Reducing the property appraisal bias with decision support systems: an experimental investigation in the South African property market

Purpose: The valuation tasks for manual valuation are time-demanding and cognitively challenging. Behaviourists have observed that valuation accuracy and variations are mainly caused by human adaptive approaches called cognitive shortcuts. Of particular interest for valuation tasks is the susceptibility of decision makers to anchoring heuristics. The anchoring and adjustment approach is a mental shortcut which involves deliberate and conscious adjustment of values, known to be wrong but close to a right answer. Various studies have shown that valuers are prone to anchoring to asking price, previous estimate and other reference points. The incidence of valuation bias in the property market and the world is of concern. Few studies have used the decision-support tool to reduce property appraisal bias. The research purpose is therefore to determine the efficacy of the decision-support tool in reducing and eliminating property appraisal bias in the South African property market. Design/methodology/approach: Similar to previous behavioural studies, a controlled experimental study design was used. The experimental design is based on a previous German study that uses a self-written valuation software in a MS Excel package, adapted to the South African market. The software comprises two versions, a standard software and a decision-support software, which were administered to separate groups of novices and experts. Descriptive statistics and non-parametric testing were used to interpret the results. Findings: Consistent with other research on valuation accuracy and variations, the findings show that the valuation outcomes do not align with 'margin of errors' concept. Despite the results not being as robust as one would have expected, the study revealed that test subjects were susceptible to the anchoring effects and that use of a decision-support tool can help to reduce valuation variations. Practical implications: This study heightened the need to counter the effect of bias in valuation. The high variance among the experts group is of concern and should be addressed. Other forms of cognitive shortcuts used by valuers should be incorporated into the decision-support tool, and a similar test run for different valuation settings. The behavioural contentions should be discussed and presented to novices and experts