Effects of Behavioural Uncertainties In Property Valuation

Psychological aspects of human nature cause behavioural biases and can lead to decisions that differ from what is expected based solely on rational analysis. The effects of behavioural biases on financial markets like stocks and mutual funds have been studied previously, but real estate has yet to receive much attention. The existing works in the real estate domain have focused on different biases, but no study has examined the works already done to provide concise documentation of these past works. Thus, this article is an earnest attempt to fill that gap. This paper reviews the articles which were sourced from Scopus and the Web of Science database, published between 1980 and 2022. The PRISMA model led to the inclusion of 86 articles for the review. Analysis revealed that anchoring bias, loss aversion, and herding bias have been studied extensively. On the other hand, biases like gambler’s fallacy, familiarity bias, framing bias, home bias, confirmation bias and mental accounting have been less explored. The paper identifies the substantial gaps in the existing studies, giving avenues for future exploration. The key ones are, firstly only a few biases have been studied extensively and many biases are less explored, particularly using primary data. This provides a vast available space for future work. Secondly, studies in developing countries are fewer, which needs to be addressed. Lastly, studies need to explore the interplay of different biases to create a more robust model that can explain the effect of these biases. The paper gives a conceptual understanding of different biases and what factors affect them. Also, it will help policymakers strategize their business and mitigate the negative effects of biases.

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Approaches to improving valuation decision-making: a review of the literature

Liman,

Amidu,

Levy

2024

JPIF

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PurposeThe complexity of property valuation, coupled with valuers’ cognitive limitations, makes some degree of error inevitable in valuations. However, given the crucial role that valuations play in the efficient functioning of the economy, there is a need for continuous improvement in the reliability of reported values by enhancing the quality of the decision-making process. The purpose of this paper is to review previous research on valuation decision-making, with particular interest in examining the approaches to improving the quality of valuation decisions and identifying potential areas for further research.Design/methodology/approachThe paper adopts a narrative approach to review 42 research articles that were obtained from Scopus and Web of Science databases and through author citation searches.FindingsOur findings show that existing literature is skewed towards examining the use of technology in the form of decision support systems (DSS), with limited research attention on non-technological (i.e. behavioural) approaches to improving the quality of valuation decisions. We summarise the non-technological approaches and note that much of the discussions on these approaches often appear as recommendations arising from other studies rather than original investigations in their own rights.Practical implicationsWe conclude that studies investigating the effectiveness of the non-technological approaches to improving valuation decision-making are lacking, providing various avenues for further research.Originality/valueThis paper presents the first attempt to provide a comprehensive overview of non-technological approaches to improving the quality of valuation decisions.

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Effects of Behavioural Uncertainties In Property Valuation

Cited by 4 publications

References 49 publications

The Effect of Heuristics and Biases on Real Estate Valuation and Cyclicality

The Effect of Heuristics and Biases on Real Estate Valuation and Cyclicality

Behavioural biases in real estate investment: a literature review and future research agenda

Approaches to improving valuation decision-making: a review of the literature

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