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The first decade of behavioral research in the discipline of property
Abstract
This paper examines behavioral research in property. Such research is relatively new in the property field and is still in its first decade. The behavioral approach is examined and compared with the more traditional approach. Its aims and its accomplishments are also discussed. The previous literature upon the subject is examined and the future of behavioral research in property is alluded to as a conclusion.
... Additionally, the general decision making process of valuers is subject to several external constraints that restrict the decision space within which valuers can operate (Amidu, 2011) and internal constraints such as cognitive limitations of human information processing (Newell & Simon, 1972). As a result, Diaz (1990a) and argue that effective valuation decision making may necessitate a departure from the preferred normative model to a more efficient, heuristic-driven approach, which may result in sub-optimal or biased valuation decisions (Diaz, 1999). ...
... We note that this is an area that has not been dealt with in past reviews of the valuation literature. Previous reviews papers have focused on studies that investigated the valuation procedure, bias in valuation or the application of decision support tools in valuations (e.g., Abidoye & Chan, 2017;Adilieme et al., 2023;Amidu, 2011;Binoy et al, 2022;Diaz, 1999;Diaz & Hansz, 2002;Geerts et al, 2023;Klamer et al., 2017;Mohammad et al., 2018;Yiu et al., 2006). While some of these studies have superficially addressed the non-technological approaches to improving valuation quality, none has provided a comprehensive reviewe of the issues. ...
... The property discipline including property valuation inherently deals with human behaviour. The overall purpose of research in valuation decision making is to provide useful advice on how the quality of valuation decisions can be improved (Diaz, 1999). To provide such advice, there is need to first evaluate the quality of valuation decisions. ...
Purpose
The 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/approach
The 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.
Findings
Our 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 implications
We 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/value
This paper presents the first attempt to provide a comprehensive overview of non-technological approaches to improving the quality of valuation decisions.
... One of the remarkable contributions towards the illumination of this unfortunate academic darkness in American education history is by Julian Diaz III through a paper published in the inaugural volume of the Journal of Real Estate Literature: "Science, Engineering, and the Discipline of Real Estate" (see Diaz, 1993). Diaz (1999) is an update of this paper. Julian Diaz III is well known in American real estate scholarship, a real estate alumnus of Georgia State University and a practitioner and teacher of real estate. ...
... Diaz (1993, p. 184) was emphatic that "the entrepreneurial activity lies at the heart of the real estate system and arouses the other, surrounding centers of economic activity -the lending and investing activities, for example". He made an elaborate construct, The real estate activity model (Figure 2), that placed the entrepreneur at the centre, to prove this point (also see Diaz, 1999). ...
... This is a position that Julian Diaz III, who was of the same thinking as Graaskamp, refuted. To countervail the "finance orthodoxy", Diaz (1999) proposed the "behavioural research paradigm". ...
This paper revisits the ideas of Julian Diaz III that were expressed in his journal article titled, “Science, Engineering, and the Discipline of Real Estate” that appeared in the inaugural volume of Journal of Real Estate Literature in 1993. In this article, Julian Diaz III made a bold attempt to use ontological constructs to help define conceptual boundaries of the real estate discipline. The paper begins by reviewing Diaz III’s key conceptualizations of real estate in terms of real estate as applied science and real estate as a bundle of activities. It then proceeds to evaluate these conceptualizations and use them to develop the theory of dualism in real estate discipline. Two dualistic models are identified: the Physical Model of Real Estate and the Business Model of Real Estate. Thereafter, the paper uses this dualistic realization to repudiate the conceptualization of real estate as an appendage of engineering or business profession. Finally, the paper advocates for the conceptualization of real estate as an independent discipline.
... Behavioural research in the domain of real property has made vital contributions in engendering a more holistic comprehension of the decision making behaviour of property investors, valuers and property developers (Diaz, 1999;Diaz, 2007). In comparison to other business related disciplines of marketing, accounting and management; real estate and finance were late in adopting the behavioural research paradigm (Hardin 1999). ...
... Behavioural research draws intellectual inspiration from the domain of cognitive psychology and the theory of human information processing. Diaz (1999) explored the potential of behavioural research in the field of real property by expounding on its central question(s), philosophical and theoretical underpinnings and its methodological framework. Behavioural research provide insights into the actual problem-solving tendencies of professionals/experts and how this deviate from the normative rational processes they are expected to follow and how this in turn affects valuation outcomes and quality (Hardin 1999;Klamer, Bakker et al. 2017). ...
... Behavioural research recognizes that valuers are neither entirely objective nor completely rationale in making valuation decisions (Levy and Shuck, 1999). Nonetheless, valuers play a critical role in procuring fair and objective value estimates in support of business and investment decisions (Diaz, 1999;Worzala, Lenk et al. 1998). Property valuations are fundamental to the interrelated process of performance measurement, acquisition and disposal decisions (Baum, Crosby et al. 2000). ...
Valuation bias stemming from the influence exerted by valuation clienteles continues to be a subject of concern affecting the objectivity, validity and utility of valuations globally. Client-induced valuation bias is of particular concern for small island developing economies like Fiji, where the adoption and implementation of global valuation practice standards is still in its infancy. This study employs a survey questionnaire and a behavioural experiment to examine the existence and nature of client influence on valuations in Fiji. The study finds that most valuers are knowledgeable of the existence of client-induced bias in their professional line of work. Furthermore, the valuers express strong opinions that clients do engage in 'opinion shopping' by requesting indicative figures prior to commissioning a valuer, and that clients also use information as leverage to influence valuation outcomes. Lastly, the result of the logistic regression model analysing the behavioural experiment responses suggests that neither client size nor magnitude of value adjustment sought by the client are statistically significant in explaining the valuer's decision on whether or not to revise their valuations.
... As in many economic domains, behavioural research erupted in real estate valuation research, since the early 1990s onwards as a counterpart to the more traditional finance approach that has long dominated the research agenda of scholars. 1 Grounded in cognitive psychology, behavioural research seems well positioned to contribute to the development of a better understanding of valuer judgement and decision-making processes (Diaz, 1999). However, little is known on the emphasis of the research undertaken. ...
... However, little is known on the emphasis of the research undertaken. Although Diaz (1999) Diaz and Hansz (2007) and Wyman, Seldin, and Worzala (2011) have provided partial overviews of behavioural studies and the behavioural paradigm in valuation, to our knowledge no systematic review of empirical studies on valuer judgement behaviour has been conducted over the last 30 years. ...
... information, such as previous value estimates or pending sale prices may act as reference points that may influence valuers in their current value estimates. This phenomenon is referred to as anchoring bias (Diaz, 1999;Gallimore, 1994). Anchoring bias occurs as the human brain seeks cognitive shortcuts (i.e. ...
Valuation judgement bias has been a research topic for several years due to its proclaimed effect on valuation accuracy. However, little is known on the emphasis of literature on judgement bias, with regard to, for instance, research methodologies, research context and robustness of research evidence. A synthesis of available research will establish consistency in the current knowledge base on valuer judgement, identify future research opportunities and support decision-making policy by educational and regulatory stakeholders how to cope with judgement bias. This article therefore, provides a systematic review of empirical research on real estate valuer judgement over the last 30 years. Based on a number of inclusion and exclusion criteria, we have systematically analysed 32 relevant papers on valuation judgement bias. Although we find some consistency in evidence, we also find the underlying research to be biased; the methodology adopted is dominated by a quantitative approach; research context is skewed by timing and origination; and research evidence seems fragmented and needs replication. In order to obtain a deeper understanding of valuation judgement processes and thus extend the current knowledge base, we advocate more use of qualitative research methods and scholars to adopt an interpretative paradigm when studying judgement behaviour.
... Recognising the significance of the behaviour of key market agents in the determination of market operations, property research in recent years has sought to understand the impact of human behaviours in property processes (Baum et al., 2000;Daly et al., 2003;Diaz, 2000;Diaz III, 1999;Hardin III, 1999;Leishman and Watkins, 2004;Levy and Henry 2003;Levy, 2005;Roberts and Henneberry, 2007). Although in recent times there has been increased diversity in the behavioural real estate literature, the work in this area has tended to focus on appraisal issues (Diaz III, 1999;Pfrang and Wittig, 2008;Roberts and Henneberry, 2007). ...
... Recognising the significance of the behaviour of key market agents in the determination of market operations, property research in recent years has sought to understand the impact of human behaviours in property processes (Baum et al., 2000;Daly et al., 2003;Diaz, 2000;Diaz III, 1999;Hardin III, 1999;Leishman and Watkins, 2004;Levy and Henry 2003;Levy, 2005;Roberts and Henneberry, 2007). Although in recent times there has been increased diversity in the behavioural real estate literature, the work in this area has tended to focus on appraisal issues (Diaz III, 1999;Pfrang and Wittig, 2008;Roberts and Henneberry, 2007). Despite the growing diversity in lease structures, there is currently limited empirical research on understanding how landlords and tenants behave under different lease environments and the effect of leases on the evolution of landlord-tenant relationships and their overall experience with the lease. ...
