“A New Approach to Appraisal Value to Prevent Real Estate Appraisal Bias”
Appraisers have received lots of criticism and distrust surrounding appraisal bias. Numerous reports about the discrepancy in appraisal values for black-owned homes — specifically before and after they’ve been “white-washed” — have recently been published. These reports are attention-getting, but anecdotal. However, the sheer number of examples makes the public wonder if some real estate appraisers do in fact operate with pre-judged bias, especially with how they choose the comparable sales that form the critical foundation for value opinions.
However, is the story actually more complicated than that? Appraisers are bound by not just Uniform Standards, but also by Assignment Conditions established between the appraiser and client. The Agencies — FNMA, Freddie, FHA, VA, and USDA — have enormous market power in the $12 Trillion home finance system, and their rules on how comparable sales are chosen are strictly enforced by the AMCs that are the primary point of contact for real estate appraisers. When an appraiser accepts Assignment Conditions, he or she must comply or face the risk of violating Standards, or losing the client, often represented by an AMC.
From the 1930s into the 1960s, the Agencies used explicit race-driven rules to restrict access to finance in Black and Latino neighborhoods. It did enormous damage to homeowners and businesses, handicapping the ability to build wealth to maintain and grow those communities.
Even though race-driven lending is gone, the strict appraisal rules about acceptable comps may “recycle” the discriminatory damage from the past. Agencies and AMCs require appraisers to limit sales to narrowly defined areas, and how far back into the past they can look. Especially in areas where wealthy and poor communities border each other, these types of strict rules may result in widely varying opinions of value.
Topics We Discuss During This Episode:
This discussion covers these issues and possible solutions to real estate appraisal bias, including Restorative Competitive Value — a new set of rules that will empower the real estate appraiser with greater flexibility and transparency on reporting, particularly through:
- “Showing Your Homework” by identifying all the possible sales that meet the physical criteria of the subject property
- Adjusting the “Comparability Triangle” by not throwing location out, but dethroning it as the most important consideration
- Implementing a “Dual-Valuation Solution” but utilizing both traditional market value and restorative competitive value to get a more accurate estimate
Interested in partnering with McKissock Learning for high-quality real estate appraiser education solutions? Check out our website and become a member today: https://www.mckissock.com/appraisal/.
