Question

With respect to forecasting real estate returns, appraisals data tends to reflect slow moving averages of past market conditions. One major challenge is that returns calculated from appraisals represent weighted averages of unobservable returns.

True False

Answer 1

The statement is TRUE.

Appraisals are estimates of the current value of a property provided either by the owner (so called “internal appraisals”) or by a professional agent (“external appraisals”). The key insight here is that while an appraisal value may represent a noisy estimate of a property’s true market value, it serves as a valuable hedonic variable, summarizing a building’s characteristics which are either observable, such as its size, or are unobservable, such as its quality