The use of heuristics in valuation practice : implications in a changing market

Warren-Myers, Georgia and Heywood, Chris 2010, The use of heuristics in valuation practice : implications in a changing market, in ERES 2010 : Proceedings of the 17th ERES Conference, SDA Bocconi School of Management, [Milan, Italy].

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Title The use of heuristics in valuation practice : implications in a changing market
Author(s) Warren-Myers, Georgia
Heywood, Chris
Conference name European Real Estate Society Conference (17th: 2010 : Milan, Italy)
Conference location Milan, Italy
Conference dates 23-26 Jun. 2010
Title of proceedings ERES 2010 : Proceedings of the 17th ERES Conference
Editor(s) [Unknown]
Publication date 2010
Publisher SDA Bocconi School of Management
Place of publication [Milan, Italy]
Keyword(s) valuation practice
market uncertainty
Summary Despite the existence of prescribed frameworks, valuation remains a cause of much controversy and variety of opinion. It does not matter whether procedures are undertaken in exactly the same way, the conclusion of ‘value’ will vary from valuer to valuer – sometimes considerably. This uncertainty within valuation is founded on property’s heterogeneous nature and the imperfect market that is the property market; in addition to the unpredictability of human behaviour in making judgements (French and Gabrielli 2004). Uncertainty, in valuation is found in the amalgam of locational, physical and legal characteristics and innumerable other forces which control and energise the property market (Whipple 1995). Particular irregular occurrences, or drastic changes in property markets, from either within market evolution or external forces, for example the creation of global financial markets, cause further uncertainty for valuers and provides challenges in identifying ‘market value’ in valuation practice. The praxis of valuation in a commercial sense navigates this complexity using a combination of algorithms and heuristics to identify the value of a property. The application of theoretical mathematical algorithms based on economic theory (Brown 1995), is augmented by valuers’ ability to apply appropriate adjustment based on their knowledge of the market, their ability to analyse, assess and compare the attributes of a property in comparison to its market, and their practical experience (Sliogeriene 2008). Despite the necessity of algorithms, the application of appropriate adjustments and assumptions are important in arriving at a value. This paper is a critical reflection on the basis of valuation practice as guided by standards, methods, and ethics (algorithms), and the use of heuristics in practice. This is important because changes within property markets challenge the inter-relationship between these two aspects of valuation practice. Through the authors’ industry experience and a review of previous research and statements of practice norms this paper provides an analysis of the ability of valuers to address market change in their valuation practices.
Language eng
Field of Research 159999 Commerce, Management, Tourism and Services not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category E3.1 Extract of paper
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Document type: Conference Paper
Collection: School of Management and Marketing
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