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R. Peto (1997)
Market information management for better valuationsJournal of Property Valuation and Investment, 15
RICS
Calculation of Worth: An Information Paper
(1997)
Commercial Investment Property -Valuation Methods: An Information Paper, Royal Institution of Chartered Surveyors
RICS
Commercia Investment Property – Valuation Methods: An Information Paper
Andrew Baum, N. Crosby, B. MacGregor (1996)
Price formation, mispricing and investment analysis in the property market: A response to “A note on ‘The initial yield revealed: explicit valuations and the future of property investment’”Journal of Property Valuation and Investment, 14
RICS
Mallinson Report – Commercial Property Valuations
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Uncertainty in property valuation – The nature and relevance of uncertainty and how it might be measured and reportedJournal of Property Investment & Finance, 18
Andrew Baum, B. MacGregor (1992)
The Initial Yield Revealed: Explicit Valuations and the Future of Property InvestmentJournal of Property Valuation and Investment, 10
N. French, L. Gabrielli (2004)
The uncertainty of valuationJournal of Property Investment & Finance, 22
R. Peto
Market information management for better valuations: data availability and application
(2002)
The Carsberg Report. Royal Institution of Chartered Surveyors
N. Crosby, A. Lavers, J. Murdoch (1998)
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(2001)
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N. French (1996)
PRACTICE PAPER: Investment valuation Developments from the Mallinson ReportJournal of Property Valuation and Investment, 14
P. Byrne (1995)
Fuzzy analysis: A vague way of dealing with uncertainty in real estate analysis?Journal of Property Valuation and Investment, 13
N. French
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RICS
The Carsberg Report
(1997)
Calculation of Worth: An Information Paper, Royal Institution of Chartered Surveyors, London. Discounted Cash Flow: Accounting for Uncertainty Page 17
Purpose – Valuation is the process of estimating price. The methods used to determine value attempt to model the thought processes of the market and thus estimate price by reference to observed historic data. This information is utilised in the discounted cash flow (DCF) valuation model to determine the single point valuation figure. However, the valuation will be affected by uncertainties: uncertainty in the comparable data available; uncertainty in the current and future market conditions and uncertainty in the specific inputs for the subject property. These input uncertainties will translate into an uncertainty with the output figure, the estimate of price. This paper discusses ways in which uncertainty can be incorporated into the DCF model. Design/methodology/approach – This paper looks at the way in which uncertainty can be incorporated into the explicit DCF model. This is done by recognising that the input variables are uncertain and will have a probability distribution pertaining to each of them. Thus by utilising a probability‐based valuation model (using Crystal Ball) it is possible to incorporate uncertainty into the analysis and address the shortcomings of the current model. Findings – The outcome of introducing uncertainty in the inputs is to produce a range of different answers. The central tendency of this distribution is very close to the single point estimate of the static model, yet the user of the technique now benefits from an understanding of the upside and downside risk pertaining to this single point estimate. Originality/value – This study contributes significantly to the practical application of probability‐based models to valuation. In particular, the findings from the study will be useful for clients to understand better the context in which a valuation figure is provided to them.
Journal of Property Investment & Finance – Emerald Publishing
Published: Feb 1, 2005
Keywords: Uncertainty management; Discounted cash flow; Asset valuation
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