With the critical issue of racial justice being examined throughout the country, the Appraisal Institute is striving to expand opportunities for aspiring minority appraisers, combat unconscious bias in valuation and find solutions to promote the flow of credit in economically disadvantaged neighborhoods.
The Appraisal Institute has several programs concentrating on the issue of diversity, including the Appraiser Diversity Pipeline Initiative with Fannie Mae and the National Urban League, along with the Minorities and Women Course Scholarship Program from the Appraisal Institute Education and Relief Foundation. Further, the organization’s member-comprised Diversity Panel is discussing new steps that the Appraisal Institute can take toward an even stronger commitment to diversity and inclusion.
Additionally, in 2019 the Appraisal Institute formed its Women’s Initiative Committee, whose discussions have centered on scholarship and mentorship opportunities in the profession. Also, recent conversations with leadership at The Appraisal Foundation have presented an opportunity for the Appraisal Institute to partner with TAF in efforts to involve more historically Black colleges and universities in the undergraduate and graduate review program that the Appraiser Qualifications Board has established.
Regarding alleged bias in valuation, “ultimately, appraisal practitioners apply value theory to real estate, and these theories are universal in economics,” said Appraisal Institute President Jefferson L. Sherman, MAI, AI-GRS. “At the most basic level, the three approaches to value – sales comparison, cost, and income capitalization – are taught and practiced around the globe. Professional appraisers have a huge stake in ensuring bias does not enter the appraisal process, because at the end of the day, we sell credibility. Frankly, bias is our adversary regardless of what form it takes.”
Sherman further noted that, “credible, reliable opinions of value are fundamental to economic security for lenders, buyers, sellers and property owners, together with other stakeholders in property tax, income tax and eminent domain. Our work must remain impartial, objective and independent, regardless of the parties involved.”
While individuals from all walks of life can carry unconscious biases, professional appraisers are bound to standards and codes of ethics that strictly prohibit bias and discrimination, requiring independence and objectivity. The Appraisal Institute believes the best way to confront any unconscious bias that may exist at the individual level is through education, and where necessary, through enforcement. A qualified appraiser knows how to conduct a thorough market analysis and make appropriate adjustments. Consumers should ask the lender for the qualifications of the appraiser and specifically, whether they are designated by a professional appraisal organization such as the Appraisal Institute.
In its Aug. 20 letter to The Appraisal Foundation, the Appraisal Institute cited its belief that existing requirements can be reinforced and enhanced starting with the AQB “Real Property Appraiser Qualification Criteria.” The letter said that while the current “Criteria” clearly allows educational programming on bias and discrimination under allowances for “Ethics,” the Appraisal Institute believes the creditable topics list could be expanded with additional examples directly relating to bias and discrimination. This enhancement would stimulate additional education ideas amongst appraisal education developers and providers on this important topic.
The Appraisal Institute also is exploring additional actions to reaffirm existing requirements including further research, guidance and education on matters relating to real estate market trends, unconscious bias and independence.
While several recent studies have been published on matters relating to alleged bias in real estate, these studies appear to have methodological flaws, including reliance on U.S. Census, property tax, and sales price information as proxies for professional appraisals. Some in the real estate industry claim that appraisers are at fault for producing opinions of value that fail to match a home’s listing or contract price. In fact, appraisers undertake thorough research and thoughtful analysis to develop reliable, credible opinions of value. Appraisals completed for mortgage transactions are used to assist lenders in making lending decisions. Buyers and sellers often have emotional value attached to a home or are unaware of the market. They should not assume an appraisal is somehow “wrong” if it does not match the listing or contract price. There is no reason to assume the contract price is the “correct” price simply because it is higher (or lower) than the appraisal.
Ultimately, many of the issues under public discussion stretch beyond the realm of valuation or appraisal, into mortgage finance and economic development. We support efforts to revitalize disadvantaged neighborhoods, but these require policy and/or legislative decisions. Appraisers are not the cause of, or responsible for, value disparities in neighborhoods – that is a function of the free market and we only reflect the market; we do not make the market.
Appraisers can help by advocating for establishment of more thoughtful and creative programs that provide secondary sources of financing (secured or unsecured) to bridge the gap between the total cost of the proposed renovation or construction and the market value of the property. Loan application frustrations may be mitigated by involving appraisers earlier in the transaction or at the time of application for a construction or renovation loan. Establishing an “as completed” or “subject to” market value can help “right size” a project for the particular market area, helping to avoid over-improvements. Further, where gaps exist between the total cost of the project and the subject property’s market value, we suggest policy makers explore creative solutions such as secondary sources of financing that leverage the work of community development programs. Such efforts have found success in cities like Detroit, and such initiatives could be enhanced by federal agency involvement or support.
“We look forward to working with policy makers, consumers, civil rights organizations and other stakeholders on all policy matters that involve real estate valuation and in pursuit of the increased flow of capital to disadvantaged communities or inactive markets,” Sherman said.