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An Estimate of the Accuracy of Hedonic Real Estate Valuations Using the Orange County Bankruptcy
Author(s) -
Evans Thomas A.
Publication year - 2012
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2012.00928.x
Subject(s) - real estate , bankruptcy , orange (colour) , economics , capitalization rate , cost approach , econometrics , actuarial science , residential real estate , estate , business , finance , real estate development , real estate investment trust , horticulture , biology
It has become standard practice to estimate the value of amenities, such as environmental cleanliness, local school quality and crime, using hedonic valuations—typically changes in real estate prices. The accuracy of hedonic valuations depends critically on whether real estate prices adjust appropriately, which is difficult to verify. The 1994 Orange County, CA , bankruptcy offers a test of the accuracy of hedonic real estate valuations. Orange County's failed investment strategy resulted in unexpected county losses of $1.7 billion. In response, the aggregate value of Orange County real estate dropped by between $1.65 and $3.70 billion.