Sustainability and Risk Premium Estimation in Property Valuation and Assessment of Worth

From a risk analysis perspective, property is typically treated as just another asset class. Some academics propose only a financial – not a physical or a functional – definition of valuation modelling. An alternative method is proposed here to assess the risk premium for both property valuation and assessment of worth which is directly based on the property market, rather than the traditional financial model of risk premium determination or reliance on the individual expertise of a property valuer. The proposed method is based on the empirical relationship between discount cash flow (DCF) inputs and output, and can be based on the prices of comparable properties. In the traditional approach, the fact that financial modelling approximates real property to a financial asset class arguably emphasizes the illiquid nature of real property. As a consequence, all the attributes including sustainability indicators are normally not taken into account by property valuers and consultants. The market increasingly requires green buildings and development; through the use of the proposed model this need can be included in the data for risk premium estimation, in the valuation process, and, generally speaking, in the body of knowledge informing the property market.