A new paradigm for real estate valuation?

Purpose - The purpose of this exploratory paper is to examine the efficient market theories and to argue that a new paradigm or an expanded paradigm is needed for the valuation of real estate. This may actually not be a new paradigm but it may be necessary to go back in time to make the valuation models that are used more realistic and to try to include the realities that there are many diverse actors in the real estate marketplace and their actions are important and should not be assumed away. Behavior matters and the models for pricing real estate need to take this into account. Design/methodology/approach - The paper examines some of the emerging models in other disciplines and works to relate them to the real estate marketplace in general but, more importantly, to help to explain the most recent bust of the global real estate markets. Findings - The paper finds that there is a need to consider an alternative paradigm for the valuation of real estate and complexity theory as well as the adaptive system models that specifically take into account that the various actors in a real estate marketplace could be used to help better explain the emergent nature of real estate values. Originality/value - This is the first paper to one's knowledge that argues for a shift in thinking to include complexity economics and agent-based modeling as potential solutions to gain a better understanding of how real estate markets react.