How valuers use the value opinions of others

Abstract

Theory suggest that valuers will rely on previous values estimates in the face of greater market uncertainty. Nevertheless recent research has provided evidence that experienced real estate valuers (appraisers) working in geographic areas familiar to them may not be influenced by the previous value judgement of other, anonymous experts. Presents a study which extends the previous investigation by examining appraisers valuing property in geographic areas unfamiliar to them, appraisers who therefore face significant market uncertainty. In controlled experiments valuers were asked to appraise a subject property in an area unfamiliar to them and were offered the previous value judgement of an anonymous expert as a potential anchor (reference point). A control group of experts unfamiliar with the subject market was given no reference point whatsoever. Evaluation of the experimental data revealed evidence that unlike subjects operating in areas of familiarity, subjects unfamiliar with the subject area were influenced by the provided reference point.

Search Costs, Behavioral Biases, and Information Intermediary Effects

“…In the real estate literature, Northcraft and Neale (1987) present evidence of anchoring in property pricing that is similar for both amateurs and real estate professionals. Black and Diaz (1996), Diaz and Hansz (1997), Diaz and Wolverton (1998), and Diaz, Zhao and Black (1999) also find evidence of an anchoring effect in real estate prices. 1 Bokhari and Geltner (2011) provide evidence that loss aversion plays a role in CRE pricing that varies across market participants and real estate cycles.…”

Research bias in judgement bias studies – a systematic review of valuation judgement literature

“…Much of the intrapersonal judgement studies included are conducted by means of an experimental design first used by Diaz (1997) and Diaz and Hansz (1997). Their experiments typically measure the effect of a bias-triggering intervention (such as a fictive reference point or client request) on market value estimates produced by valuers who are divided into a treatment group and a control group.…”

“…Anchoring bias occurs as the human brain seeks cognitive shortcuts (i.e. heuristics) to overcome the limited amount of short-term memory in light of information ambiguity (Diaz & Hansz, 1997). 2 Depending on the level of objective and factual information available to the valuer, individual valuers must rely to some extent on their own judgement skills and hence may (sub)consciously be exposed to heuristic bias in their value decision (Joslin, 2005).…”

“…Such experiments have been replicated over time and in various modes. When confronted with unfamiliar settings, evidence of reference point anchoring by US commercial valuers is provided by Hansz (1997, 1997), Hansz (2004b) and Tidwell and Gallimore (2014) using various reference points such as third-party value estimates, pending sales or mortgage amounts or recent transaction prices. Tax value assessments are however, not recognised by US commercial valuers as 'valid' reference points in unfamiliar settings (Cypher & Hansz, 2003).…”

High-impact information types on market value: property appraisers’ information sources and assessment confidence

“…For example, behavioural studies have found that property appraisers who work in unfamiliar markets anchor their valuations on anonymous experts' opinions (Diaz & Hansz, 1997, 2001, but this anchor behaviour is not found in familiar markets (Diaz, 1997). Diaz and Hansz suggest that when property appraisers experience increased uncertainty, they use information they would not normally consider reliable.…”