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Goodwill and its Identification in Real Estate

Adrian Vascu and Cecilia Costache

The Valuation Journal, 2012, vol. 7, issue 1, 48-77

Abstract: A real estate is usually composed of land and one or several buildings. The appraisal's result of such a property by means of the income approach represents a value which includes both the land value and the buildings value. Also, the transaction price of real estate includes both the land contribution and the buildings' contribution. Most frequently, it is necessary to allocate the value of the real estate according to its components in order to register it in the financial statements and not only. The results of the study we present in this paper shows the fact that a third element should be taken into consideration when allocating the real estate value, namely an intangible asset determined by external factors that have an impact on the evolution of the real estate prices, as well as on the general evolution of the real estate market. We named this element real estate goodwill (FCI), and this study aims at identifying its existence within a commercial real estate and testing the influence of the market factors, as well as the impact of the evolution of real estate market upon the value of this intangible asset. The empirical testing was performed through a multi-variable regression model and its goal was to identify the extent to which the explanatory variables of the model impact the real estate goodwill. The dependent variable of the model is the real estate goodwill estimated for the commercial real estate subject, and the explanatory variables are represented by: new real estate loans granted, number of construction permits granted and number of real estate transactions performed through notary offices. The results obtained following the empirical testing confirm the hypothesis according to which the factors that influence real estate goodwill are external factors with consequence upon the evolution of the real estate prices, as well as upon the general evolution of the real estate market.

JEL-codes: G32 M41 (search for similar items in EconPapers)
Date: 2012
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