Skip to main content

Reducing the Appraisal Bias in Manual Valuations with Decision Support Systems

Part of the Studies in Systems, Decision and Control book series (SSDC,volume 86)

Abstract

Any appraiser is subject to many biasing influences which compromise the accuracy of the appraisal. One of the most prominent biases is the anchoring heuristic: appraisers involuntarily anchor to reference points such as their previous valuation, the value opinion of the seller, or the last transaction price. While many studies have proven the importance of the anchoring effect, very few studies have suggested practical means to counter it. In this chapter we demonstrate that the effect can be reduced with a tool helping the valuer to make better decisions. In our experiment probands appraised an office building with the help of a self-written valuation software. The software came in three versions with different features for debiasing in order to test its influence on the appraised values. It turned out that the probands who used the decision support version of the software produced significantly less dispersed market values than the others.

Keywords

  • Appraisal bias
  • Anchoring heuristic
  • Debiasing
  • Decision support system
  • Valuation variation

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1007/978-3-319-49746-4_18
  • Chapter length: 13 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   109.00
Price excludes VAT (USA)
  • ISBN: 978-3-319-49746-4
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   139.99
Price excludes VAT (USA)
Hardcover Book
USD   199.99
Price excludes VAT (USA)
Fig. 1
Fig. 2

Notes

  1. 1.

    See Crosby et al. (1998) and Babawale and Omirin (2012) for a review of the literature in this field.

  2. 2.

    For a literature review see, for example, Amidu (2011).

  3. 3.

    For a literature review see Tidwell (2011) and Bhandari et al. (2008).

  4. 4.

    For a general literature survey see Furnham and Boo (2011).

  5. 5.

    We adjusted the test for small and different sized samples with the method of Noguchi and Gel (2009).

References

  • Amidu, A. R. (2011). Research in valuation decision making processes: Educational insights and perspectives. Journal of Real Estate Practice and Education, 147(1), 19–30.

    Google Scholar 

  • Argiolas, M., Dessì, N., Marchi, G., & Pes, B. (2010). Real estate decision making processes and web-based applications: An integrated approach. In G. Phillips-Wren et al. (Eds.), Advances in intelligent decision technologies (Vol. 4, pp. 329–338). Berlin, Heidelberg: Springer.

    Google Scholar 

  • Arnott, D., & Pervan, G. (2005). A critical analysis of decision support systems research. Journal Information Technology, 20(2), 67–87.

    CrossRef  Google Scholar 

  • Babawale, G., & Omirin, M. (2012). An assessment of the relative impact of factors influencing inaccuracy in valuation. International Journal of Housing Markets and Analysis, 5(2), 145–160.

    CrossRef  Google Scholar 

  • Bhandari, G., & Hassanein, K. (2004). A cognitive DSS for investment decision making: Challenges & opportunities. McMaster University Working Paper. http://hdl.handle.net/11375/5329

  • Bhandari, G., Hassanein, K., & Deaves, R. (2008). Debiasing investors with decision support systems: An experimental investigation. Decision Support Systems, 46(1), 300–410.

    CrossRef  Google Scholar 

  • Brown, M. B., & Forsythe, A. B. (1974). Robust tests for equality of variances. Journal of the American Statistical Association, 69(1), 364–367.

    CrossRef  MATH  Google Scholar 

  • Crosby, N., Lavers, A., & Murdoch, J. (1998). Property valuation variation and the ‘margin of error’ in the UK. Journal of Property Research, 15(4), 305–330.

    CrossRef  Google Scholar 

  • Cypher, M. L., & Hansz, J. A. (2003). Does assessed value influence market value judgments? Journal of Property Research, 20(4), 305–318.

    CrossRef  Google Scholar 

  • Diaz, J., III. (1997). An investigation into the impact of previous expert value estimates on appraisal judgment. Journal of Real Estate Research, 13(1), 57–66.

    Google Scholar 

  • Diaz, J., III, & Hansz, J. A. (1997). How valuers use the value opinions of others. Journal of Property Valuation & Investment, 15(3), 256–260.

    CrossRef  Google Scholar 

  • Diaz, J., III, & Hansz, J. A. (2001). The use of reference points in valuation judgment. Journal of Property Research, 18(2), 141–148.

    CrossRef  Google Scholar 

  • Downie, M. L., & Robson, G. (2008). Automated valuation models: An international perspective. In: RICS Automated Valuation Models Conference: AVMs Today and Tomorrow, 4 November 2008, London. http://nrl.northumbria.ac.uk/1683/

  • Fischhoff, B. (1982). Debiasing. In D. Kahnemann, P. Slovic, & A. Tversky (Eds.), Judgement under uncertainty: Heuristics and biases (pp. 422–444). Cambridge: Cambridge University Press.

