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The Uncertainty of Valuation

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  • Nick French
  • Gabrielli Laura

Abstract

Valuation is often said to be Ïan art not a scienceó but this relates to the techniques employed to calculate value not to the underlying concept itself. Valuation is the process of estimating price in the market place. Yet, such an estimation will be affected by uncertainties. Uncertainty in the comparable information available; uncertainty in the current and future market conditions and uncertainty in the specific inputs for the subject property. These input uncertainties will translate into an uncertainty with the output figure, the valuation. The degree of the uncertainties will vary according to the level of market activity; the more active a market, the more credence will be given to the input information. In the UK at the moment the Royal Institution of Chartered Surveyors (RICS) is considering ways in which the uncertainty of the output figure, the valuation, can be conveyed to the use of the valuation, but as yet no definitive view has been taken. One of the major problems is that Valuation models (in the UK) are based upon comparable information and rely upon single inputs. They are not probability based, yet uncertainty is probability driven. In this paper, we discuss the issues underlying uncertainty in valuations and suggest a probability-based model (using Crystal Ball) to address the shortcomings of the current model.

Suggested Citation

  • Nick French & Gabrielli Laura, 2003. "The Uncertainty of Valuation," ERES eres2003_158, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2003_158
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2003-158
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    Cited by:

    1. Kucharska-Stasiak Ewa, 2018. "15 Myths about Market Value," Real Estate Management and Valuation, Sciendo, vol. 26(3), pages 113-121, September.
    2. Kucharska-Stasiak Ewa & Źróbek Sabina & Cellmer Radosław, 2018. "Forms and Effectiveness of the Client's Influence on the Market Value of Property - Case Study," Real Estate Management and Valuation, Sciendo, vol. 26(3), pages 82-92, September.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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