The Effect of Heuristics and Biases on Real Estate Valuation and Cyclicality

Esra Alp Coşkun

Chapter Chapter 8 in Property Valuation and Market Cycle, 2022, pp 99-111 from Springer

Abstract: Abstract There are several underlying factors of cyclicality in property markets. Two of these factors are heuristics and biases which have significant impacts on appraiser judgments in real estate valuation process. All estimates include a kind of uncertainty at different levels, and real estate valuation also includes an uncertainty as it is a price estimate aiming to determine the present value of future cash flows. The uncertainty may increase the tendency to use heuristics and biases during real estate valuation due to the complex nature of valuation decision-making. Based on the relevant empirical and experimental literature, these heuristics and biases widely investigated are anchoring and adjustment heuristic, recency heuristic, herding behavior, representative heuristic, loss aversion, regret aversion, false reference point, client feedback, and appraisal smoothing bias. The aim of this study is to explain the role of uncertainty which gives rise to heuristics and to highlight the relation between these heuristics and real estate valuation process and cycles.

Keywords: Behavioral real estate; Real estate valuation; Heuristics; Biases; Uncertainty (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-09450-7_8

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DOI: 10.1007/978-3-031-09450-7_8

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