... However, Ball et al. (1998) suggest that market agents' behaviours may differ from those implied by rational profit-maximization and these differences are influenced by the nature of the agents and their practices. The recent literature therefore has acknowledged the importance of examining the interactions of market agents, as "the essence of property is human behaviour" (Diaz III, 1999) and viewing property markets as the product of the market participants that operate within them (Baum et al., 2000). ...
The commercial property market in New Zealand is characterized by two standard but distinct lease environments. In Auckland, the commercial core of the economy, net leases dominate, whereas in Wellington, the political capital, gross leases are dominant. These different lease environments have the potential to strongly influence the nature of landlord and tenant relationships in these markets. Using in-depth interviews with key industry personnel, this study examines the perceptions, behaviours, experiences and key issues confronting landlords and tenants under net and gross leases. The paper examines how different lease structures affect the behavioural and attitudinal characteristics of landlords and tenants including: landlord/tenant perceptions of a lease, the operation and maintenance procedures, landlord-tenant relationship, and ultimately, overall satisfaction.
... The process-based perspective of property investment decision-making focuses on seeking rational insights into the activities that guide investors' ability to make choices through deliberate stage-based techniques. Based on the doctrine of utility maximisation, the process-based perspective presupposes investors as self-seeking in their pursuit of predefined objectives, within an ideal market environment that guarantees absolute information (Bruin & Flint-Hartle, 2003;Diaz, 1999;French, 2001). Traditionally, the process-based framework posits that investment choices are well-defined in a logical sequence (Hargitay & Yu, 2003;Roberts & Henneberry, 2007), based on the assumption that decision-makers will behave rationally as they evaluate multiple alternatives before arriving at a decision that is appropriate for an intended outcome. ...
... The normative approach, therefore, pre-supposes that factual investment decisions could be reached through a sequential procedure (Gigerenzer & Selten, 2001;Parker, 2014) and it is popular among classical economists (Sah, 2011). Although several normative models (ranging from 3-stage to 10-stage-based versions) have been proposed to ease the decision-making task in order to maximise investment outputs (Adair et al., 1994;Roberts & Henneberry, 2007;Sah et al., 2010), scholars have argued that market imperfections due to limited information, decisionmakers' perceptions and the heterogeneous nature of property investments often threaten the validity of normative models (Diaz, 1999;Gallimore et al., 2000;Sah et al., 2010). Thus, it has been argued that normative models only provide guidance that will lead decision-makers towards achieving their predefined investment goal rather than explaining how actual investment decisions are made (Gallimore et al., 2000). ...
... Elsewhere, a study on valuation variance in commercial lending in the UK observed behavioural influences of valuation-surveyors as the leading cause for valuation variance (Bretten & Wyat, 2001). These include the use of shortcuts in decision-making also known as heuristics (Diaz, 1999). These examples and other similar experiences in various types of valuation, like rating-valuation as identified by Rwechungura (1988), substantiate the consideration for more serious action to curb inaccurate valuation (Geho, 2004). ...
... Under the quantitative approach, there were two options of the research methods to adopt; experiment and survey. Designing of an experiment is usual and logical in behavioural property studies since in such cases humanity becomes the object of description, as once observed by Diaz (1999). Indeed, there is a considerable number of behavioural property research that has employed the use of experiments in understanding the valuation surveyors' characteristics (Havard, 2001;Iroham, et al., 2013). ...
Valuation-surveyors, like all other disciplines, are invariably influenced by a host of factors when estimating values for different purposes. Faced with complex decision-making in valuation, many surveyors are compelled to make use of heuristics (shortcuts). The use of heuristics helps to improve information processing systems and thus increase efficiency in decision-making processes. However, the unconscious use of these shortcuts often leads to errors in selecting solutions for the problem at hand. This study was aimed at confirming the use of less relevant and less researched types of heuristics in mortgage valuations in Tanzania. These included availability heuristics, representative heuristics and positivity heuristics. The study employed a survey research method whereby a sample of 56 valuation-surveyors from valuation firms based in Dar es Salaam were given questionnaires to complete. Out of the 56 questionnaires distributed, 44 were returned. The findings revealed surveyors’ propensity to use less relevant heuristics for virtually the whole valuation process. In all the identified uses of heuristics the surveyors were found to have diverted from the prescribed valuation procedure. Such behaviours have the potential for propelling the use of wrong inputs in the value assessment process and/or modifying the final assessed value. Therefore, the findings provide another explanation for the causes of the already observed valuation variance in Tanzania.
... This leads to an assumption that the behaviour of rental investors is economically rational, and driven by financial considerations alone. However, as Diaz (1999) suggests, "The essence of property is human behaviour…Economic activity is human behaviour …". The present study was principally concerned with gaining new insights into the motivations, expectations and experiences of rental property investors in a more social behavioural sense, and in exploring the implications of those investment motivations and behaviours for the future of rental housing investment. ...
... However, there is an emerging literature on behavioural economics, including a small but developing branch into 'behavioural property research' (Diaz 1999). This area holds much promise in the context of seeking to understand the behaviour of investors via an inductive approach, rather than an economically-based deductive one. ...
What motivates people to become rental investors? What factors drive or shape their investment behaviour, and how are their experiences and intentions as rental investors linked? This paper reports on a qualitative study of rental investors in Australia, which has sought to pursue these questions. While our understanding of the private rental system in Australia has improved considerably over the last decade or so, most of the literature discussing investor motivations and landlord typologies dates back to, or is drawn from, data relating to the 1980s or early 1990s. Gaps in our knowledge and understanding of the providers of rental housing remain, and an up-to-date analysis of investors operating in contemporary rental housing markets is required. Analysts typically view housing investment through the prism of orthodox economic theory about how markets operate. This leads to an assumption that the behaviour of rental investors is economically rational, and driven by financial considerations alone. However, as Diaz (1999) suggests, "The essence of property is human behaviour...Economic activity is human behaviour ...". The present study was principally concerned with gaining new insights into the motivations, expectations and experiences of rental property investors in a more social behavioural sense, and in exploring the implications of those investment motivations and behaviours for the future of rental housing investment. The project sought to: explore the varying motivations, expectations and experiences of rental property investors, and consider how these might vary between investors assess how the motivations, expectations and experiences of rental property investors shape investor behaviour assess how investors perceive investing in the lower end of the rental market provide a better understanding of investors experiences, motives and actions, as well as the perceptions of investors behaviours among other key players in the rental sector. Why become an investor? This study suggests that there is a range of motivators for people to become investors, including financial factors, personal goals, and personal and family circumstances. In some cases, the motivations are strong and clear; in others they are much less so, being more speculative or exploratory. For some investors, seeking financial gain through investing is about embarking on a clear plan of wealth creation, developing long-term financial security and building an asset base, and securing future retirement income. For others, it is connected to the need to diversify investments, to spread financial risks, establish an alternative to superannuation, and build a balanced portfolio. Financial capability or opportunity is critical in both cases: having accrued enough savings or equity (usually in their own home) over time, or having access to funds after the sale of property, led to a sense of the need to invest. For other investors, the motivation to invest appears to be less planned. In some cases, this is because the capacity to invest is linked to having unexpectedly come into assets or funds via inheritance, or changes in personal circumstances, such as re-partnering or geographic relocation. Whats the attraction of property over other areas of investment? This study indicates that the binary of choosing to invest in property, rather than some other area of investment is, in practice, misleading: most of the property investors interviewed also invest in other areas, mainly shares. Its not an either/or decision for many people. However, shares are generally seen as being of a different (ie, lower) order and scale to property, and are treated accordingly. It also transpires that many investors have previously lost money in shares, and are not keen to repeat the experience. Regardless of whether they have owned shares or not, there are several reasons behind investors choice to invest in property over other forms of investment. The most crucial perception is that it represents a good (long-term) investment, with a sense of low risk and guaranteed return. Most investors have identified long-term investment or capital gains as the most important reason for having invested in property. A related significant factor is that investors report feeling comfortable with property: it is safe, stable, and familiar (particularly when compared with shares). Indeed, sentimentality and informality appear to be important, for property is widely regarded as something relatively easy to invest in (not mysterious or complex like some other investments), with the general impression that lots of people do it. Personal experience and intuition are reported as the dominant sources of information for investors in making property investment decisions. Accountants, estate agents and specialist advisors are much less commonly used (if at all). Investors also feel a sense of control with property: a tangible product; one that can be seen and visited, and potentially adapted or used in various ways. Overall, market conditions-where in the property cycle people have invested, and what is happening in terms of property trends-are seen as being of some importance, but are often linked to the other factors mentioned above. For many, market timing issues are countered by the greater significance of personal circumstances, and the capacity to invest. Indeed, it is important to acknowledge that financial motivation is only part of the overall story! There is also a mixture of other motivators for having entered the investment sector, including direct encouragement by family or others, such as estate agents or developers; observing the success of others (ranging from siblings, parents and children to accountants, friends and employers); and having read investment books or attended seminars associated with wealth creation specialists. Some simply have had the means and the opportunity, but little clearly developed strategy other than feeling good. Factors shaping where and what investors bought This study suggests that location is an important consideration, but often only one of many factors which influence investment decisions. There are also competing priorities in terms of location. Overall, there is a desire for the property to be close to transport and services-factors considered attractive to tenants. Some see inner-city areas as best, offering guaranteed occupancies due to the demand for inner-city living, and also the certainty that property prices would always increase. However, this is not a universal preference. Some select other urban and regional areas, either through choice or because of the comparatively higher prices of inner-city property. There is also a desire to be close to the property for self-management or surveillance purposes, so the location of the investors residence then dictates the location of the investment property. For others still, there are broader or longer-term considerations: the prospect of a future or present home for kids at university, or a holiday/retirement home, and familiarity and comfort with specific areas. In many of the latter cases, projected property value or rental income is not the primary consideration. When it comes to individual property selection, investors are generally concerned with the physical features and condition of a dwelling, and its investment economics, but how they feel about the place is also significant. Personal, intuitive and emotional factors are evident in the selection process, and many investors use their own preferences as a measure of quality, even though they are not going to be living in the property. Investor expectations and experiences This study illustrates how investors motivations are linked to a degree with expectations, and that for some, they are also connected to past and present experiences as an investor. Investors view success in different ways, but most commonly, capital gains over the longer term is what they expect, and this is how success or otherwise in property investment is assessed. Investors generally accept that costs may well outweigh returns initially, and that positive returns are unlikely until a number of years down the track. In this context, for most participants, negative gearing is not a deliberate investment strategy,and has not been a crucial factor in their investment decisions. However, nearly all regard it as a welcome and generous tool or added bonus. There is also the succour of success: previous and current experience has kept investors in the property investment market. Nearly all who had been in the market for several years, and many of the more recent investors, have experienced what they regard as success (mostly in terms of increasing property values). New and seasoned investors alike report very high rates of satisfaction with various aspects of their property investment, including yield, capital gain, and property and tenancy management. These perceptions provide an ongoing incentive for investors to remain in the property market, to increase their portfolio, to consolidate, or to start realising their assets as part of their investment strategy. Investment attitudes over time For some investors, time brings shifts in motivation and emphasis. In some cases, these are due to greater experience and increased level of knowledge, where the rationale and objectives of being a rental investor becomes more nuanced over time. For others, changes in personal circumstances and concerns, or financial or other objectives come to the fore. A common critical factor is age and proximity to retirement, or the formal planning for it. Most investors see capital gains as more important than rental income over the short, medium and long term. Indeed, nearly all regard property as the best investment, and some said they would still invest in property, even if returns were clearly higher in other areas (eg, shares).
