Exploring real estate valuation practices in an informal market

This post was written by Uri Ansenberg and Nufar Avni.

Our recent publication in Habitat International explores the intricate dynamics of real estate valuation within East Jerusalem’s informal Palestinian neighborhoods. East Jerusalem’s political and legal status presents complex challenges to the appraising field. These challenges include an ongoing dispute over sovereignty and borders; the imposition of different legal systems; valuation of unregistered land; frequent changes in administrative policies that profoundly affect property rights and valuation; and geopolitical volatility. Real estate appraisers must navigate issues of international law, security, and human rights, in addition to appraising’s day-to-day professional challenges.

Our study was based on 27 interviews with real estate appraisers and a detailed examination of various legal documents and 100 arbitration reports spanning the years 1991 to 2023, in addition to 10 informal interviews with key policymakers. We highlight both the challenges and adaptive strategies and solutions appraisers adopt to overcome the structural constraints shaping East Jerusalem’s real estate market.

Key Insights

Several critical insights emerge from the research. They underscore the unique challenges and strategies adopted by appraisers operating in this complex environment. Firstly, appraisers in occupied East Jerusalem operate under ongoing local tensions that influence every aspect of land ownership and property valuation. The conventional valuation methods often fall short in such a politically and legally complicated landscape, since appraisers often operate with no reliable official database. Jewish-Israeli appraisers from the Jerusalem municipality often do not have access to local Palestinian data, leaving them without crucial information about actual transaction prices and market conditions in this informal market. Additionally, Jerusalem’s volatile security status heavily impacts the day-to-day valuation practices. For example, in most instances, appraisers avoid visiting properties in East Jerusalem—a highly unusual practice which prevents them from directly observing the environment and noticing factors critical for accurate evaluations, e.g., view or noise. Structural constraints, such as unregulated and largely unregistered properties, and inconsistent regulatory frameworks, further complicate the valuation process. These constraints necessitate a dependence on subjective judgment and incomplete or inaccurate data sources, which reduce the valuation’s reliability.

These conditions lead appraisers to significantly rely on localized knowledge and improvised and creative methods to valuate property. These strategies encompass the utilization of ‘copy & paste’ techniques from prior valuations alongside the construction of makeshift databases that incorporate local insights and unofficial market transactions. Moreover, appraisers draw on comparisons to West Jerusalem based on intuitive assessments, and rely on data typically regarded as low quality, such as rental prices and figures cited in advertisements. Thus, real estate valuation in East Jerusalem’s informal Palestinian market is as much about navigating a web of legal and political uncertainties as it is about assessing property values.

Our findings emphasize the importance of acknowledging the realities of informal and politically sensitive markets and adapting urban policies accordingly. This need is underscored by the historical lack of attention given to real estate valuation in informal markets. The full paper provides a comprehensive exploration of these themes and can be accessed here.