Toward Valuation Engineering Protocols

Professional valuation standards set out ethical obligations, scope of work, recognized approaches and reporting requirements, but give little guidance on how quantitative procedures should be designed, tested and validated. This article introduces Valuation Engineering Protocols, the technical layer the Journal intends to develop between professional standards and executable valuation analysis. The protocols govern the methods used to appraise an individual property, including statistical models that estimate the contributions of latent as well as measured characteristics. They do not govern automated valuation models or mass appraisal. A survey of international standards and national systems finds three levels of requirement. The International Valuation Standards, the RICS Red Book, the European Valuation Standards and USPAP state principles. Spain, Poland and Germany add duties of documentation and justification. Brazil, Colombia and Taiwan set testable requirements. Brazil grades regression models by sample size, significance, extrapolation and precision and requires diagnostic checks; Taiwan has since 2001 prescribed minimum samples, fit and significance thresholds, and caps on adjustments. Even these rules leave model form, out-of-sample validation and the treatment of unmeasured characteristics unaddressed, and no system examined anticipates modern methods such as multivariate adaptive regression splines. The article closes by describing how the Journal will develop the protocols in the open.