Abstract
Considerable literature exists regarding the complexity of the residential real estate appraisal process and the methods employed to determine initial listing prices as estimates of intrinsic market prices. Deviations in residential real estate intrinsic values occur due to a multiplicity of attributes and explanatory factors requiring consideration. We conduct a panel study using a Multiple Criteria Decision Analysis (MCDA) based framework that utilizes the skills and knowledge of a panel of residential real estate professionals (i.e. appraisers and realtors). We demonstrate how cognitive mapping and the Measuring Attractiveness by a Categorical Based Evaluation Technique (MACBETH) may assist in estimating appropriate offer/sale prices and strengthening current valuation approaches such as using comparables and/or hedonic modeling. The managerial implications of our MCDA-based framework and some avenues for future research are also presented.
Highlights
ON REAL ESTATE PRICING ESTIMATIONIndicative of much of the residential real estate literature, Bin (2004: 68) states that “accurate price prediction of housing sales price is important in the operation of the housing market”
Applying hedonic modeling to real estate valuation including flexible functional forms, nonparametric or semi-parametric regressions and/ or spatial models that capture correlations within submarkets allowing for temporal asymmetry, may have some limitations and has been criticized
The Multiple Criteria Decision Analysis (MCDA)-based framework developed in this study allows real estate professionals to: (1) discriminate homes according to a system that was developed based on their own experiences, perceptions and value judgments; (2) compare performances against cognitive references (i.e. Alphas); (3) promote discussions throughout the process, which allowed for an increase in transparency in residential real estate price estimation; and (4) show the practicality of cognitive mapping and MACBETH in the particular context of estimating real estate values
Summary
Estimating the initial asking/sale price for residential real estate is one of the essential first steps in facilitating realtors and sellers successes in their goal of finding a buyer. Even before appraisers are asked to determine value, real estate brokers and sales associates are asked to establish initial listing prices. Our MCDA-based framework uses cognitive maps and measures attractiveness to determine an initial offer/ask price for residential real estate by applying a categorical-based evaluation technique (MACBETH) (Bana e Costa, Vansnick 1994; Bana e Costa et al 2012). By integrating cognitive mapping and MACBETH, our valuation approach may result in initial asking prices satisfactory to both sellers and agents, yet attractive to potential buyers. The last section discusses the major advantages and limitations of our evaluation system, presents concluding remarks and some avenues for future research
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