shown a -2.1 and -0.9% larger difference than their desktop counterparts. For retail we have not found a significant difference in valuation process.
Moreover the Office sector shows an additional significant difference of -8.8% if the appraiser has no knowledge of the previous valuation figure. Retail and residential properties do not exhibit this difference.
Appraisers without prior knowledge of recent valuations use comparables that have been sold more recently and as a result, in the current downward trending market, exhibit a higher yield. For Offices this leads to a significantly lower capital value.
Since all appraisers (should) have access to the same market information regarding comparable investment deals, the explanation for their choice of comparables is likely to be the well-known anchoring behavioural explanation. This behavioural bias is relevant for institutional investors that strongly rely on external valuations of their real estate portfolio.
van der Werf, Y., & Huibers, F. (2015). The effect of appraiser rotation : Dutch institutional investors’ experience