Property valuation: a comparative analysis of innovative market approach methods

Abstract

The goal of this study is to illustrate and examine the implementation of innovative methods for property valuation, by comparing their respective outcomes in terms of statistical accuracy and empirical reliability. In particular, the aim is to propose user-friendly methods for property valuers, while preserving their ability to rationalise the assessment in particularly dynamic contexts and minimising the interference of subjectivity from the professional valuer. The paper describes and compares three market approach methods through an application to a case study located in the city of Rome (Italy). The first method is the General Appraisal System (SGA) - already known in the literature concerning appraisal tools -, that allows the determination of the property market value and the marginal prices of the explanatory factors. The second method, called the Optimised Weighted Appraisal System Method (OWASM), represents an evolution of the SGA, by overcoming some limitations of the aforementioned method (e.g. possible linear dependency relationships in the coefficients' matrix, low empirical reliability of marginal prices in frequent situations). The third method (MAXENT) is based on the integration of the Maximum Entropy Principle with Lagrange multipliers and provides a powerful approach to dealing with complex optimization and inference problems, ensuring efficient handling of constraints, and preserving information with the maximum uncertainty allowed by the available data. The application of the methods highlights their potential, particularly in terms of simple implementation (with few input data) and providing valuers for the ability to effectively control outcomes. This research represents a new reference for valuers, in order to refine their estimates and guarantee transparency in their use, avoiding the risk of black boxes that frequently characterizes mass appraisal techniques (e.g. neural networks, genetic algorithms, multiple regressions, etc.), for which constant updating of the database originating the price functions would be necessary to appropriately describe the current market conditions.