Valuation at the Time of Crisis: Methodological Issues
16 Pages Posted: 14 Dec 2008 Last revised: 5 Oct 2009
Date Written: December 12, 2008
These slides presented at the International Conference of the Ukranian Property Expertize and Management Institute (Odessa, Sept. 7-9, 2009) look into current valuation predicaments (specifically, with respect to the Professional Valuation) and discern the lack of vision among its practitioners. This seriously compromises the role of valuation as the public interest profession. The contention is made that the role of valuers in the pricing processes is non-neutral, that to some extent it is true that Valuation profession in aggregate not merely reflects but creates prices and seriously influences pricing processes on many markets.
That is why it is of primary importance to understand that valuers should fulfill their aspirations to work in public interest and towards the sustainable development of markets, and to realize that their current practices are highly procyclical, or, worse, tautological. Yet their existing methodology based on methodological individualism and the transference of notions from the 'ideal market setting' seriously handicaps them in these efforts and perpetuates current troubles. The plea is made to create the International Multidisciplinary Committee on Economic Measurements (including representation from Professional valuation, Investment-Financial Valuation, Accounting Measurements etc) to inquire into the root causes of defects in existing valuation methodology which is grounded in the unsustainable neoclassic-modernist- positivist ideological synthesis.
Of the inferences made are the following:
-The pricing authority and power of Professional Valuation is on the wane, as suggested by RICS/IPD Valuation 'accuracy' indices. -The methodological grounds of Economic Measurements are neglected (and there has been very little development here since 1970th, despite the veritable flowering of complex valuation techniques) - Various types of Economic Measurements are too disjointed to offer any coherent perspective into the future or see the benefits of interdisciplinary dialogue. - The not-so-negligible role of Valuers (of different stripes) as the party implicated in the fomentation of the current economic crisis is explored and put into context. -The Professional Valuation fails to perceive real foundations of its methodology and has much to gain by looking back into its original works written during the time of its institutionalization in US of 1930th and even to the thought of antiquity. -There is going to be more acute understanding of the effects of liquidity pricing and more distrust of fundamental pricing as currently practiced. -Public value considerations need to become the integral part of all commercial valuations, yet existing methods to elicit it are seriously deficient in point of underlying methodology. - Existing Economic Measurements Standards (such as SFAS 157, IVSs, PEVG) are in need of serious revision and their redevelopment needs to incorporate macro-economic perspectives of the impact of the respective professions on the markets.
Keywords: Economic Measurements, Professional Valuation (and History of), Methodological individualism in Valuation, liquidity pricing, Impact of valaution on market pricing
JEL Classification: D46, G12
Suggested Citation: Suggested Citation