Neoclassical Economic Theory and Traditional Valuation Methods

Abstract

This chapter reviews ‘traditional’ methods used for the valuation of real estate. Valuation methods are a set of formal principles and procedures that provide guidance to valuers in the process of determining the market value of real estate value for a variety of purposes. Though not always apparent, especially not to practitioners, all valuation methods rest on, or presuppose, underlying economic theory. As used by professional valuers, valuation methods are in essence practical toolkits, representing a bridge between the theory of economic value and the practical requirements attendant to socio-economic transactions. As we have seen in the previous chapter, this theory has a long and complex provenance, culminating in the neoclassical economic doctrine. The links between this underlying theory and valuation methods are, however, not always clear. This has been in part due to the vocational nature of the valuation profession, on one hand, and the rift between real estate education and the economics discipline on the other.