The purpose of this paper is threefold: the primary purpose is to suggest a real estate paradigm spectrum to act as reference for the contextualisation of observed market phenomenon in system terms; the secondary purpose is for the spectrum to contextualise the efficacy of real estate and valuation theory, methods and techniques; and the tertiary purpose is to propose a confidence score for reporting uncertainty to the end user of a valuation report.
Literature was reviewed on the concepts of risk and uncertainty, rationality and several systems thinking domains.
The framework can provide context to observed market phenomenon and distinguishes between agency and mechanism in contributing to conditions of certainty and uncertainty. The argument followed in this paper is that it is necessary to contextualise the efficacy of real estate and valuation theory, methods and models under conditions of certainty, normal uncertainty and abnormal uncertainty. The characteristics of conditions can be used as basis to develop new theory and practical application or modify existing.
Real estate economic theory can be organised in terms of the spectrum and the framework can potentially identify where further research is required and the requirements it must meet as measured against the characteristics of the framework. Current valuation methods and models can continue to be used when valuing under conditions of certainty, however, modifications to methods and models are required to account for complexity when valuing under conditions of normal uncertainty and abnormal uncertainty. The confidence score included in this paper can also be used to report the conditions of certainty/uncertainty under which the valuation was performed.
This paper aims to set the basis for new theoretical and practical developments of insights into real estate economic and valuation theory, methods and models while also contributing to the reporting of uncertainty through the proposed confidence score.
Jansen van Vuuren, D. (2017), "Valuation paradigm: a rationality and (un)certainty spectrum", Journal of Property Investment & Finance, Vol. 35 No. 2, pp. 228-239. https://doi.org/10.1108/JPIF-09-2016-0075Download as .RIS
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