Toward Valuation Engineering Protocols

Abstract

Professional valuation standards set out ethical obligations, scope of work, recognized approaches, and reporting requirements, but give little guidance on designing, testing, and validating quantitative procedures. This article argues for Valuation Engineering Protocols: a technical layer the Journal intends to develop over time that sits between professional standards and executable valuation analysis. It addresses protocols for the appraisal of an individual property, including statistical models of measured characteristics and the appraiser's assignment of the contributions of latent ones (characteristics, such as condition and quality, that cannot be measured directly); it does not treat mass appraisal, a separate process within the Journal's scope, or automated valuation models, which are outside it. 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 statistical 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 none of the systems examined mentions modern methods such as multivariate adaptive regression splines. The article closes by describing how the Journal will develop the protocols openly.