MCDM Problem-Structuring Framework and a Real Estate Decision Support Model

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Abstract

The real estate selection process might be regarded as a typical Multi-Criteria Decision Making (MCDM) problem. With current literature concentrating predominantly on institutional investment decision making, additional effort should be directed towards studying inexperienced homebuyers who want to buy a property in which to live. In this context, authors have described the decision environment as a complex decision process with restricted access to property data, high financial burdens partially due to the illiquid nature of the investment, the unfamiliarity with the decision task and low transparency in information aggregation. Consequently, this situation could benefit from a more structured approach that assists homebuyers in their actions.In order to guide the decision making process and provide a suitable support mechanism, it is necessary to first structure the problem and extract the required information. A thorough literature review shows that little guidance is available for MCDM problem structuring. Consequently, this research first proposes an MCDM problem-structuring framework to decompose complex problems into smaller parts. Foremost, the application is intended for high-involvement consumer products and services. This framework is derived from MCDM and methodology literature, where the former provides the elements that need to be defined in any MCDM problem situation, and the latter suggests suitable data collection and analysis methods to obtain the information. As a result, the first contribution to existing literature is the introduction of an MCDM problem-structuring framework, which consists of a carefully designed sequential exploratory mixed method procedure.Next, following the proposed structure, the real estate selection problem in Majorca (Spain) is defined. Whilst providing the inherent problem elements and establishing a comprehensive list of evaluation criteria to assess luxury properties, the fieldwork also offers behavioural insights, contributing and supplementing existing real estate research. In particular, major misunderstandings and false assumptions during real estate agent and client interactions are observed, stressing the need to optimise communication and targeting strategies.On the basis of the relevant real estate evaluation criteria, a dataset of alternative houses is created and subsequently rated by prospective luxury-homebuyers. This provides the basis for the third research focus, the construction of a decision support model for real estate selection. In accordance to the problem features and model requirements, the Evidential Reasoning (ER) rule is identified to offer a powerful and transparent evidence aggregation process, with the potential to have a superior performance than other methods in addressing the selection decision. Due to the ER rule’s short history (2013), application studies in general are practically non-existing and unprecedented in the real estate domain. Therefore, the use of a modified ER model can provide the real estate literature with a prescriptive multi-criteria decision support mechanism, whilst simultaneously offering an application study for the MCDM community and other relevant decision analysis domains. In closing, modelling a real problem using the ER rule highlights the method’s advantages and might in turn increase awareness, leading to more applications.

Keyword(s)

Decision analysis; Decision making; Decision support; Evidential reasoning; Luxury real estate selection; MCDM; Problem structuring; Real estate; multi-criteria decision making

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