What is it about?
Scoring is a widely-used, long-established, and universally applicable method of measuring risks. However, it is often misused in real estate practice and underestimated in academia. We try to remedy this by proposing rules under which scoring systems should be designed and validated.
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Why is it important?
Real estate investments carry so many different risks that these cannot be captured in a single risk measure. Therefore different risk measures are being used. One of the great advantages of a risk score is that it can be adapted to the characteristics of the properties being assessed. This goes along with the disadvantage of limited reliability and validity because so far it was unclear what makes a good scoring system. To remedy this, we formulate rules after which scoring systems should be constructed. They are a combination of generally accepted principles for (A) scoring systems and (B) risk measures
Perspectives
I hope that the article can contribute to a more intensive discussion and greater acceptance of qualitative risk measures in academia. Furthermore I hope that the quality of scoring systems used in the real estate industry will improve by applying the rules we propose.
Carsten Lausberg
Hochschule fur Wirtschaft und Umwelt Nurtingen-Geislingen
Read the Original
This page is a summary of: Rules for a coherent real estate risk scoring, Journal of European Real Estate Research, December 2020, Emerald,
DOI: 10.1108/jerer-01-2020-0001.
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