    CrossRef  Google Scholar 

  • Furnham, A., & Boo, H. (2011). A literature review of the anchoring effect. The Journal of Socio-Economics, 40(1), 35–42.

    CrossRef  Google Scholar 

  • Gallimore, P. (1994). Aspects of information processing in valuation judgment and choice. Journal of Property Research, 11(2), 97–110.

    CrossRef  Google Scholar 

  • Gallimore, P., & Wolverton, M. L. (1997). Price knowledge induced bias: A cross-cultural comparison. Journal of Property Valuation and Investment, 15(3), 261–273.

    CrossRef  Google Scholar 

  • George, J., Duffy, K., & Ahuja, M. (2000). Countering the anchoring and adjustment bias with decision support systems. Decision Support Systems, 29(2), 195–206.

    CrossRef  Google Scholar 

  • Hager, D. P., & Lord, D. J. (1985). The property market, property valuations and property performance measurement. Journal Institute Actuar, 112(01), 19–60.

    CrossRef  Google Scholar 

  • Hansz, J. A., & Diaz, J., III. (2001). Valuation bias in commercial appraisal: A transaction price feedback experiment. Real Estate Economics, 29(4), 553–565.

    CrossRef  Google Scholar 

  • Havard, T. (1999). Do valuers have a greater tendency to adjust a previous valuation upwards or downwards? Journal of Property Investment & Finance, 17(4), 365–373.

    CrossRef  Google Scholar 

  • Kleinmuntz, D., & Schkade, D. (1993). Information displays and decision processes. Psychological Science, 4(4), 221–227.

    CrossRef  Google Scholar 

  • Larrick, R. (2004). Debiasing. In D. Koehler & N. Harvey (Eds.), Blackwell handbook of judgment and decision making (pp. 316–337). Malden: Blackwell Publishing.

    CrossRef  Google Scholar 

  • Larrick, R. (2009). Broaden the decision frame to make effective decisions. In E. Locke (Eds.), Handbook of principles of organizational behavior. Indispensable knowledge for evidence-based management (pp. 461–480). Hoboken: Wiley.

    Google Scholar 

  • Lausberg, C. (2013). Economic scenarios for the real estate market: Incorporating uncertainty and risk in real estate appraisals. Aestimum, August, pp. 427–442.

    Google Scholar 

  • Lopes, L. (1987). Procedural debiasing. Acta Psychologica, 64(2), 167–185.

    MathSciNet  CrossRef  Google Scholar 

  • Noguchi, K., & Gel, Y. R. (2009). Combination of Levene-type tests and a finite-intersection method for testing equality of variances against ordered alternatives. Working paper, Waterloo University of Waterloo–Department of Statistics and Actuarial Science.

    Google Scholar 

  • Northcraft, G. B., & Neale, M. (1987). Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions. Organizational Behavior and Humans Decision Processes, 39(1), 84–97.

    CrossRef  Google Scholar 

  • Shiller, R. J., & Weiss, A. N. (1999). Evaluating real estate valuation systems. The Journal of Real Estate Finance and Economics, 18(2), 147–161.

    CrossRef  Google Scholar 

  • Soll, J. B., Milkman, K. L., & Payne, J. W. (2015). A user’s guide to debiasing. In G. Keren & G. Wu (Eds.), Wiley-Blackwell handbook of judgment and decision making. Chichester: John Wiley & Sons.

    Google Scholar 

  • Thomassin Singh, D. (1998). Incorporating cognitive aids into decision support systems: The case of the strategy execution process. Decision Support Systems, 24, 145–163.

    Google Scholar 

  • Tidwell, O. A. (2011). An investigation into appraisal bias: The role of decision support tools in debiasing valuation judgments. Georgia State University–Department of Real Estate–Real Estate Dissertations. Atlanta.

    Google Scholar 

  • Tversky, A., & Kahnemann, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124–1131.

    CrossRef  Google Scholar 

  • Yiu, C. Y., Thang, B., Chiang, H., & Choy, T. (2006). Alternative theories of appraisal bias. Journal of Real Estate Literature, 14(3), 321–344.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Carsten Lausberg .

Editor information

Editors and Affiliations

Rights and permissions

Reprints and Permissions

Copyright information

© 2017 Springer International Publishing AG

About this chapter

Cite this chapter

Lausberg, C., Dust, A. (2017). Reducing the Appraisal Bias in Manual Valuations with Decision Support Systems. In: d'Amato, M., Kauko, T. (eds) Advances in Automated Valuation Modeling. Studies in Systems, Decision and Control, vol 86. Springer, Cham. https://doi.org/10.1007/978-3-319-49746-4_18

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-49746-4_18

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-49744-0

  • Online ISBN: 978-3-319-49746-4

  • eBook Packages: EngineeringEngineering (R0)