l |
Abstract Valuation is often said to be “an art not a science” but this relates to the techniques employed to calculate value not to the underlying concept itself. Valuation is the process of estimating price in the market place. Yet, such an estimation will be affected by uncertainties. Uncertainty in the comparable information available; uncertainty in the current and future market conditions and uncertainty in the specific inputs for the subject property. These input uncertainties will translate into an uncertainty with the output figure, the valuation. The degree of the
uncertainties will vary according to the level of market activity; the
more active a market, the more credence will be given to the input information.
In the UK at the moment the Royal Institution of Chartered Surveyors (RICS)
is considering ways in which the uncertainty of the output figure, the
valuation, can be conveyed to the use of the valuation, but as yet no definitive
view has been taken. One of the major problems is that Valuation
models (in the UK) are based upon comparable information and rely upon
single inputs. They are not probability based, yet uncertainty is probability
driven. In this paper, we discuss the issues underlying uncertainty in
valuations and suggest a probability-based model (using Crystal Ball) to
address the shortcomings of the current model.
|