... Individuals rely on personal valuation strategies to determine the extent to which a given property meets their needs and expectations relative to other properties. Property valuation and price expectations also rely on heuristics (Diaz, 1999;Meng, 2020;Bro & Eriksen, 2021) such as the anchoring effect, endowment effect, and loss aversion, as well as individual attitudes towards risk and other phenomena identified in behavioral economics and economic psychology. ...
This article addresses the issue of the utility of money and the utility of housing with a value equivalent to that amount of money. The literature provides many reports on the shape of the utility function for money, but much less research has been devoted to the utility function for housing. The aim of this study was to estimate the utility function of money and housing according to the cumulative prospect theory (CPT) developed by Tversky and Kahneman (1992). Parameters alpha (α), beta (β), and lambda (λ) were estimated to compare the utility value of money and housing. The most important conclusions of the study are as follows: parameters alpha and beta were greater than 0 and less than 1 for both housing and money. Function v(x) was concave in the gain domain and convex in the loss domain, which is consistent with the CPT. The differences in the lambda parameter denoting loss aversion were not significant, and the value of the utility function was somewhat higher for money than for housing. This study was undertaken to estimate the CPT parameters for housing, which, according to the authors’ best knowledge, has not been investigated to date.
... It is over two decades since Diaz (1999) systematically reviewed the first decade of behavioural research undertaken into real property and concluded that whilst there had been research into the techniques of property valuation, investment and negotiation: many of the activity centres of (the property industry) lie securely unpenetrated. Important issues have yet to be confronted directly by behavioural researchers . . ...
Purpose
Commercial property development builds floor space in anticipation of potential, but unknown, future demand, making it particularly prone to risk and uncertainty. The research explores the degree to which property developer decision-making is objective and rational and the degree to which it relies on behavioural instincts and intuition. Decision-making theory, including heuristics, is considered and its prevalence in the field of commercial property development is examined.
Design/methodology/approach
A “dual-processing” decision-making model, comprising intuitive System 1 and objective System 2 processing, is proposed and tested. Inductive research using template analysis of interviews, with “high status” commercial property developers, explored whether the model offers an accurate representation of developers' behaviour and effective lens through which to examine decisions made under conditions of risk and uncertainty.
Findings
Participants believed they adopted objective and rational approaches to complex commercial property development decisions. Analysis of interviews reveals that System 1 heuristics and intuition play significant roles in decision-making behaviour, leading to potential bias and systematic error. The research concludes that the dual-processing model provides a useful lens through which to better understand the decision-making approach adopted by commercial property developers.
Originality/value
The research represents the rare application of behavioural theory to the realm of commercial property development and provides new and original insight as to how important investment decisions are made under conditions of risk and uncertainty, with implications for professional practice.
... The suggested effect of client pressure on neutrality and objectivity in value assessment was an important reason for the inception of behavioural research in valuation since 1990 onwards (Diaz, 1999;Diaz and Hansz, 2007). Much of the behavioural studies on valuer judgement bias that have subsequently been performed seems to be grounded in two early behavioural theories. ...
Purpose
The purpose of this paper aims to disclose shared beliefs and understandings about the concept of professionalism amongst Dutch commercial real estate valuers. It examines prevailing logics of action in a mature European valuation industry and reflects on the potential influence of these logics on the occurrence of judgement bias in valuation.
Design/methodology/approach
The underlying study adopted a grounded theory approach to facilitate reflexive in-depth interview sessions with 20 experienced valuation professionals in the Netherlands. Emerging data on core categories of professionalism were initially identified and grouped; and subsequently conceptualised into ideal role types of valuers using institutional logics theory.
Findings
Three different ideal types appear to guide Dutch valuation practice: the expert, the service provider and the reporter. The expert emphasises professional standards and technical quality, while the service provider advocates commercial quality and the reporter aims to uphold procedural quality. The authors find that the attention for technical quality associated with the expert role may be at risk of underexposure, fostering concerns about judgement quality and associated bias risks.
Research limitations/implications
The potential impact of both commercial and bureaucratic logics on valuation quality may raise authoritative and educational concerns over judgement bias effects. However, while trends in professionalism may transcend national boundaries, the specifics of local real estate market structures and regulations require replication of results in other markets.
Originality/value
Institutional logics provide an alternative, socio-economic perspective on present-day valuer behaviour that progresses the understanding of the valuer–client relationship, thereby advancing the knowledge base on valuer judgement and client influence. Furthermore, the authors' role typology offers future research opportunities in terms of measurement and explanation of differences.
... Over the years, several appraisal experiments have been carried out (see for example Black et al. 2003;Crosby, 2000;and Diaz, 1999, for an overview). These studies mainly take their starting point in the field of behavioural economics. ...
Anchor effects in appraisals: Do information and theoretical knowledge matter?
Abstract
Purpose – The aim of this study is to evaluate the impact of theoretical knowledge related to financial behaviour and especially anchor effects.
Design/methodology/approach – The study design is based upon an experiment divided in two parts, before and after development of the course curriculum for the course introducing behavioural finance for undergraduate real estate students.
Findings – The study conclude that the anchor effect is persistent also after introducing theoretical knowledge regarding financial behaviour and anchor effects. To conclude, the results in this study indicates that appraisal of properties are dependent on the individual´s cognitive capacity to mitigate anchor effects. There are epistemological assumptions underlying our belief in the individuals´ capacity to handle anchor effects that might provide biased appraisals. These assumptions need to be carefully tested and treated in order to increase the accuracy of property appraisals.
Research limitations/implications –
Practical implications – The study result also highlights the possibility that current literature in valuation, and learning activities, does not emphases and stimulate readers to critical thinking. We would therefore propose also other real estate education programs to be aware of the potential lack of critical thinking among the students.
Originality/value – It provides an insight regarding how appraisal of properties is dependent on the individual´s cognitive capacity to mitigate anchor effects.
Keywords – Appraisal, Anchor effects, Valuation, Experiment,
... It has also inspired attempts to develop a descriptive model of valuer problem-solving behaviour (Diaz and Hansz, 2002). Detailed reviews of these studies have been provided in Diaz (1999), Diaz and Hansz (2007), Amidu (2011), Wyman et al. (2011 and the recent study of Klamer et al. (2017). ...
Purpose
Behavioural studies of valuers have suggested that valuers rely on a number of cognitive strategies involving reasoning and intuition when undertaking a valuation task. However, there are few studies of the actual reasoning mechanisms in valuation. In other fields, much attention has been paid to forward and backward reasoning, as this shows the choices and decisions that are made in undertaking a complex task. This paper studied this during a valuation task. The purpose of this paper is twofold: first, to develop a methodological approach for empirical research on valuers’ reasoning, and, second, to report expert-novice differences on valuers’ use of forward and backward reasoning during a valuation problem solving.
