Transaction-Based Index

MIT/CRE Original Development of TBI

Traditionally the only types of commercial property price or investment performance index regularly produced and published were based on appraised values. The idea of transaction price indices is to base the estimate of price change more directly and purely on the fundamental empirical evidence about the market value of properties, their transaction prices. The challenge is controlling for differences between the properties that transact from one period to the next. Sufficient databases of commercial property transactions prices were not developed until the 1990s. In the real estate price index econometric literature there are two major approaches to producing rigorous transaction based indices. One approach is called hedonic modeling, and the other is repeat-sales regression. The TBI project essentially used the hedonic approach, based on the properties sold from the NCREIF Index database, regressing their transaction prices onto their recent appraised values and time-dummy variables. The index was produced by combining the NCREIF appraisal-based index with the regression time-dummy coefficients reflecting the differences between appraisals and transaction prices. The TBI was launched by the MIT/CRE in February 2006 and published quarterly until 2011, when NCREIF took over production and publication (with slightly modified methodology), now referred to as the NTBI.