A Simulation Approach to the Appraisal of Income Producing Real Estate

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Abstract
The income approach to appraising real property has been criticized in at least three general areas: the use of point estimates for input variables and market value, the failure to use an after‐tax valuation model, and the ability of a single valuation model to capture the market for a given property. The objectives of this study are the development of an analytical framework and computer model to overcome these criticisms. The computer model is developed using Monte Carlo simulation and allows the appraiser to consider uncertainty, after‐tax cash flows and numerous valuation models. The ability of appraisers to generate the necessary inputs and the interpretation of the output from the model are demonstrated using a case study.

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