Treatment of uncertainty in appraisals of commercial properties Some evidence from Sweden

Abstract

The article is based on a study of 100 appraisal reports from the period 1980‐1996, covering a full property cycle. A number of aspects related to uncertainty were investigated. Among the results are: The appraiser often used both a sales comparison and an income method. Both methods usually led to very similar results, probably because the appraiser used an iterative procedure to make the results converge. During the boom years, the value was usually presented as a point estimate or a narrow range. After the crash, point estimates are unusual and wider ranges dominate. Sensitivity analysis were almost never used during the boom. Thereafter it can be found in about 50 per cent of the reports. During the boom it became more common to make explicit reservations stating that the appraisal only concerned the market value “now”, and that no statement is made about the future market value. The results are in line with observations from other countries pointing to the neglect of uncertainty during the boom years. Finally it is recommended that at least qualitative information should be given about the strength of the evidence and about the probability distribution of actual prices. How the values on the relevant market have developed during the last ten years should be presented so that the client can judge the variability of the market value.

Citation

Ekelid, M., Lind, H., Lundström, S. and Persson, E. (1998), "Treatment of uncertainty in appraisals of commercial properties Some evidence from Sweden", Journal of Property Valuation and Investment, Vol. 16 No. 4, pp. 386-396. https://doi.org/10.1108/14635789810228178