Design/methodology/approach
The study utilised a verbal protocol analysis (VPA) to elicit think-aloud data from a purposive sample of a group of valuers of different levels of expertise undertaking a commercial-valuation task. Through a content analysis interpretive strategy, the transcripts were analysed into different cognitive segments identifying the forward and backward reasoning strategies.
Findings
The findings showed that valuers accomplished the valuation task by dividing the overall problem into sub-problems. These sub-problems are thereafter solved by integrating available data with existing knowledge by relying more on forward reasoning than backward reasoning. However, there were effects associated with the level of expertise in the way the processes of forward and backward reasoning are used, with the expert and intermediate valuers being more thorough and comprehensive in their reasoning process than the novices.
Research limitations/implications
This study explores the possibility that forward and backward reasoning play an important role in commercial valuation problem solving using a limited sample of valuers. Given this, data cannot be generalised to all valuation practice settings but may motivate future research that examines the effectiveness of forward and backward reasoning in diverse valuation practice settings and develops a holistic model of valuation reasoning.
Practical implications
The findings of this study are applicable to valuation practice. Future training efforts need to evaluate the usefulness of teaching problem solving and explicitly recognise forward and backward reasoning, along with other problem-solving strategies uncovered in this study, as standard training strategies for influencing the quality of valuation decisions.
Originality/value
By adopting VPA, this study employs an insightful and rich dataset which allows an interpretation of thoughts of valuers into cognitive reasoning strategies that provide a deeper level of understanding of how valuers solve valuation problem; this has not been possible in previous related valuation studies.
... On the other hand, Diaz 30 suggested that property valuers use a reference point as an anchor in the negotiation process. These expert valuers may assign inappropriate weighting to the asking price of a property. ...
... The bulk of the mainstream literature on property market investment behaviour is derived from neo-classical economics and assumes a rational and normative process of decision making and behaviour. Property investment decision making is considered as an optimal, structured and rational process (Diaz, 1999;Gallimore and Gray, 2002). Basic principles such as profit maximisation, individual self-interest and consistent choices underpin this view (Schwartz et al., 2002;de Bruin and Flint-Hartle, 2003). ...
Purpose
The purpose of this paper is to provide a nuanced understanding of the complex factors driving the decision of commercial property owners (investors and developers) to stay and rebuild after a major disaster. The study examines what happens in the post-disaster rebuild of a central business district (CBD) from the perspective of commercial property owners in Christchurch, New Zealand.
Design/methodology/approach
An interpretive approach is adopted to understand what it takes to rebuild in a post-disaster environment through the lens and experiences of property owners. The study has observed the significant physical changes that have occurred in the Christchurch CBD as a result of the earthquakes. For this study, qualitative data were obtained through semi-structured interviews from 20 purposively identified property owners rebuilding the Christchurch CBD. The interview findings were subjected to a thematic analysis used to provide a factual way of characterising the viewpoints of those interviewed.
Findings
The findings have highlighted that the decision-making behaviour of property owners in Christchurch’s CBD post-disaster rebuild has been driven significantly by an emotional attachments to people and place.
Practical implications
The global trend in increasing destruction from natural disasters has raised the need for more efficient and effective post-disaster responses and activities. The paper has developed a knowledge base required to inform public policy and advice all those involved in the rebuilding of cities after a major disaster.
Originality/value
This paper contributes to the property literature and debates about the decision-making behaviour of commercial property owners who are engaged in rebuilding after a major natural disaster. The qualitative methodology used presents a novel approach to property research. The findings challenge the underlying premises of much of the mainstream property literature on normative investment behaviour and decision making.
... This idea is based on the rationale that decision makers with stable preferences are acting in a perfect market with many competitors, accessible information and homogenous products. The practices of property stakeholders are most times based on these conventional assumptions, which consists of paradigms inherited from both economics and finance disciplines (Diaz III, 1999). A majority of this type of literature on the property investment market according to Diaz III, (1999, p. 327) are "…theoretically underpinned by the rational man construct and the efficient market hypothesis and uses regression-based econometric techniques…" to analyse price and quantity. ...
This paper seeks to expand our theoretical knowledge on what happens in post-disaster rebuild from the perspective of commercial property stakeholders (investors and developers; agents and professionals). By exploring how they have fared in a post-disaster rebuild environment, this paper has provided a nuanced understanding of the complex challenges they face after a major disaster. This paper adopts an interpretive approach to understanding what it takes to rebuild in a post-disaster environment through the lens and experiences of property stakeholders. After a series of catastrophic earthquakes in 2010 and 2011 in Christchurch, New Zealand, there was consequential damage to most of the commercial buildings in the central business district (CBD). Seven (7) years on, the CBD is still being rebuilt after so much demolition and clearing of debris for an extended period when the city was cordoned off just after the earthquakes. For this study, qualitative data was gathered via semi-structured interviews from twenty (20) purposively identified “Informed Property Stakeholders” involved in post-disaster rebuilding. The interview findings were subjected to an interpretative and thematic analysis used to provide a veracious way of characterising the viewpoints of those interviewed. Overall, this paper has highlighted the perspectives of those interviewed and the findings conveyed that post-disaster rebuilding was an unprecedented and unusual challenge for many property stakeholders.
... Residential or housing can be treated as both investment and consumption. A majority of studies focused on the investment function of property and the role of valuation process [11]. Investment decisions in residential real estate are traditionally assumed to be a rational process. ...
... apartments, single-family units, boxes, shops, offices, etc.), for which, although there is generally a widespread market that suggests the application of a market approach, the frequent opacity of the transactions leads to use the "asking" prices rather than "actual" selling prices in the valuations. This contingency determines, on the one hand, a higher responsibility of the professional valuers concerning the assumptions made on the likely market dynamics, on the other hand, a higher uncertainty of the results for the clients, with the consequent effects of the formation of anomalous price markets: several authors (Black and Diaz, 1996;Arnold, 1999;Diaz, 1999) have analyzed the potentially bias results linked to the use of asked prices that are frequently incongruous with available market data. ...
As regards the assessment of the market values of properties that compose real estate portfolios, in this research an automated valuation model has been proposed and tested. In particular, the method defined allows to provide for objective, reliable and "quick" valuations of the assets in the phases of periodic reviews of the property values.
Aiming at both predictive and interpretative purposes, the method, based on multi-objective genetic algorithms to search those model expressions that simultaneously maximize the accuracy of the data and the parsimony of the mathematical functions, is applied to a sample data of office properties characterized by medium and large size, located in the city of Milan (Italy) and sold in the period between 2004 and 2015.
The model obtained could be an integration of the canonical methodologies (market approach, income approach, cost approach) implemented in the assessment of the market values of properties, so as to provide an additional tool to verify the results. In particular, the inclusion of economic variables in the model is consistent with the need to reiterate the valuations, contextualizing them to the locational characteristics and to the current property cycle phase in the specific area.
The model can be applied by all the operators involved in the periodic reviews of the values of property portfolios: from Real Estate Funds' insiders, in order to monitor the values obtained through the canonical approaches, to the public institutions, such as the Revenue Agencies, in order to ensure the fair payment of the taxes through the updating values of the properties according to the actual and current market trends.
The method proposed can be a valid support for all public and private entities that hold significant property assets and which, for various reasons (periodic reviews of the balance sheets, sales, enhancement, investment, etc.), require cyclical updated values of the properties. The automated valuation model developed can be used for the assessment of “comparison” values with the estimates values obtained by other assessment techniques, in order to ensure a further monitoring tool of the results from the subjects involved.
... Therefore, the focus of BRE differs depending on the researchers' primary focus. A majority concentrates on the investment 4 function of property and the role of the valuation process (Diaz, 1999). These studies stress the financial and physical aspects of the house. ...
All over the world there is a strong infatuation towards real estate. Nevertheless there seems to be a (sub)conscious omission in incorporating this stylised fact into the academic literature. The decision of buying residential property may be one of the most important transaction people will ever make, and the emotional attachment when houses become homes is inevitable. Can we effectively sustain that properties, houses, and homes are equivalent terms? It is fair to say that while its importance is undeniable, the consumption function as well as the social and emotional perspective of real estate are often neglected. The behavioural approach to decision making under uncertainty combines insights from psychology and sociology into real estate finance and investment. We aim to provide an overview of the current state of affairs of the main themes in which the behavioural approach intersects with real estate to gain a deeper understanding of the build environment. It seems to be the general agreement that behavioural studies can help to gain insight into property markets, but that a large component of behavioural decision making is left undiscovered.
... Gibson and Lizeri's (1998) description of the players in the UK property supply market as inadvertently conspiring towards the maintenance of existing norms would seem, from this perspective, to repeat a phenomenon that is inherent in complex organisational systems. Research with a behaviourist as opposed to a rationalist stance in property is in its infancy (Diaz, 1999) but shows promise, as for example experimental evidence of valuers being influenced in negotiations by asking price even where they knew it to be unrealistic. ...
