Peter F. Colwell

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• Ph.D.
• Professor Emeritus at University of Illinois Urbana-Champaign

This article reveals aspects of lakefront property pricing especially with respect to lot frontage and depth. A clearer understanding of how these lot dimensions affect price should be of interest to those engaged in lake development, land use control, valuation, and marketing. A data set with eighty observations of vacant Lake Michigan residential...

Recognition of the existence of nonlinear land prices has an impact on the measurement of the rate at which land price declines with distance from the urban center. It is hypothesized that concave parcel prices have given rise to overly large estimates of the rate of price decline with distance, because parcel sizes increase with distance and incre...

DiPasquale and Wheaton (DW) developed an elegant model of long-run equilibrium in the aggregate real estate market. It has tremendous pedagogical power and an attractive compactness of presentation. Unfortunately, it has drawbacks. The DW model glosses over the admittedly small distinction between the “cap” rate and the reciprocal of the gross inco...

TThis paper examines urban land prices within a non-parametric framework with specific interest in the land price gradient with respect to distance from the city center. The land price surface is estimated over a 900-square mile portion of the Chicago metropolitan area and is based on transaction level data of vacant land parcels. The price surface...

This note presents a microeconomic view of some land use transitions. Filtering suggests processes that take some time. Tipping points are found when the transition is at first gradual and then, all of a sudden, it is complete. That is, the entire neighborhood has changed. This discontinuity in a market process is quite remarkable. Although it has...

What are zoning authorities trying to accomplish? Max land value? Max tax base? Max welfare?

Inflation and monetary expansion are generally thought to be unrelated in the short-run. In contrast, it is found empirically that the inflation rate is an increasing, convex function of the rate of monetary expansion. This function is placed in a monetarist macroeconomic model. Both steady-state and disequilibrium models are developed. Policy alte...

We examine the impact of high voltage overhead electrical transmission lines on the value of agricultural land in Wisconsin and Illinois. Guiding principles are developed. Views of appraisers are considered, along with institutional details of transmission line easements. A literature review reveals how principles have been ignored in the past. A n...

Examines the determinants of land values in Edinburgh, Scotland and in Champaign-Urbana, Illinois. By testing several basic model specifications, nonlinear prices are revealed in the relationship between value and area. Two types of non-linearity are hypothesized: plottage and plattage. The latter is found to dominate, ie, value increases at a decr...

This paper presents an empirical analysis of the structure of land prices both before and after land conservation occurs. Using data describing 12 years of vacant land transactions in Buncombe County, North Carolina, we find that fee simple conservations, as opposed to conservation easements, occur in higher-priced areas, but that lower-valued parc...

We examine conservation activity in western North Carolina, where state income tax credits from land conservation have been available since 1983. Six land trusts, including the Nature Conservancy, undertake conservations in both fee simple and in conservation easement over a twelve year period. We find that value of conserved land differs by conser...

The standard urban model supports the concept of a constant land price gradient throughout the urban area. It is a reasonable conjecture that the land price gradient would vary with direction from the CBD. The variation in the gradient could be caused by a number of factors, but the idea that the land price gradient is flatter along radial transpor...

Changing demographics, growing real incomes, and friendly tax laws underlie the continuing growth in demand for recreational real estate in the US. The market for recreational property has undergone a major transformation over the past decades, with the refinement and deepening of markets for partial property ownership vehicles. This paper represen...

We extend the literature on the impact of externalities using an approach based on a hybrid of hedonic and repeat-sales methods. The externality in question is groundwater contamination in Scottsdale, Arizona. The use of condominium sales allows us to assume that major physical characteristics remain unchanged, but location parameters may be altere...

This paper examines the influence of bargaining power and property class on the prices of heterogeneous goods. Specifically, it explores the impact of buyer and seller characteristics on the transaction prices of office properties. The empirical model is based on the work of Harding, Rosenthal, and Sirmans ( 2003 ), which developed a method to dist...

Market surveys, and the accompanying valuation technique known as contingent valuation analysis, have gained increasing acceptance in estimating values of properties or property features, especially when parcels are affected by conditions perceived as undesirable. While earlier articles have noted problems with surveys and the importance of the mar...

Models of the commercial property market have become increasingly sophisticated in recent years. However, the retail sector and, more specifically, analysis of retail markets at the local level, have been comparatively neglected. This paper makes inroads into this gap in property research. Retail rental change at the local level is explored, focusi...

