German valuation: review of methods and legal framework

Schnaidt, Tobias; Sebastian, Steffen P.

doi:10.1108/14635781211206896

Cited by 20 publications

(18 citation statements)

References 7 publications

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“…A valuer is usually required to develop his appraisal reports subject to the principles, guiding norms of good practice and appraisal methods codified in international and regional standards and under professional, statutory, international, national or local laws or regulations (see for example [21][22][23][24]). Despite ongoing debates over the differences between nationally recommended methods, they can be expected to lead to comparable results [25]. Hence, a valuer is not to be seen merely as an individual professional expert but rather as an actor operating in a regulated environment [6].…”

Section: The Valuation Professionmentioning

confidence: 99%

The Economic Role and Emergence of Professional Valuers in Real Estate Markets

Bartke

Schwarze

2021

Land

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Land is a scarce resource. It is usually traded as real estate, an economic good with a market value. Often, this market value is not negotiated simply between the seller and the potential buyer, but is based on an assessment performed by a professional valuer, known as a surveyor or appraiser. This article questions the economic role and the emergence of valuers in real estate markets. An institutionally embedded framework for valuation intermediation is developed that elucidates a multi-tiered imperfect information cascade. First, valuers are understood as middlemen, counteracting information uncertainties regarding product quality, namely real estate herein. An additional constraint is constituted by information asymmetries between the valuer and the contractor. The contribution presents a conceptual integration of theories of price formation (and regulation) and theories of intermediation. Investigating new institutional economics concepts considering the emergence of professional associations and the specific formal and informal regulation of nature-related transactions, the contribution then discusses how the valuation professional with regularizations evolves as a superior institutional response to this cascade of information imperfections.

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Section: The Valuation Professionmentioning

confidence: 99%

The Economic Role and Emergence of Professional Valuers in Real Estate Markets

Bartke

Schwarze

2021

Land

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“…By using verified historical market information, the German valuation methodology tries to limit subjectivity of valuations to a minimum (Schnaidt and Sebastian, 2012). The standardization process and incorporation of real live (and, hence, historical) data are seen as a big advantage by many German valuers who dismiss the DCF due to a lack of transparency, claiming that predicting future rents would require a “prophetic gift” (Kleiber, 2007).…”

Section: Income-based Valuation Techniquesmentioning

confidence: 99%

“…The GIA differs significantly from internationally applied Anglo-Saxon valuation methods and there is an ongoing discussion about its comparative suitability. Unsurprising many German researchers and professionals are in favor of the GIA while international sources express a preference for Anglo-Saxon methods such as the DCF (see Schnaidt and Sebastian, 2012 for a summary of the debate).…”

Section: Literature Reviewmentioning

confidence: 99%

Comparison of the DCF and German income approach

Reinert

2019

JPIF

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Purpose The majority of institutional investors in Germany use the German income approach (GIA) while investors abroad prefer the discounted cash flow (DCF). The debate around the two methods has been largely theoretical, lacking large-scale empirical evidence. The paper aims to discuss this issue. Design/methodology/approach The analysis consisted of a performance comparison and hedonic regressions based on ordinary least squares. Fitted GIA and DCF values were obtained for all observations in the data set in order to eliminate distortions caused by different property characteristics in the two valuation sub-samples. Findings The research hypothesis, stating that the two methods result in statistically identical estimations of value, was rejected. The performance analysis showed that GIA valuations displayed smoother total return performance due to less volatile capital growth in comparison to DCF valuations. Comparing the fitted values obtained from the regressions showed that GIA valuations were on average lower than their DCF counterparts. The difference was small and both methods resulted in very similar fitted values. The difference between fitted values was not constant over time and decreased toward the end of the analysis period. Practical implications The research adds empirical arguments to the ongoing debate between GIA and DCF valuations. So far empirical proof has been scarce or one-sided. Originality/value This analysis is the first large-scale empirical comparison of the DCF and the GIA within the same market.

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“…In theory, all approaches should lead to same result (market value). However, German methods have been shown to be mathematically prone to smoothing biases (Schnaidt and Sebastian, 2012). While changes in value in international methods are typically significantly driven by actual market rents and investment yields, the regulated German valuation system has four key value drivers: rents, yields (Liegenschaftszins), remaining useful lifetime of the building and finally the value of the land.…”

Section: Datamentioning

confidence: 99%

The real alternative? A comparison of German real estate returns with bonds and stocks

Szumilo

Wiegelmann

Łaszkiewicz

et al. 2018

JPIF

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Purpose The purpose of this paper is to evaluate how real estate returns behaved over the last two decades in relation to the other two asset types. This allows a direct evaluation of how investors make allocation choices and perceive risks and rewards offered by properties in the context of changing market conditions. Design/methodology/approach A de-smoothed MSCI index is used to reflect direct property returns and control for both income and capital returns within it. Indirect property returns are approximated by the RX Real Estate index. By supplementing this data with an analysis of trends in both space and capital markets it is possible to relate investor behavior to events affecting other assets. Findings It is possible to identify three distinctive periods characterized by different correlation of returns and behavior of investors: before the crisis of 2008, the crisis period between 2008 and 2012 and recovery afterwards. These appear to have corresponded to different stages of the economic cycle. Interestingly, performance of asset classes has also differed over that period suggesting that at different points in the cycle asset allocation decisions may have been made differently. Practical implications It appears that as investments over the last 15 years real assets in Germany behaved similarly to bonds. It is possible that this phenomenon was driven by an aversion to the stock market and its associated risk which became a concern after the financial crisis of 2008. Over the downturn that followed the market shock investors appear to have turned to assets with simpler risk profiles like direct real estate and government debt. On the other hand, the correlation between direct property investment index and stock returns has been found to be small but negative. This shows not only that the two asset classes were often driven by different factors but also suggests that diversification was, at least theoretically, possible. Originality/value Direct real estate investment returns have repeatedly been found to exhibit characteristics similar to those found in bond as well as equity markets (Eichholtz and Hartzell, 1996; Clayton and MacKinnon, 2003) but little research examines the correlation between returns offered by those asset classes in a mature financial and property market. In addition, the recent financial crisis provided a dynamically changing investment which is ideal for investigating structural relationships between assets.

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German valuation: review of methods and legal framework

Cited by 20 publications

References 7 publications

The Economic Role and Emergence of Professional Valuers in Real Estate Markets

The Economic Role and Emergence of Professional Valuers in Real Estate Markets

Comparison of the DCF and German income approach

The real alternative? A comparison of German real estate returns with bonds and stocks

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