If occupiers are to be able to make correct decisions on property, they, or their advisors, need to understand how it contributes, not only to costs but also more importantly to the knowledge and service processes of the organisation. The question is less 'How does property benefit occupiers?' and more 'How do occupiers secure maximum benefit from property?'. The literature, despite some claims and examples, does not answer either question. The results of this first occupier.org study are presented on this site in three levels. The raw data is in the literature database where there is an evaluative summary of individual contributions. The full report that follows draws those contributions into a cohesive thread, acknowledging relevant source material in the standard academic fashion. This overview, without attributions, sums up the main messages for the real estate professional. Some disclaimers are necessary. The review is restricted to material in the public domain, i.e. sources published as books, journal articles or websites, and has not sought material published in languages other than English. Whilst the authors cannot be certain that every available reference has been accessed, they are confident that the ca. 300 references included in the first version of the database cover the main commentary in the field. We welcome, and will include in updates of the database, other material that readers choose to bring to our attention. Judged by the criterion of the number of new titles published, interest in the workplace as a management tool for 'post-Fordist' organisations is reaching fad status. However, with a few notable exceptions, most of this interest could be considered as pushed by practitioners, advisers or professionals rather than pulled by line managers or even business and organisational theorists. One sign of the explosion is the plethora of new terminology, as property or real-estate specialists, facilities managers and workplace designers all lay claims to a, or often the, strategic role; claims whose evidence is frequently lacking.
... The inertia of funding organisations also plays a role. Nonetheless, there also exists some qualitative research (see, e.g., Canonne and Macdonald 2003;Dent and Temple 1998;Diaz 1998). Unfortunately such research undertakings are still seen as a maverick activity. ...
Sustainable urban development requires the education of professionals dealing with the built environment. Property valuers constitute one such important albeit neglected group of actors. When the aim is to comprehend value and valuation, the questions to ask include the following: What is the ideal definition of sustainable development in a valuation context? Is it about the diversity of value systems? Or is it about long-term thinking in terms of reinvesting the profits harvested? And what is the role of generating data on these factors? This paper reports some suggestions for answering these questions in a residential context.
... To overcome some of the paucity in the knowledge of actual property investor behaviour some attempts have been made to establish a complementary, behaviourally oriented, research paradigm within the property field. Diaz III (1999) and Diaz III and Hansz (2007) review this evolving research approach with specific attention to studies of property appraisals. Wofford et al. (2010) further discuss the issues raised by Diaz III and Hansz (2007) and suggest that the research paradigm be based on management of risks related to limited human cognitive abilities. ...
Purpose
This explorative case study focuses on property investment decision making from a behavioural perspective at the very microlevel. The study contributes to an understanding of how property investors manage the decision‐making process, including organizational aspects, property valuation, and financial management.
Design/methodology/approach
Applying a qualitative approach, the authors analyse a very large transaction that occurred in the Swedish property market in 2008. In an open bid transaction, properties of Vasakronan Corporation were sold for SEK41.1 billion (€4.3 billion). Managers in both the purchasing company and the consortium making the second highest bid were interviewed. The authors were encouraged to speak freely, but also used an interview guide with a number of themes as well as specific questions.
Findings
The findings reveal the characteristics of two types of property investment decision‐making behaviour with respect to how actors organize the work, use external consultants, value the properties, and secure the financing necessary for a final bid.
Practical implications
Creditors, analysts, and appraisers may benefit from the insight that property investment decision makers can use different approaches in determining their final bids.
Originality/value
The authors use a qualitative empirical approach in analysing an extraordinarily large property transaction from a buyer's point of view and presents detailed information about this transaction as well as general insights into actual behaviour rarely examined in the property investment literature.
... The first is a behavioral mechanism, such as the tendency to anchor a valuation in something, e.g. an earlier valuation, or to submit to client pressure not to change the book value of a property. This behavioral mechanism might be seen as irrationality in the behaviour of the valuer (see Diaz 1999 for an overview of this literature). The second mechanism behind smoothing underlined in Quan & Quigley (1991) is a rational baysian updating mechanism, where old information is used if the new information is rather weak. ...
... 7. The behavioral research in Real is not a novelty; see the seminal review of Diaz (1998). ...
Purpose
In the real estate industry, as well as in other mature markets, producers seek to improve their comparative advantage by correctly addressing the needs and expectations of future users; when projects involve public financial investment (e.g. public/private partnerships), such participation may help to legitimate resource allocation. In this respect few quantitative approaches, affiliated to the study of demand, are able to evaluate the trade‐off that is given between the preferences of individuals when they are faced to choose a single alternative, as is usual in real estate and urban projects. The purpose of this paper is to report the initial results of a research study with the objective of investigating the extent to which techniques used in the design of goods and services could be used to consider future users' preferences on the design processes of real estate developments, such as those promoted by public‐private partnerships in which the inclusion of people's opinion become central for commercial and political reasons.
Design/methodology/approach
This article seeks to evaluate the extent to which conjoint analysis, a technique affiliated with designing goods and services through future user/consumer participation, may be used as a support tool in making real estate decisions. This method, born out of the field of marketing analysis, is based on choice experiments and the results are analyzed with conventional multinomial regression models, and can be rooted in “characteristics theory of value” and “behaviorism”.
Findings
The results suggest that although this method is helpful in finding the relative relevance of each of the attributes in the projects evaluated, it is not sufficiently clear to: determine the attributes to evaluate; understand the deep reasons motivating preferences; or anticipate future needs that go unnoticed by potential users/buyers in their everyday perceptions. Therefore, this technique is far superior to typical evaluation surveys on independent attributes. However, it is insufficient in the context of intrinsically complex processes.
Originality/value
Although intensively used in the design of short‐life consumption services and products, conjoint analysis has been scarcely used on long‐life goods such as urban premises; in this article this technique is used for first time in the framework of a type of public/private brownfield redevelopment project in Catalonia.
... In a parallel to the above researchers of risk perceptions, Diaz (1999) recognises the need to consider the social and behavioural perspectives in property research by claiming "the essence of property is human behaviour" (Diaz III 1999, p.326). Similar to the risk research, the traditional approach to property research that has dominated is what Diaz terms the "finance paradigm" which was inherited originally from economics. ...
... Behavioural studies in both North America (Brown et al., 1981) and the UK (Goodchild and Munton, 1985) have long emphasised the importance of landowner characteristics in the conversion of land to urban development. A substantial body of work has also investigated how the behavioural characteristics of property valuers affect property valuations (for a review see Diaz, 1999), while the tendency of developers to satisfice or accept sub-optimal but adequate outcomes has also been explained in behavioural terms (Mohamed, 2006). ...
This paper challenges the dichotomous distinction between planning and the market promoted by mainstream economists, by arguing that markets should be seen as socially constructed not given. Drawing on recent developments in institutional and behavioural economics, it contends that what is required is not for planners to become market actors, but rather to realise they are already “market actors” intricately involved in framing and re-framing property markets. By highlighting planners’ potential to re-make, rather than merely accept, market conditions, the paper calls for state–market relations in land and property to be accorded a central place within the new spatial planning.
... Economic behaviour is human behaviour (Diaz, 1999). ...
This paper explores how business occupiers decide whether and where to relocate. It captures the experience and behaviour of a range of sizes and types of business occupier and subjects their decision‐making processes to detailed scrutiny. A linear three‐stage decision model is used to sequence and structure interviews with individuals who have intimate involvement with the relocation of 28 firms and organizations in Tyne and Wear, in the north‐east of England.The ‘constant comparative’ method is used to analyse the interview data, from which emerges 18 key concepts, comprising 51 characteristic components. Using an axial approach, these are organized into 10 cross‐cutting themes that represent the main areas of consideration or influence on the thinking of the people involved in determining whether a firm or organization should relocate and, if so, where to.The resulting analysis finds that organizations adopt varying degrees of sophistication when making relocation decisions; small firms are more inclined to make decisions based on constrained information; larger organizations adopt a more complex approach. Regardless of firm size, key individuals exert considerable influence over the decision‐making process and its outcome.
The paper is going to establish a firm base for the investment decision for a person to have a secure social living. It is a challenge for a person to have a complete knowledge on all the investment products available in the market. In due course of time with increased marketing strata, it become much more complex for the people to arrive to a conclusion. Most likely it happens two possibilities either a happy ending with a satisfaction or with a bad investment along with a guilty feeling. But it is not always possible to go back and cancel the investment then choose another. Hence there is a need to establish firm base by considering all the possible investment decisions available. This paper is intended to fill such gap and also it lays an arena for the better investment. The paper includes the various facets of the investment options with a logical validation.
Purpose
Decision-making behaviour of property investors has been the focus of real estate research for decades. Yet, there is no consensus on a generally accepted behavioural model that suits all market conditions and investment peculiarities. While scholars have emphasized the significance of rational reasoning and cognitive influences on property investment decision-making preferences, gaps remain regarding the impacts of market disruptions on property investment decision-making behaviour. This paper, therefore, explores the institutional framework as a theoretical basis for understanding property investment decision-making behaviour amidst market disruptions.
