Phrases like appraisal bias, the appraisal gap, and discrimination in appraisals have become buzz words in the media over the past year. As a real estate appraiser, actions you can take to avoid bias and accusations of discrimination may include educating yourself on these issues, avoiding use of subjective terminology, carefully complying with USPAP and Fair Housing laws, and, in general, completing all appraisal assignments with objectivity and impartiality.
Here are three useful and timely resources for appraisers:
This newsletter from the Collateral Policy Team at Fannie Mae includes tips on “avoiding problematic phrases” in appraisal reports. On pages 3-4 of the newsletter, you’ll find the section devoted to reviewing problematic words and phrases and their implications.
It includes an easy-to-read table chart highlighting specific problematic phrases to avoid in your reports, as well as helpful examples of what you should write instead.
USPAP’s Advisory Opinion 16 (AO-16)
Advisory Opinion 16 in the USPAP publication is titled “Fair Housing Laws and Appraisal Report Content.” Remember that Advisory Opinions (AOs) do not establish new standards and are not intended to be enforceable. AOs are issued to illustrate the applicability of appraisal standards in certain situations and to offer advice from the ASB.
AO-16 states, in part:
Fair housing law(s) preclude the use of certain specific information or supported conclusions related to protected group(s) in some assignments. Accordingly, an appraiser should be knowledgeable about the laws that affect the subject property of an assignment. Laws and regulations on fair lending and fair housing (such as the Fair Housing Act, the Equal Credit Opportunity Act (ECOA), and the laws and regulations of applicable federal, state, and local jurisdictions) continue to evolve. Further, appraisers must continue to provide appraisals that do not illegally discriminate or contribute to illegal discrimination.
AO-16 goes on to state:
In some cases, even supported conclusions in assignments relating to characteristics such as race, color, religion, national origin, gender, familial status, age, receipt of public assistance income, handicap, or group homogeneity cannot be used because they are precluded by applicable law. [Emphasis in original.]
This source on appraisal fair housing compliance was recently published by the Federal Housing Administration (FHA). With the subject line, “Appraisal Fair Housing Compliance and Updated General Appraiser Requirements,” it includes updated guidance effective as of November 17, 2021.
“As one effort to address discrimination in the appraisal process, this Mortgagee Letter (ML) clarifies FHA’s existing requirements for Appraisers and Mortgagees regarding compliance with Fair Housing laws related to the appraisal of properties that will serve as security for FHA–insured mortgages.”
Read Mortgagee Letter 2021-27 to learn about the specific changes. All policy updates will be incorporated into a forthcoming update of HUD Handbook 4000.1.
Remember, the best way to avoid appraisal bias is to embody the three operative words that define an appraiser—independence, impartiality, and objectivity.