The reporting of risk in real estate appraisal property risk scoring
| Pages | 254-268 |
| Published date | 01 June 2005 |
| DOI | https://doi.org/10.1108/14635780510599467 |
| Date | 01 June 2005 |
| Author | Alastair Adair,Norman Hutchison |
| Subject Matter | Property management & built environment |
The reporting of risk in real
estate appraisal property risk
scoring
Alastair Adair
School of the Built Environment, University of Ulster, Newtownabbey, UK, and
Norman Hutchison
Department of Property, University of Aberdeen Business School,
Aberdeen, UK
Abstract
Purpose – Aims to examine financial risk management. The UK valuation profession has been
criticised for inconsistencies and failures to reflect risk and uncertainty in certain valuation
assignments such as the pricing of urban regeneration land. Also the Investment Property
Forum/Investment Property Databank specifically concluded that a new approach is needed which
combines conventional analysis of returns uncertainty with a more comprehensive survey of business
risks. This debate has been brought into sharper focus by the publication of the Carsberg Report,
which emphasised the need for more acceptable methods of expressing uncertainty, particularly when
pricing in thin markets.
Design/methodology/approach – The paper commences with an examination of risk analysis
within investment decision making and the property industry, drawing on the findings of the most
recent literature that assesses the utilisation of risk management approaches.
Findings – Financial risk management is examined and the workings of the D&B credit rating model
illustrated. The paper explains the decision-making framework within which the property risk score is
applied.
Originality/value – The aim of this paper is to present an alternative paradigm for the reporting of
risk based on techniques utilised within business applications. In particular it applies a standard
credit-rating technique, based on the D&B model, to report the level of risk within property pricing –
property risk scoring (PRS).
Keywords Uncertainty management, Risk management,Real estate, Asset valuation,Property,
Market value
Paper type Literature review
1. Introduction
Risk and uncertainty are inherent parts of the valuation process as often the valuer is
unable to specify and price accurately all current and future influences on the value of
the asset. While the final single point estimate of value may become a statement of fact
in the minds of the users of the valuation it nevertheless remains the opinion of an
expert. Indeed the large number of academic and practice based studies into valuation
variance confirm the subjective nature of property asset pricing (Adair et al., 1996). In
those circumstances where risk and uncertainty are reported according to the RICS
Appraisal and Valuation Manual (RICS, 1996) or Red Book the valuer can claim, with
some justification, that best practice has been satisfied. However, despite such
prescribed standards the profession has been criticised for inconsistencies and failures
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1463-578X.htm
JPIF
23,3
254
Received October 2003
Accepted June 2004
Journal of Property Investment &
Finance
Vol. 23 No. 3, 2005
pp. 254-268
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780510599467
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