Design/methodology/approach
This paper reports a systematic review of pertinent theories that have explored decision-making behaviour. Commencing with an index search of high impact peer-reviewed journals, a snowball identification of relevant citations was also deployed to assemble theories from the field of psychology, sociology, economics and urban studies. Although a preliminary dataset of 82 papers with relevant decision-making theories was identified, the final dataset comprised 27 papers and 7 theories. The identified theories were reviewed accordingly.
Findings
The outcome of this study suggests that the institutional framework offers a robust approach to property investment decision-making amidst market disruptions, especially because it recognizes the dynamism in the investment environment and the roles of formal and informal rules that exist therein.
Originality/value
This study advances the current understanding of property investment decision-making behaviour by recognising the dynamism of the investment environment and how factors such as principles, laws, tradition and routines can lead to an established and legitimate standard of reasoning. By integrating both rational and cognitive attributes, the study provides a holistic perspective to property investors' decision-making behaviour in response to market disruptions.
Zusammenfassung
Dieser Artikel untersucht den Stand der immobilienwirtschaftlichen Forschung zu menschlichen Entscheidungen und Entscheidungsunterstützungssystemen (EUS). Er baut auf einer systematischen Literaturrecherche auf, die die Entwicklung der Forschung, untersuchte immobilienwirtschaftliche Felder, angewendete Methoden, Verbindungen zu anderen Disziplinen sowie favorisierte Zeitschriften identifiziert. Es werden Problemstrukturen aufgezeigt, die auf drei Bereiche verdichtet werden können: (1) Die primäre Forschungsleistung fließt in die Bereiche Investitionen und Bewertung. Andere immobilienwirtschaftliche Disziplinen sind bisher unterrepräsentiert. (2) Ein Wissenstransfer zwischen der verhaltensorientierten Immobilienforschung und der Informatik ist kaum zu beobachten. Insgesamt scheint die Forschung über immobilienwirtschaftliche Entscheidungsunterstützungssysteme noch am Anfang zu stehen. (3) Der in der Immobilienwirtschaft vorherrschende Risikobegriff ist unzureichend und muss um eine psychologische Dimension erweitert werden, um sein Potential für immobilienwirtschaftliche EUS-Anwendungen entfalten zu können.
Real estate appraisal accuracy is vital to the appraisal industry because it might affect real estate business running, benefit maintenance, and market rule establishment. Following behavior economics forming, researchers have transferred their research paradigm to behavior discipline which is a shining viewpoint of study. My paper, based on real estate appraisal accuracy researches, directed by descriptive behavior research paradigm, analyses real estate appraisal host’s producing valuation procedure and principle, puts forward a train of thought on how to avoid valuation bias by controlling elements in valuation procedure. By correlating the new paradigm into the valuation procedure, the paper finds that internal appraisal information processing system is a system of reaction to information and deepening information digging process, it belongs to the category of psychological research field. By analyzing appraisal bias generation and its analysis based on traditional and behavioral information processing separately, the paper reconstructs the traditional real estate appraisal information processing flow chart in order to satisfy dynamic and versatile complex environmental requirement based on the new paradigm.
This study demonstrated the effectiveness of an evidence-supported, data-driven approach to motivate an
understanding of student learning in taxation class via content analysis using KH Coder and text mining. The
approach is a corpus-based, computer aided linguistic analysis. Outcomes of the data analysis supported inclusion of three factors; tax philosophy, tax practice, and applied learning, as contributors to the proposed grounded theory, theoretical model for Bachelor of Accounting, Taxation learners. The data from computer-aided content analysis helped support the integrated learning portion of the SCIL model proposed by Miller (2017), through the Accreditation Council for Business Schools and Programs (ACBSP). These applied learning constructs triangulated with evidence from the fact-based methods of credential acceptance and stakeholder satisfaction validated in the earlier study toward explaining accounting student’s readiness for career success upon graduation and meeting outcomes reporting mandates.
Purpose
– The purpose of this paper is to describe and analyze the thought patterns of authorized property appraisers (APAs) when valuing commercial properties, and draw conclusions about their collective thinking in terms of content, complexity, and homogeneity.
Design/methodology/approach
– A standard set of value-adding factors and bipolar constructs was included in a grid form used for data collection. The repertory grid technique and principal component analysis were used to map and analyze the thought patterns of nearly half of the APAs in Sweden.
Findings
– Analysis of the mean grid for all respondents revealed three dimensions in the aggregated APA thought pattern: property object – property market focus, abstract – specific information, and expert – superficial assessments. The aggregated thought pattern was found to be moderately complex, and the APAs demonstrated relatively strong homogeneity in their thought patterns.
Practical implications
– Based on the moderate complexity and relatively strong homogeneity in respondent thought patterns, this study discusses the upcoming establishment of a profession.
Originality/value
– To the authors’ best knowledge, this is the first study using the repertory grid technique to map and analyze APA thought patterns at an aggregated level.
The real estate market has been known to suffer from inefficient information flow and uneven distribution of vital information. Carefully-crafted market/media reports can influence consumer sentiment and perception (i.e., the "framing effect"). Behavioral research in real estate has demonstrated that such framing effects can influence individuals' perceptions, which may consequently alter decisions made by housing consumers. In this paper, we find that framing effects influence university students and recent graduates with and without proper real estate academic knowledge. Academic real estate knowledge can be an important tool to fortify consumers against the bias created by the media. More practical knowledge and professional experience is needed in order for good judgments about future market performance to be made.
During the 1990s and early 2000s an international body of literature explored property portfolio diversification strategies, motivated by the view that reliance on administrative regions to represent asset classes is suboptimum because they are based on historic and governmental factors rather than market fundamentals. Thus, individual 'asset classes' may contain highly heterogeneous areas, violating the basic tenets of investment theory. Asset classes based on alternative market groupings were proposed and are re-evaluated here. A sample of 73 local markets is analysed covering 1998-2007, with temporal stability additionally explored. Comparative portfolio performance opportunities are assessed using efficient frontiers, with the alternative market groupings most often found to offer superior performance to traditional strategies. Further than this, the optimal weightings suggested by the classifications are compared to observed aggregate institutional investment weightings. The differences in allocation are found to be considerable. Subsequent hypothetical benchmark portfolios, constructed using observed allocations, are found to statistically significantly violate the mean variance criterion in volatile market phases. Explanations are proposed, drawing on the investment characteristics of property and consequences for portfolio management, as well as an exploration of behavioural factors to include benchmarking. A re-visiting of investment theory and practical strategies is urged.
An experimental laboratory simulation of property sales and management was used to study auction and tender bidding behaviour. The simulation creates a model property investment environment where subjects have the opportunity to purchase property, but must then manage it profitably to succeed.The experiment revealed that in a well-informed, mildly optimistic market, tender sales returned prices close to rational capitalised values, whereas auction sales returned premiums. Moreover, when sets of properties are auctioned in succession in a single auction session, there appears to be a learning effect on prices. The paper relates the experiment to the developing literature on the behavioural study of property auctions.
There is an urgent need for sustainability to be incorporated into the valuation process in order to ascertain and accurately reflect the relationship between sustainability and market value, and increase large-scale sustainability investment in property. This predicament has been recognised and increasing emphasis from industry, valuation bodies and academia is being placed on valuers to incorporate sustainability into the valuation process. However, it is questionable whether valuers are adequately equipped with the knowledge and skills to incorporate sustainability into valuation practice.
A new data set is employed to construct an index of the Swiss rental residential market starting as early as 1936. Given the data sample at our disposal of slightly less than 1000 paired data points spread across all Switzerland, we focus on using the most efficient type of repeated-measurement index to evaluate the yearly price development of the rental property market. In the process of building the index, an alternative of the SPAR method (Sale Price Appraisal Ratio) is developed and compared against a structural time series model and the Case–Shiller approach. The newly developed ISPAR (Inverse SPAR) method yields qualitatively similar results to the regression based methodology yet is influenced to a lesser extent by the sample size. The structural time series model is the version least influenced by the sample size. An interesting finding in our sample is that despite the large time span between successive price measurements, no notable improvement is obtained using the 3SLS method of Case–Shiller instead of the traditional Bailey et al. method.
Purpose
The paper addresses the practical problems which emerge when attempting to apply longitudinal approaches to the assessment of property depreciation using valuation‐based data. These problems relate to inconsistent valuation regimes and the difficulties in finding appropriate benchmarks.
Design/methodology/approach
The paper adopts a case study of seven major office locations around Europe and attempts to determine ten‐year rental value depreciation rates based on a longitudinal approach using IPD, CBRE and BNP Paribas datasets.
Findings
The depreciation rates range from a 5 per cent PA depreciation rate in Frankfurt to a 2 per cent appreciation rate in Stockholm. The results are discussed in the context of the difficulties in applying this method with inconsistent data.
Research limitations/implications
The paper has methodological implications for measuring property investment depreciation and provides an example of the problems in adopting theoretically sound approaches with inconsistent information.
Practical implications
Valuations play an important role in performance measurement and cross border investment decision making and, therefore, knowledge of inconsistency of valuation practice aids decision making and informs any application of valuation‐based data in the attainment of depreciation rates.
