The Delicate Dance of a Fair Appraiser

Real estate professionals have to keep fair housing practices in mind at all times, but what responsibilities face an appraiser when it comes to these important issues? Learn how choices about particular language or supporting evidence can cause trouble.

During a real estate transaction, each part of the process has the potential to be a source of anxiety. The appraisal can be worrisome because everyone’s made it through negotiations and inspections and then there’s this step that could be full of unknowns.

By law, appraisers must ensure their opinions and conclusions are impartial and objective and do not discriminate (or contribute to discrimination) through subjective or stereotypical assumptions. Indeed, appraisers must also understand the laws that affect the property being appraised, including those related to fair housing and fair lending. The Uniform Standards of Professional Appraisal Practice devotes an entire section of guidance (Advisory Opinion 16, or AO-16) to dealing with this delicate topic.

Let’s say your listing is located in a neighborhood that’s recently gotten a bad reputation in the local news for crime. If your appraiser is considering factoring this in, AO-16 cautions terms such as “high-crime area” aren’t subjective, and while their meaning may be understood by the appraiser, they have the potential to mislead others.

The guidance also cautions appraisers to use care with the evidence used to back up the assertion. For example, even if they cite something as concrete as “one crime per 100 people,” the appraiser should question whether the term and the statistic are relevant to the assignment. After all, if all of the comparables used by the appraiser are from a market sharing the same crime characteristic, that stat loses its relevance as a basis for devaluation.

This brings into sharp relief the notion that, while USPAP obviously warns appraisers against the use of unsupported conclusions that can be discriminatory, even supported conclusions (such as crime statistics) can be troublesome. Also, any supported conclusions that are based on a legally protected status (race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or group homogeneity) must not be considered by an appraiser because they are precluded by law from doing so.

AO-16 also cautions against using relative terms (such as high, low, good, fair, poor, strong, weak, or average) without providing a baseline to measure them against. Appraisers should always include contextual information that explains the frame of reference and the relative position of the property in question on the scale. For example, if absorption is stated as “rapid,” the appraiser should explain that the rate is considered rapid as compared to absorption rates of a particular time period in the past.

Of course, laws and regulations on fair lending and fair housing — and the laws and regulations of applicable federal, state, and local jurisdictions — continue to evolve. In response to this fact, USPAP includes provisions obligating appraisers to be aware of fair housing laws. This relates back to the Competency Rule, which requires “recognition of, and compliance with, laws and regulations that apply to the appraiser or to the assignment.”

Ultimately, appraisers are obligated to ensure their appraisal reports comply with all applicable laws and regulations, including those related to fair housing. And that requirement is actually baked into the appraisal itself. USPAP mandates appraisers acknowledge their obligation to remain impartial and unbiased by including in each appraisal report a signed certification that states, in part, “I certify that, to best of my knowledge and belief, the reported analyses, opinions, and conclusions are my personal, impartial, and unbiased professional analyses, opinions, and conclusions.”

Focus on Fair Housing