UNCERTAINTY IN PROPERTY VALUATION: ALEATORIC AND EPISTEMIC CHALLENGES IN THE NIGERIAN REAL ESTATE MARKET
UNCERTAINTY IN PROPERTY VALUATION: ALEATORIC AND EPISTEMIC CHALLENGES IN THE NIGERIAN REAL ESTATE MARKET

Summary/Abstract: Motives: Real estate markets, particularly in emerging economies such as Nigeria, are subject tosignificant uncertainties. These can be broadly categorized into aleatoric uncertainties, which arisefrom inherent market variability, and epistemic uncertainties, which arise from incomplete knowledgeand data gaps. Traditional valuation models often struggle to fully capture these uncertainties, makingproperty investment decisions more challenging.Aim: This study aims to explore the integration of credal networks and confidence boxes (c-boxes) asan innovative approach to modeling uncertainty in real estate markets. The research focuses on theproperty market in Enugu, Nigeria, and demonstrates how this methodology improves the accuracyand reliability of market valuations compared to conventional probabilistic models.Approach: Combining ex post facto analysis with expert surveys, the study applied a hybrid modelincorporating credal networks and c-boxes to quantify both aleatoric and epistemic uncertainties.Empirical validation was conducted on property valuation data from the Enugu market, using MonteCarlo simulations and probabilistic sensitivity analysis to assess the model’s robustness.Results: The findings revealed significant aleatoric uncertainty in property value appreciationand construction costs, while epistemic uncertainty was more pronounced in rental yields andmortgage rates. The credal network approach outperformed traditional models, providing an averageimprovement of 24.09% in valuation accuracy and reliability, thereby offering a more comprehensiveframework for decision-making in property markets.

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