Originality/value
The paper provides new insights into the use of property market valuation data in a cross‐border context, insights that previously had been anecdotal and unproven in nature.
In the past decade or so, there has been growing attention paid to the question of appraisal, or valuation, accuracy. Studies
that encompass this question have principally been driven by concerns over how appraisal in accuracy may adversely affect the validity of appraisal-based real estate indices and of the portfolio management policies
that draw inferences from them. Such studies have been pursued in the US (e.g. Webb, 1994; Fisher, Miles and Webb, 1999; Clayton, Geltner and Hamilton, 2000), the UK (e.g. Matysiak and Wang, 1995; Blundell and Ward, 1997; Drivers Jonas/IPD, 1997) and Australia (Parker, 1998; Newell and Kishore, 1998). Given the nature of the concerns, these studies have generally focused on commercial appraisals, especially of institutional
grade real estate, although accuracy is a wider issue that surrounds all forms of appraisals.
Spatial planning influences the value formation of land, a central component in the price formation of urban housing. However, the underlying causal mechanism is extremely complex. The outcome may depend on various effects related to a constrained market, improved amenities or policy of particular (land) development-planning regimes. In today's European context informal aspects - negotiation and collaboration - may also be relevant. Due to the problematic relationship between economic and non-economic values, the literature is far from reaching consensus about the theory model behind the processes of value formation. The tensions between existing and desired outcome lead to speculation about the role of planning preferences and decision-making in determining the location specific value potential and vice versa, the role of the essential nature of value in formulating and implementing the goals of the planning process. If there is a disparity between the existing and desired levels of market outcome, measures may be taken to adapt market friction parameters. The two institutional ideal approaches are a market-led approach without market friction parameters and a hierarchical actor-led approach. Between these two extremes emerges a broad approach, where the outcome is determined by an interactive network of actors.
The methodological debates within economics are reviewed. Methodology as the theory for attaining knowledge is contrasted to method. Various methods are reviewed in terms of their suitability for the discipline. Methodology as an independent science and its relationship to the other sciences is reviewed along with property economics. The limitations of the dominant methodological approach to the discipline are surveyed and related to larger movements in contemporary thought. The tendency to rely overly on empirical method is shown to create unnecessary shortcomings. A broader approach is recommended, incorporating current methods, but covering their shortcomings is suggested.
Purpose
– This paper aims to examine the experiences of valuers when valuing market dominant and non‐dominant standard lease structures. The research compares the perceptions and approaches of New Zealand valuers when valuing gross and net leases, two standard lease types commonly utilised in the New Zealand commercial property market.
Design/methodology/approach
– The study employs a structured survey of 87 commercial valuers practising in Auckland (where net leases dominate) and Wellington (where gross leases dominate) complemented by in‐depth interviews with senior commercial valuers employed by large national/international multidisciplinary real estate companies.
Findings
– The results suggest that valuers find the process of valuing standard non‐dominant lease structures more demanding than valuing dominant leases and tend to be comparatively less confident about carrying out valuations of leases with which they are less familiar. This lack of confidence tends to result from the lack of comparable evidence and the added complexity of the valuation process requiring additional valuer expertise and judgement. In addition the study uncovers the adoption of place‐based differential valuation practices that have built up over time between the two centres under study.
Originality/value
– The paper contributes to the literature relating to valuer behaviour by revealing that even within one country with the same rules and professional standards different valuation practices may evolve. This study specifically identifies different dominant lease structures as being one of the reasons for these differential valuation practices. The findings also highlight the difficulties perceived by valuers when valuing non‐dominant leases and in turn this may have implications when comparing the valuation outcomes of similar buildings within different markets.
Purpose – Computing the duration of real estate assets is a challenging task due to the particularities of the property market. This paper aims to develop an empirical model to compute the interest-rate sensitivity of direct real estate assets in the Swiss multifamily housing market.
Design/methodology/approach – An aggregated total return index is used to empirically estimate the interest-rate sensitivity of the underlying assets in a dynamic DCF model. No instantaneous change is computed but a long-run price adjustment.
Findings – The long-run sensitivity is computed to be roughly 4.5 per cent. The value is found to be statistically significant at the 1 per cent level. The model is estimated over two different time periods and the estimate remains significant over both periods with value changing marginally. Potential reliance of trends when forming expectations is found to be present.
Research limitations/implications – One limitation is that the computed value is valid for a portfolio having a similar composition with the index used for the empirical estimation.
Practical implications – The value of the interest-rate sensitivity places Swiss direct real estate assets within the European range. The value may be used to compute the risk-based capital of an institutional investor in as far as the portfolio is similar in composition with the index.
Originality/value – The use of the dynamic DCF model allows one to split the changes in asset prices in changes from interest-rates and changes from cashflows. No value was previously available for the market of Swiss multifamily properties.
Investigates the extent and possible causes of variance in property investment valuations for commercial lending purposes within the UK. A literature review was undertaken and a questionnaire survey was circulated to individuals involved in the commercial property valuation process in order to gauge professional opinion. The survey revealed that the main cause of variance was found to be a result of the individual valuer’s “behavioural influences”. The survey also found that parties to a valuation instruction widely accept the margin of error principle, the legal manifestation of valuation variance, as a test of negligence.
A series of experiments were conducted to examine valuation behaviour in the UK, the USA, and New Zealand (NZ). Professional valuers from all three countries participated in the study whose findings support the notion that the US normative model is cognitively demanding and that greater departures from it result in reduced cognitive effort. The study also concluded that subjects from cultures requiring disclosure (USA and NZ) examined a significantly greater number of sales than did subjects from the UK where disclosure is uncommon. Finally, while valuers perhaps ought to increase sales search in unfamiliar markets, this research revealed no evidence that they do so. These findings are consistent with the need to seek cognitive efficiency and reduce cognitive effort even at the expense of performance quality.
This paper examines the use of asking price in the real property negotiation process and whether it can potentially bias results. Theoretical work on the limited processing capacity of the human mind suggests the research hypothesis that negotiators will devalue difficultly processed critical information in favour of cognitive shortcuts (called heuristics) such as asking price. The analysis of data gathered through a series of experiments revealed that the manipulation of asking price led to the manipulation of both buyer opening offer and eventual settlement prices, thus indicating the use of asking price as a shortcut and its strong potential as an agent for bias.
This article examines the role of contingent reward in reducing negotiation anchoring. A case study approach was adopted in the investigation undertaken. Five residencies were offered for sale and university students were assigned the task of negotiating the sales price of one of the houses. The results showed that where no asking price was given the settlement price was consistently lower than for those of incongruously high asking price. It is felt that these results are less biased than previous studies as a system of rewards was offered as the study was a step towards a real life setting.
Builds on a previous study and examines the influence of asking prices as anchors in the real property negotiating process. Previous studies have shown that the human mind uses short cuts (heuristics) in process information. Describes a study which gives further evidence that negotiators familiar with real property will, in many cases, devalue cognitively difficult pricing information and base their negotiation expectations on the seller’s asking price. Concludes that the seller’s asking price is thus a potential source of bias.
Introduction According to the theory of human problem solving most fully articulated in Newell and Simon (1972) and Simon (1978), problem solving occurs in human short-term memory. Because short-term memory has a limited amount of processing capacity, human problem solvers are driven to employ cognitive short cuts often called heuristics. While reducing complexity and cognitive effort, the use of these short cuts may also produce judgemental bias (systematic error). The influence of these problem-solving short cuts has been studied extensively in well-structured problem domains with novice subjects, but rarely has research focused on the expert solving ill-structured problems. This lack of descriptive investigation characterizes research into real estate appraisal judgement. Quan and Quigley (1991), Geltner (1993) and others have theorized that appraisers rely on previous value estimates in the face of greater market uncertainty. Building on the heuristic problem-solving lite
An attempt is made at defining the discipline of real estate by exploring the academic traditions of science and engineering and by developing an activities model of the real estate system. The resulting framework illustrates an applied discipline with four distinct cells of academic endeavor-activities science, allocation science, activities engineering, and allocation engineering. This model of the academic discipline of real estate is both descriptive and prescriptive. It is descriptive in the sense that it efficiently captures the research interests of the real estate academic community. It is prescriptive in the sense that it offers a starting point for the development of a shared definition of what the academic discipline of real estate should be.
Many decisions are based on beliefs concerning the likelihood of uncertain events such as the outcome of an election, the guilt of a defendant, or the future value of the dollar. Occasionally, beliefs concerning uncertain events are expressed in numerical form as odds or subjective probabilities. In general, the heuristics are quite useful, but sometimes they lead to severe and systematic errors. The subjective assessment of probability resembles the subjective assessment of physical quantities such as distance or size. These judgments are all based on data of limited validity, which are processed according to heuristic rules. However, the reliance on this rule leads to systematic errors in the estimation of distance. This chapter describes three heuristics that are employed in making judgments under uncertainty. The first is representativeness, which is usually employed when people are asked to judge the probability that an object or event belongs to a class or event. The second is the availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development, and the third is adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available.