The cost approach in appraisal utilizes the concept of functional obsolescence as one of three components of depreciation. The theory of functional obsolescence is developed from notions about how present value and the cost-new vary across different levels of an attribute of a building as well as how the costs to cure functional obsolescence vary w...

The market provides an estimate of the time to development. This article shows simple computations for the price of agricultural land with no development option, the price of the option to develop, and the payoff associated with the development option. Given the sizes of these variables, it is possible to compute the expected time to development. S...

Functional obsolescence in real estate occurs because of technological change. A theoretical model suggests that the early years of building life are characterized by functional obsolescence that is undiminished by reinvestment ("cures" in appraisal terminology). Later, observable functional obsolescence is eliminated by cures. A national, propriet...

We use the properties of competitive location equilibrium to study the demand for recreation and the choice of primary residence location. Location-specific recreation and employment lead to pooling equilibria in which consumers reside according to their preference for recreation. In general, the stronger the taste for recreation, the greater the a...

The cost approach has not received much attention in academic journals. However, this lack of attention is undeserved. Cost functions represent one side of the market and may constrain the form of hedonic equations and the type of grid used in the market approach. Of course, cost functions can play a role in appraisals. A theory of cost functions i...

This study considers the alternatives available for transferring agricultural property on the urban periphery. The model examines the conditions under which market participants sell or exchange farmland. Contrary to popular opinion, we find that simultaneous exchanges are still feasible in the presence of delayed exchanges, particularly when the re...

This paper examines the optimal operation strategies for income properties. Specifically, the rental rate and the operating expense should be set at levels to maximize the return on investment. The results suggest that for a given demand curve of a specific rental property, there exist optimal levels of the income ratio, the operating expense ratio...

As the real estate market becomes more complex, the role of middlemen becomes more central to its efficient operation. Middlemen take on informational roles including marketing, screening, and matching. The real costs incurred in many of these roles are not included in the regulatory authorities' calculations of permitted costs, and become, under R...

This paper examines the optimal operation strategies for income properties. Specifically, the rental rate and the operating expense should be set at levels to maximize the return on investment. The results suggest that for a given demand curve of a specific rental property, there exist optimal levels of the income ratio, the operating expense ratio...

The majority of studies examining the impact of group homes on neighborhood property values have found that group homes do not adversely effect property values. In our study of seven group homes neighborhoods in DuPage County, Illinois, we find that properties which are proximate to group homes experience a decline in value following the announceme...

G. C. Haas produced a hedonic study more than 15 years prior to A. T. Court who first published the term hedonics. Haas's application was to agricultural land prices with a particular focus on distance to the city center and city size. Thus, Haas's work has much of the flavor of contemporary urban economics. A reestimation of Haas's model reveals t...

There is substantial empirical evidence of price concavity in the parcel-size dimension across land-use types and across urban regions. This article examines the degree to which concavity varies between the Central Business District (CBD) and the rest of the urban area. The article provides strong empirical support that the degree of concavity with...

This article examines the incentive and efficiency implications of buyer brokerage. We show that it is possible to perfectly align the interests of the seller with those of his agent and the interests of the buyer with those of his agent. Furthermore, effort levels can be efficient. This result is a departure from earlier conclusions in the literat...

This article provides a method for visualizing complex real estate deals.

Conventional wisdom holds that overbuilding and high vacancy, coupled with curtailed tax benefits, have led to reduced office property values since the late 1980s. Yet assertions that office real estate values fell between the mid-1980s and mid-1990s are not supported everywhere by convincing evidence. This study offers a hedonic analysis of Chicag...

The differences in the ownership structures of downtown retail districts and shopping centers may give rise to varying space allocations and rental contracts found in these markets. This article specifically examines the value-enhancing aspects of percentage leases and explores the mechanisms of tenant mix, risk sharing and rent discrimination thro...

The public sector constrains the size and shape of lots and buildings via zoning ordinances and subdivision regulations. Zoning ordinances utilize setback requirements, open space ratios, minimum lot area and floor-to-area ratios. Subdivision regulations utilize street and sidewalk spacing requirements. This article provides a framework in which on...

