MANAGEMENT OF UNCERTAINTY IN REAL ESTATE DEVELOPMENT APPRAISAL: A LITERATURE REVIEW

Timothy O. Ayodele and A. Olaleye

AfRES from African Real Estate Society (AfRES)

Abstract: PURPOSE: This paper gives a global overview of the management of uncertainty in Real Estate Development (RED) appraisal. It provides a comprehensive review of the concepts related to forms and sources of uncertainty, management of uncertainty and factors influencing the adoption of real option model in RED appraisal. This is against the background of the need to improve the knowledge of stakeholders in RED appraisal practice and to ensure best practices.DESIGN/METHODS: The research was based on desktop analysis of past authors’ perspectives, orientations and submissions on the management of uncertainty in RED appraisal.FINDINGS: As it is expected, there are varying forms and sources of uncertainty in RED appraisal. Also, the review revealed diverse methods that could be used to manage uncertainty in RED appraisal. These range broadly from traditional approaches to modern/contemporary models such as real option approaches. It is however noted that while approaches to the management of uncertainty in RED appraisal abound, the methods employed appear to be dependent on the RED appraiser and other institutional factors. The consensus from the reviewed works favoured the real option model as a better approach towards mitigating uncertainty in RED appraisal. A framework that uses real option model in RED appraisal is thus advocated.PRACTICAL IMPLICATION: This paper adds to the debate on the need to embrace real option framework in mitigating the effects of uncertainty in RED appraisal. The information provided, no doubt, will improve the knowledge of stakeholders in RED appraisal practice and could ensure best practices.ORIGINALITY: The paper provides an in-depth examination of various concepts, perspectives and orientations on the management of uncertainty in RED appraisal, towards the adoption of a better framework.

Keywords: Appraisal; Flexibility; Management; Real Estate Development; Real option; Uncertainty (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2017-09-01
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