The comparative method of valuation is based on valuers interpreting prices agreed in the open market to arrive at an opinion of value. This requires the consideration of a diverse range of variables and an assessment of their relative impact. Behavioural analysis using an independent sample of buyers and valuers operative in the Belfast residential market indicates that there are statistically significant differences between the two sample groups in the scoring and ranking of variables. In particular valuers are shown to place a greater emphasis on environmental or neighbourhood effects. Discusses the outcome of this empirically-based research and analyses whether differences in the treatment of variables between the valuer and buyer samples are reflected in different price and value distributions. The results indicate that valuation accuracy to within 5 per cent of transaction price is not upheld; rather it is argued that a 10 per cent threshold has greater credibility.
This paper reviews models of the development process. The objective is to assess their capacity to analyse the detail of agency relationships in the negotiation of development projects, while at the same time offering ways of generalizing about the significance of actors and events in the development process under different conditions. The models reviewed are grouped into four types: equilibrium models, event sequence models, agency models and structural models. Each makes a contribution to the objective set out, but none fully addresses the range of possible forms and dynamics which the development process may make. An alternative model is developed in a subsequent paper.
Presents an investigation into the existence of information processing heuristics in two commercial bank lender types that provide investment and construction loans secured by real estate. Expert real estate banking lenders and expert private banking lenders evidenced different, systematic group specific heuristic usage. Heuristics constrained information cue relevancy and affected the lending decision. Expert private banking lenders mitigated real estate risk by using non-collateral specific information cues. Real estate lending experts did not mitigate real estate market risk and required favourable collateral specific information cues in order to approve a loan. Concludes that access to credit for real estate investment may be limited by lender expertise because the development of expertise mandates restrictive task interpretation and cue relevance.
Documents evidence of a loss of independence in the commercial appraisal industry in the USA. Utilizes a survey methodology to elicit the reactions of commercial appraisers to controlled scenarios of client pressure. This methodology was borrowed from established behavioural research that tested independent auditors for related independence agency issues. Results indicate significant valuation effects related to the amount of business a client brings to the appraisal firm, but no significant effect related to the size of the client-requested value adjustment, or to the interaction of the amount of client business and the size of the requested value adjustment. Suggests that changes in fee structures and institutional reforms may be necessary to resolve the loss of independence.
Explains that bias in human problem-solving behaviour may sometimes conflict with the assumptions that underlie normative models of valuation. Possibilities include faulty perceptions of the task, routinized valuation procedures that rely heavily on pending sale price-knowledge and reliance on innate and distorting problem-solving heuristics. Describes an experiment conducted with appraisers in the USA and valuers in the UK to investigate the impact of price knowledge on the process of valuation and the search and selection of comparable sales. Concludes that both appraisers and valuers can be subject to price-knowledge bias, reflected in the choice of the less than “best” comparables and in the actual value estimate. Discusses how cultural differences in the appraisal and valuation processes, especially in the transparency of comparables adjustments, help to explain these effects.
This paper surveys approaches to the study of institutions, as used in recent commercial property research in Britain. Institutional analysis can be approached from mainstream economics, power, structure-agency and structures of provision methodologies. Each is elaborated and evaluated. Important differences arise between them, which are related primarily to issues of theory and method rather than over whether institutions matter. Any particular piece of analysis has to make assumptions, and here it is true that many economic models have only limited, stylised institutional behaviour. Those that wish for more institutional input, however, have to demonstrate the greater explanatory power of doing so
Valuations and appraisals are the product of human judgement. This paper explores the contention that such judgement may incorporate elements of cognitive bias. It assumes that a clearer grasp of the impact of such bias may assist in understanding what leads to "inaccuracy" in valuations. It outlines the case for questioning the validity of the rational assumptions that underlie models of valuation behaviour, and focuses upon one particular form of deviation from rationality: confirmation bias. It presents and discusses the results of a survey designed to test for associations of characteristics that might support the case for the presence of confirmation bias in valuer behaviour. It concludes that the case for the presence of confirmation bias is unproved.
Relatively little research has been conducted into the way in which valuers process the evidence they use in producing valuations. This paper reports upon an investigation to explore the applicability to valuers of aspects of information‐processing theory. Three phenomena which may lead to distortions in the use of evidence are considered. These are anchoring, and two ‘presentational’ effects, namely recency and dilution. The findings lend support to the presence of anchoring, and to the significance of the presentation order for positive evidence. The results point to the importance of recognizing the possible influence of these phenomena when formulating expectations about valuation accuracy, and of reviewing valuation procedures so as to minimize their possible effects.
Appraisal smoothing, the reduced variability of real estate return series, has been attributed to appraisers being influenced by their own previous value estimates. This hypothesis is tested experimentally. Expert apppraisers from Atlanta were asked to value a hypothetical apartment project in Phoenix. Eight months later, these experts were asked to update their original appraisals given certain market and property changes. At this time, an independent group of Atlanta experts was asked to appraise the property based on the updated conditions. Results support the hypothesis of insufficient adjustment from previous value judgments.
The studies described in this paper investigated the use of a decisional heuristic—anchoring-and-adjustment—in an information-rich, real world setting. In order to assess the generalizability of laboratory research on this decision heuristic, students and real estate agents toured and made pricing decisions about real estate properties. It was hypothesized that manipulated listing prices would anchor values assigned to the properties. Results were consistent with the use of an anchoring-and-adjustment value estimation strategy in information-rich, real world settings. Implications for the understanding of judgmental expertise are discussed.
This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness, which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could improve judgements and decisions in situations of uncertainty.
This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness,
which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process
B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a
class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical
prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead
to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could
improve judgements and decisions in situations of uncertainty.
Typescript. Thesis (Ph. D.)--Georgia State University, 1996. Includes bibliographical references (leaves 172-179).
Actual decisionmaking behavior is rarely the focus of real estate valuation research, but this paper argues the need for just such investigations and reports the results of one study. Two hypotheses concerning the relationship between the appraisal process and the actual behavior of expert appraisers are developed. An experimental test of these hypotheses reveals evidence that the behavior of expert appraisers deviates significantly from the prescribed appraisal process. Based upon the experimental observations, a model of actual expert behavior is built and compared to the prescribed model. Some implications of the observed behavioral divergence are discussed.
Is appraisal judgment influenced by the previous value estimates of other experts? This paper documents an investigation into this question. The literatures on appraisal smoothing and heuristic anchoring were explored to build a theoretical and empirical base. Research methods involved asking apprentice and expert appraisers, some supplied with the previous value estimate of an anonymous expert, to estimate the value of a vacant tract of industrial land. The strong support expected for the contention that appraisers are influenced by the previous value judgments of anonymous experts was not found. Whereas differences between the groups supplied with the previous value estimate and those who were not were in the direction consistent with anchoring, these results were not statistically significant, suggesting that anchoring may be more subtle than generally believed.
The failure of the universities to teach the real estate process as an interdisciplinary art form
- J A Graaskamp
Variability in Commercial Property Valuations in the UK: An Investigation of Possible Sources, paper presented at 1997 ARES Conference
- Tim Havard
Havard, Tim. (1997). Variability in Commercial Property Valuations in the UK: An
Investigation of Possible Sources, paper presented at 1997 ARES Conference, Sarasota,
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The Impact of the Examination of a Property on the Perception of Value and Desirability of a Following Property, paper presented at “Cutting Edge
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Levy, Deborah S. (1997). The Impact of the Examination of a Property on the Perception of Value and Desirability of a Following Property, paper presented at “Cutting Edge 1997, Property Research Conference of the Royal Institute of Chartered Surveyors, Dublin Institute of Technology, Dublin, Ireland
Valuation for Real Estate Decisions Democrat Press
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Client perception and the role of the appraiser
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Experts, Amateurs, and Real Estate: An Anchoring Perspective on Property Pricing Decisions Judgement Under Uncertainty: Heuristics and Biases Investigation into Price Knowledge Induced Comparable Sale Selection Bias, Dissertation, Georgia State University. r7 Wolverton, Marvin and Paul Gallimore
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Northcraft, Gregory and Margaret Neale. (1987). Experts, Amateurs, and Real Estate: An Anchoring Perspective on Property Pricing Decisions, Organizational Behavior and Human Decision Processes, 39:1, 84-97. Tversky, A. and D. Kahneman. (1974). Judgement Under Uncertainty: Heuristics and Biases, Science, 185:4157, 1124-1131. Wolverton, Marvin, (1996) Investigation into Price Knowledge Induced Comparable Sale Selection Bias, Dissertation, Georgia State University. r7 Wolverton, Marvin and Paul Gallimore. (1998). Client Feedback and Perception of the Role of the Appraiser: An International Study of Real Estate Appraisers. American Real Estate Society Meeting, Monterey.
Anchoring on Asking Price in Real Property Negotiation with Performance Incentives
- Diaz
- Iii Julian
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- Roy T Black
Diaz, Julian III, Zhoa Rong and Roy T. Black. (1998). Anchoring on Asking Price in Real
Property Negotiation with Performance Incentives. Working Paper, Georgia State University.
paper presented at “Cutting Edge
- D S Levy
The process of selecting comparable sales
- J Diaz
- Iii