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Appraiser Bias Narrative

You’ve probably have heard what happened. An interracial couple orders a residential appraisal in Jacksonville, value comes in at $330,000 for the black wife and $465,000 for the white husband. Different appraisers, same bank, different comps, different outcome.  

Do we have all the facts? No. I’m of course on the side of appraisers and fully believe this isn’t a systemic problem, but again it doesn’t matter what I think as an appraiser.  

What matters is that we participate in the narrative. 

Will we pick up the mic? 

If you’re a residential appraiser, you’re probably thinking to yourself, “I’m not bias. This issue doesn’t involve me.” If you’re commercial appraiser, you’re probably thinking, “I’m not bias. Besides, if anything this might be a residential problem.” Regardless of how appraisers feel about the issue, it doesn’t matter. 

What matters is for us to seize the opportunity to be part of the conversation. The narrative. If we don’t stand up and take the mic, others will tell our story.  

If you’re not in our valuation vertical, you won’t understand the amount of work we do. It’s not easy. If you’re an appraisal department manager or chief appraiser, the public doesn’t know all the work it takes to manage the process.  

Appraisal departments will likely be the first to get a bias complaint phone call or email. It will involve a lot more work for them to pull out or worse yet, create bank policy to identify how complaints are processed with transparency. But guess who they’re going to reach out to? That’s right, fee appraisers. 

Pay attention to ROV 

The concern is if reconsideration of value (ROV) becomes the norm.  

If the public in general believes that they can push back against an appraisal using the idea of bias, then we have lost control of the narrative. This applies to both for residential and commercial.    

If a borrower pushes back to the bank, what processes do you have in-place to appropriately address the complaint? The old school response, “The appraiser’s value opinion stands.” is no longer good enough

USPAP isn’t a defense 

Ask any attorney, you can’t just hide behind USPAP:  

The appraiser has developed and reported the results of this real property appraisal pursuant to the Ethics Rule of the Uniform Standards of Professional Appraisal Practice, which states that an appraiser must perform assignments with impartiality, objectivity, independence, and without accommodation of personal interest.  

An appraiser: 

  • must not perform an assignment with bias as defined as a preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment; 
  • must not advocate the cause or interest of any party or issue; 
  • must not agree to perform an assignment that includes the reporting of a predetermined opinions and conclusions;  
  • must not communicate assignment results with the intend to mislead or to defraud; 
  • must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familiar status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value;  
  • must not engage in criminal conduct 

Pointing to USPAP is like saying “Look it says right here, I’m unbiased  no matter how I act.” 

USPAP isn’t the point. If this language were enough, then we wouldn’t be talking about bias on a national scale.  

Red Herring or Systemic? 

A red herring is defined as: something that misleads or distracts from a relevant or important question.  

In a letter to the house subcommittee by a Chicago-based appraiser Maureen Sweeney, “It’s like blaming the canary for the bad air in the coal mine or blaming the mirror for your bad hair day. Appraisers reflect the market; we do not create it.”  

As an appraiser, I agree with the sentiment, but it doesn’t matter what I think. It matters what I do. It matters if I’m professional and respond appropriately.  

FIVA – Financial Institution Valuation Advisors 

We created FIVA, a not-for-profit organization to elevate, educate and communicate promoting valuation departments in financial institutions. To that end, we had a great Appraisal Bias Part 1 Zoom call with a strong attendance of appraisal department managers and chief appraisers. 

Our speaker was Peter Christensen of the Christensen Law Firm, who focuses solely on real estate valuation and business issues. Peter did a great job of giving us the history of the law including the Fair Housing Act (FHA), Equal Credit Opportunity Act (ECOA) and what an appraisal discrimination lawsuit looks like. He discussed HUD investigations and lawsuits, highlighting specific recent complaints and disparate impact. It was clear, we needed to further the discussion. 

Ed Pinto senior fellow and director of the American Enterprise Institute (AEI) Housing Center, along with Tobias Peter, published An Analysis Using Big Data to Determine Whether It Is Common or Uncommon that an Appraiser’s Knowledge of an Applicant’s Race Results in Valuation Bias.  

The authors summarized their findings that: We conclude allegation that knowing the race of the applicant results in racial bias by appraisers on refinance loans is uncommon and not systemic. This same analysis supports the conclusion that unintentional bias based on race is also uncommon and not systemic. 

Next month, we look forward to hearing from Ed Pinto and others on the bias topic. FIVA’s Appraisal Bias Part 2

Loans start with lenders 

Not to implicate my lender friends, but the process typically starts with RMs and LOs. The appraisal department is typically the caboose of the loan train. What documented processes and transparency does loan ops have regarding the bias issue? A conversation between departments can go a long way. 

Many RMs don’t really know the valuation process. They just know if their deal was approved or not. It might be a good idea to create a “lunch and learn” with your RMs educating valuation nuances and the review process. 

Peter Christensen indicated at our last FIVA meeting, “Nearly every reported situation of alleged racial bias in 2020-21 began with the ROV process.”  

All of the focus shouldn’t be on the reviewer. After all, the reviewer did not meet the borrower, select the comps or conclude to market value. Most appraisers in the fee world and bank side hope it just goes away.  

Let’s be professional 

Regardless of how it plays out, if we aren’t part of the conversation, we’ll be in reaction mode. Creating more work for all of us. Pick up a mic and be happy to speak out loud in positive ways to tell the truth/facts. Let’s be professional. Let our voices be heard. Pick up the mic.