Transaction-Based and Appraisal-Based Capitalization Rate Determinants

Alain Chaney (Corresponding Author), Martin Hoesli

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


This paper contributes to the debate about capitalization rate determinants by comparing the driving factors of appraisal-based cap rates with those of transaction-based cap rates. By using a rich database of real estate transactions in Switzerland for the period of 1985-2010, we identify several property-specific variables that have not been used in prior research and that increase the explained portion of the cap rate variance by as much as 10 percentage points. The results show that compared to investors, appraisers overweight factors that they can easily observe when they appraise a property, at the cost of variables related to growth expectations and the opportunity cost of capital. This has two implications. First, as the easily observable factors hardly change over time, while the latter variables change frequently and significantly, it provides new evidence that may add to the appraisal-smoothing discussion. Second, investors put less emphasis on factors that are diversifiable, which suggests that they favor a portfolio perspective, whereas the focus of the appraisers is more on the individual property level.
Original languageEnglish
Pages (from-to)1-43
Number of pages43
JournalInternational Real Estate Review
Issue number1
Publication statusPublished - Mar 2015

Bibliographical note

This paper won the award for the best valuation manuscript presented at the
ARES 2012 meeting in St. Pete Beach (FL) and the RICS prize for the best
paper presented at the 2012 Joint International Conference of the Asian Real
Estate Society (AsRES) and the American Real Estate and Urban Economics
Association (AREUEA) in Singapore. We acknowledge the valuable
comments by Ko Wang, three anonymous referees, Anna Neukom Chaney,
Camilo Serrano, Philippe Sormani, and Yongheng Deng (our discussant in
Singapore). We are also grateful to the participants of the ARES 2012 and
AsRES-AREUEA 2012 conferences for discussions. The IAZI AG’s help in
providing data and funding is gratefully acknowledged. Any errors are ours.


  • Appraisal-Based Capitalization Rates
  • Transaction-Based Capitalization Rates
  • Real Estate Risk
  • Appraisal Smoothing
  • Valuation


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