Accounting for uncertainty in real estate appraisals

The objective is to address the problem of uncertainty in the valuation process and to derive recommendations for risk quantification. Simulation-based methods are applied, allowing to create a market value distribution and therefore to transform uncertainty into risk. Using predefined risk measures, valuation risk can explicitly be assessed and major risk drivers can be identified. Furthermore, we examine the spreads between transaction prices and market values so as to identify crises impacting valuation accuracy. This study makes a significant contribution to improving the valuation and thus to professionalize the real estate industry.