The Reporting of Risk in Real Estate Appraisal: Property Risk Scoring

Purpose – Aims to examine financial risk management. The UK valuation profession has been criticised for inconsistencies and failures to reflect risk and uncertainty in certain valuation assignments such as the pricing of urban regeneration land. Also the Investment Property Forum/Investment Property Databank specifically concluded that a new approach is needed which combines conventional analysis of returns uncertainty with a more comprehensive survey of business risks. This debate has been brought into sharper focus by the publication of the Carsberg Report, which emphasised the need for more acceptable methods of expressing uncertainty, particularly when pricing in thin markets.
Design/methodology/approach – The paper commences with an examination of risk analysis within investment decision making and the property industry, drawing on the findings of the most recent literature that assesses the utilisation of risk management approaches.
Findings – Financial risk management is examined and the workings of the D&B credit rating model illustrated. The paper explains the decision-making framework within which the property risk score is applied.
Originality/value – The aim of this paper is to present an alternative paradigm for the reporting of risk based on techniques utilised within business applications. In particular it applies a standard credit-rating technique, based on the D&B model, to report the level of risk within property pricing – property risk scoring (PRS).