This article proposes a non-parametric method for estimating spatial price functions. Space is divided into squares. The independent variables are barycentric coordinates that uniquely describe the location of observations in space. The regression coefficients are estimates of the height of the function directly over the vertices of the square spat...

An explanation is provided of the hedging opportunities afforded by exotic mortgage instruments.

The role of release prices is examined with regard to blanket mortgages.

A two-tiered, front-end-loaded tender offer system is shown to catalyze a market for partial property rights. This market would obviate any legitimate need for governmental zoning, and thus would put an end to zoning's inefficiency and inequity. The proposed system would facilitate development and redevelopment, cause nuisance producing zones to be...

Housing reform in China is moving towards privatization or marketization of public housing. To be successful, the reform requires that policy makers allow housing rent differentials to arise and permit reform in wages parallel to reform in rent. This paper analyses the effects of occupational ranks and housing attributes on urban housing rents in B...

This study examines the economics of the optimal footprint area, atrium area, and height of an office building. We extend the work of Doiron, Shilling and Sirmans (1992) by incorporating realistic revenue and cost functions and reverting to the sufficient conditions of optimaility.

This paper contains an analysis of the financial aspects of graduated payment mortgages.

This paper examines an explanation for the existence of points in mortgage finance.

The financial structure underlying fixed rate mortgages is examined.

Governmental entities at all levels are empowered to acquire private property for the public's benefit, provided that "just compensation" is paid. The level of compensation typically viewed by courts as "just" is market value, but questions arise as to whether market value compensation motivates the private owner of land, potentially subject to a t...

The objective of this paper is twofold. One is to provide a search-theoretical model of the marketing choice of the seller. The model explains the seemingly contradictory empirical results as to whether a seller raises the price of his house to pass on a portion of the broker's commission to the buyer. The second is to offer empirical evidence on t...

The objective of this paper is twofold. One is to provide a search-theoretical model of the marketing choice of the seller. The model explains the seemingly contradictory empirical results as to whether a seller raises the price of his house to pass on a portion of the broker's commission to the buyer. The second is to offer empirical evidence on t...

A unique feature of land auctions is that the same land is auctioned twice; first the land is broken into tracts and each tract is auctioned individually. Then, the tracts are reassembled and auctioned as a whole parcel. After the two auctions are completed, the seller chooses the one that generates a higher revenue. The main purpose of this paper...

It is commonplace to think of the price of land as an amount per unit of area. This may be inappropriate, because it appears that the value of land increases at a decreasing rate as area increases in some situations, and frontage and depth may affect value differently. Various rules have been developed to aid in the process of estimating site value...

Externalities generally are viewed as impacting land values rather than building values. Yet when locational obsolescence is attributed to externalities, the implication is that externalities impact primarily on building values. The presence of negative externalities generally does not determine whether a building suffers from locational obsolescen...

This paper provides a theoretical framework of, and empirical evidence on, the positive relationship between the value of land and the warranty coverage associated with land ownership in the early years of the nineteenth century. Copyright 1993 by Kluwer Academic Publishers

Theory indicates that the marginal price of floor space must decline with increasing floor space in the context of a hedonic model. The industry offer curves, their lower envelope, and the hedonic function must be concave because some elements of structure, notable exterior walls, increase at a slower rate than does floor space. Coulson's finding t...

This paper revisits the relationship between land value and parcel size. The authors demonstrate that, using a simple arbitrage equilibrium argument, the value-size relationship is convex (concave) whenever land assembly (subdivision) is possible. They also explore further the impact of zoning on market outcomes. Copyright 1993 by MIT Press.

We present a double moral hazard model to study the impact of building codes on the safety/quality level chosen by the builder and the level of care expended by the buyer. We show that codes can be a mechanism to implement the first-best solution provided: (1) The code prescribes the optimum safety level, (2) The code uses the efficient technology...

This paper develops a model of security broker behavior under price uncertainty. The model examines the process of matching orders and the determinants of equilibrium brokerage commission rates. Institutional arrangements, search efficiency, execution costs, volume, risk, and the unit price of the security are shown to affect equilibrium brokerage...

A model is derived that provides a focus on important cases that were intentially ignored by Rosen. This study focuses on bundles of housing characteristics that are no longer produced profitably. These bundles are functionally obsolete. The costs to cure functional obsolescence are assumed to be proportional to the cure with different constants of...

