Uncertainty in property valuation – The nature and relevance of uncertainty and how it might be measured and reported

Abstract

There will always be a degree of uncertainty in any valuation, but it should be incumbent upon the valuer to report “abnormal uncertainty”. This arises when some particular condition of the market or the property leads to the valuer being unable to value with the confidence of accuracy which might normally be expected. Abnormal uncertainty now features in the RICS Appraisal and Valuation Manual and later in this paper we consider how the valuer might identify and measure the degree of abnormal uncertainty. But this paper is predominantly concerned with “normal uncertainty”, which hereafter we will term only as “uncertainty”. The thesis of this paper is that uncertainty is a real and universal phenomenon in valuation. The sources of uncertainty are rational and can be identified. They can be described in a practical manner, and, above all, the process of identification and description will greatly assist many clients, and will improve the content and the credibility of the valuer’s work. Common professional standards and methods should be developed for measuring and expressing valuation uncertainty (Recommendation 34, Mallinson Report, RICS, 1994).