Does the analytical hierarchy process help appraisers make better decisions? A quasi-experimental approach for property investment comparables
International Journal of Building Pathology and Adaptation
ISSN: 2398-4708
Article publication date: 5 September 2023
Abstract
Purpose
Income from investment properties can fluctuate depending on the state of the economy. The idea that there is always a potential exit (sale) value whenever the property stops performing at its optimum or deflation in the economy will always appeal to investors. To determine housing prices, investors would rely on a direct comparison approach (DCA) of recent substitute sales in the open market. Appraisers use this approach to develop an opinion of value when there is a plethora of recent sales to analyse.
Design/methodology/approach
The study was designed to establish the use of the analytical hierarchy process (AHP) approach as a support tool for deciding property appraisals. A case study of an industrial single-storey stand-alone building with grade-level parking in the south-east of Calgary, Canada, was investigated with the AHP approach. The result was cross-referenced with the DCA.
Findings
Using a consistency index of 0.077321 and a consistency ratio of 0.085912, the matrix multiplication was determined to be 0.456706. The average valuations derived from the adjusted price per square foot using the direct comparison method and the unadjusted price per square foot using the AHP were deemed the best value estimate in the light of available comparables. The implications of the findings suggest that AHP, as a quantitative technique, can support and validate the use of similar non-recent sale comparables when appraising investment properties with the DCA.
Originality/value
AHP is an alternative aid in quantitatively deciding the most significant value attribute for comparison before subjective adjustments. When intuitively applied in the DCA, these subjective adjustments almost always lead to an overvaluation of properties.
Keywords
Acknowledgements
The authors appreciate Terry Brooke (AACI, MRICS) for providing the data and much-needed technical valuation support in analyzing the comparables used in this research work. The authors would also want to thank the Real Estate Division of The University of British Columbia and the Appraisal Institute of Canada (AIC) for inspiring this research. Your contributions towards the growth and development of the appraisal profession in Canada have not gone unnoticed.
Citation
Aihie, V.U., Oyetunji, A.K., Omotayo, T. and Ekundayo, D. (2023), "Does the analytical hierarchy process help appraisers make better decisions? A quasi-experimental approach for property investment comparables", International Journal of Building Pathology and Adaptation, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJBPA-09-2022-0154
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited