“Bias” in appraisals has been a ‘hot topic’ around nationwide water coolers since about 2018, and even earlier.
The GSE’s are particularly wary of any commentary in appraisal reports that appear to inject ‘bias’ into the value conclusion.
In the June ’21 FNMA Appraiser Update newsletter, there is this article:
Avoiding problematic phrases
Stories in the media about racial bias in appraisals have been on the rise. The Uniform Standards of Professional Appraisal Practice (USPAP) expects appraisers to “not perform an assignment with bias.” But how?
Beyond choosing comparables that best match the property’s physical and transactional characteristics, there are many areas of focus to reduce bias. In this article, we highlight one: what commentary to include in the report.
While appraisers may not intentionally factor race, gender, or other protected class information in the valuation, some words or phrases can undermine the credibility of the appraisal by implying that demographics influenced the outcome. Readers may perceive certain subjective words as proxies for demographic composition. Even if there is no bias on the part of the appraiser, the words used can still influence the bias of the reader.
Appraisers should avoid using words that lend themselves to bias judgments. Instead, the appraisal report should document objective facts. For example, while describing a neighborhood as “desirable” sounds like a good thing, it’s really a subjective judgment. What makes one neighborhood more desirable than another depends on the needs and wants of the purchaser.
Instead of describing an area based on subjective labels, the appraiser should document the features of the neighborhood. The table on the next page includes some examples. Phrases in the first column are subjective evaluations that can be replaced with objective descriptions such as those shown in the second column.
Problematic phrase Objective description Desirable neighborhood
Different families have different needs, which change what they will see as “desirable.”
List the neighborhood’s features or amenities that potential buyers would find of value. For example: Newly updated neighborhood swimming pool.
Crime-ridden is a subjective assessment. All locations can experience some crime. Where does one draw the line between “ridden” or not?
“The crime rate in this area is x%” is objective and allows the reader to make their own judgment about the potential impact of crime.
While some may have enough to purchase this property, others may find it is outside what they can afford.
State whether the valuation of the property is aligned with the price range of the neighborhood.
Language pertaining to demographic composition, whether subjective or objective, should not be included.
The valuation should focus on the property, not the residents.
Appraisers should avoid using words that lend themselves to bias judgments. Instead, the appraisal report should document objective facts.
If crime rates are increasing due to inability of local jurisdiction city or county attorney’s to prosecute criminals and support laws on the books, should appraisers quote published crime statistics and use graphs demonstrating exactly what’s been happening over a 5 or longer year period? (Looks like that’s allowed.)
If “unhoused homeless” people living in tents on the road median or sidewalks are on the same block as the subject, or are in very close proximity to the subject, perhaps in a park or on school grounds, should those be FACTUALLY mentioned… perhaps by stating the number of tents found on the Effective Date while ‘driving the neighborhood?’ (A peer appraiser buddy of mine recently was chastised by an AMC review appraiser for mentioning this detail in objective terms.)
If the neighborhood clearly has people of mixed races and genders, observed by the appraiser, and comps have different races living in them, should factual Census data be quoted in the report so that the Lender obtains a clear picture of racial composition in the neighborhood? Oh darn… we can’t do that. But if we could, wouldn’t that help protect the appraiser from a claim of a biased valuation? (Asking for a friend.)