J. of Mult.-Valued Logic & Soft Computing, Vol. 17, pp. 339–362 Reprints available directly from the publisher Photocopying permitted by license only 339 ©2011 Old City Publishing, Inc. Published by license under the OCP Science imprint, a member of the Old City Publishing Group A Hybrid Fuzzy Risk Evaluation Model For Real Estate Investments ALP USTUNDAG, EMRE CEVIKCAN AND MEHMET SERDAR KILINC Department of Industrial Engineering, Istanbul Technical University, Macka, Istanbul, 34367, Turkey E-mail: serdarmehmet@gmail.com Received: November 4, 2009. Accepted: April 2, 2010. Risk evaluation has been an important task for real estate investments in uncertain economic conditions. Fuzzy rule based systems (FRBS) have been the most popular and easiest way to capture and represent fuzzy, vague, imprecise and uncertain domain knowledge. This study proposes a hybrid risk evaluation model for real estate investments which integrates FRBS with Fuzzy Analytic Hierarchy Process (FAHP). In the proposed hybrid model, FAHP is used to evaluate the real estate quality analytically with respect to the judgments of experts. Then, the obtained quality score is utilized as one the inputs of FRBS method which uses fuzzy IF-THEN rules defined by the experts. In this study, the rule base of the hybrid model combines the factors of age and quality of a real estate with general economical factors of the market. The proposed model is applied to determine the prices of three differ- ent real estate in Istanbul based on quality of house, size and risk factor. Keywords: Real estate, hybrid risk evaluation model, fuzzy logic, FRBS, FAHP. 1 INTRODUCTION The pricing function (i.e. appraisal) is always a problem in free market econ- omies. Even in well-organized, relatively efficient markets, like securities market, participants typically lack precise information, and in setting prices they consider a variety of factors and different relationships among factors. Real estate appraisal is necessary during the real estate trade, exchange, realty lease, mortgage, and the corporation mergence and bankruptcy, busi- ness cooperate, or the real estate investment, decision and cost management. Accompanying with the socioeconomic development, the application of real estate appraisal has the potential of attracting greater interest.