This study provides an empirical test of the two main techniques for calculating the financing premium for assumption financed sales, cash equivalence adjustment (CEA) and financed-fee valuation adjustment (FFVA). The results indicate that both the CEA and FFVA computational techniques overvalue the premium associated with assumption financing. A v...

Optimal lot size and configuration are determined by the maximization of profit per unit of land area. Lot value is assumed to be a Cobb-Douglas function of frontage and depth. The cost of developing a lot is assumed to be related to lot area, frontage, and a fixed cost parameter. The forms of the value function, the cost function, and the objectiv...

This article documents that the well-known size-related seasonality effects exist in real-estate-related investments. The average return on REITs in January is higher than that in any other month during the year, and the abnormally high return in January tends to disappear for large REITs, both equity and mortgage REITs. The January effect for mort...

This study attempts to detect whether power lines, power line towers, or both have an impact on the selling price of proximate residential land and to measure the magnitude of these impacts if they exist. Secondly, it attempts to determine whether any impact which is found to exist is diminished through time possibly as the growth of trees obscures...

The developer chooses lot size and shape to maximize profit subject to institutional constraints. The price structure for lots is exogenous and Cobb-Douglas in form. Costs of land development are assumed to be both proportional to frontage and to lot area. The constraints are the minimum lot area from zoning and the minimum lot depth from subdivisi...

Moral imperative is the opposite of moral hazard. Thus, moral imperative is the drive for an individual to produce more safety when insured than when uninsured. The possibility of moral hazard and moral imperative always exists for any risk averse individual. The cost of safety production plays a critical role in determining the likelihood of moral...

One problem with internal race of return is the possibility that given cash flows may result in more than one internal rate of return. The purpose of this paper is to develop a method for determining relevance of an internal rate of return. An Internal rate of return is considered relevant if its derivatives with respect to each of the cash flows a...

The use of valuation models that focus on lender criteria has been growing in the appraisal field. In the rush to build lender criteria into real estate valuation models, equity investor criteria, expectations, and requirements occasionally have been ignored. The specific criteria considered in this paper are the loan-to-value ratio and the debt co...

The purpose of this paper is to identify the manner in which parcel scale, micro-location, and macro-location influence the market values and the assessed values of parcels zoned for industrial use. The implicit prices exhibited by the market for industrial parcels in the west suburbs of Detroit are somewhat different than those which are embodied...

The purpose of this paper is to develop a model of the real estate brokerage and housing markets with imperfect information. The paper considers general equilibrium in these markets with and without a multiple listing service. Input prices are found to affect the equilibrium housing price, brokerage commission, and split factor. The introduction of...

This paper is concerned with the factors that determine the market share of listings and the market share of sales for brokerage firms. Models are developed and tested in a SMSA that conveniently corresponds exactly to a particular Multiple Listing Service area. Indices of firm specialization and market concentration were computed in addition to mo...

This study focuses on the Chicago CBD office market, an important market at the local, regional, national and international levels. The purpose of this study is to develop a hedonic regression model that explains the variation in office rent per square foot. Five functional forms (linear, reciprocal, logarithmic, semi-log and log-linear) of the mod...

This paper attempts to measure both an access effect and an externality effect of neighborhood schools on the value of surrounding residential properties. While the access effect appears to dominate, an external cost effect may have been identified as well. Using the estimated value-distance function, a downward-biased estimate of the aggregate los...

Within the market data approach to real estate appraisal, two basic types of analysis generally are used: (1) regression analysis; and (2) adjustment grid methods. The focus of this paper is on the adjustment grid methods. Three such methods are identified in the appraisal literature, but their analytical foundations are not clearly presented. The...

In this paper we estimate the price premium associated with organic baby food by applying a hedonic model to price and characteristic data for baby food products collected in two cities: Raleigh/Durham, North Carolina and San Jose, California. We use price per jar of baby food as the dependent variable and control for a number of baby food characte...

The paper demonstrates that the aggregate demand for trips (from one point to another) of a particular type can embody all the features of the traditional gravity model. This demand for trips is derived from overall utility maximisation subject to income and time constraints. The most unique aspect of this approach is the way in which origin and de...

This chapter develops and estimates improved housing price indexes in the context of an explicit time-variable model and compares them with a number of other studies, estimated in the same context. Just as with a number of other studies, this involves controlling for housing quality via the hedonic price equation approach. Unlike other micro studie...