De-lagging the NCREIF index: Transaction prices and reverse-engineering

Abstract

This article describes initiatives undertaken by NCREIF over the past year to develop such measures, based on the NCREIF index and the NCREIF property database. In particular, this article reviews a transaction-based repeat-sales index, as well as an index that uses the entire NCREIF population of properties by "reverse-engineering" the appraisal process to recover the underlying contemporaneous market transaction price evidence used by NCREIF appraisers. While both approaches remove the effect of appraisal lag, the reverse-engineering procedure uses more information, and avoids much of the sample selection bias in the repeat-sales index.