There has been much talk in the appraisal profession about the adoption of a specific appraisal issue by former Vice President Joe Biden as part of his platform seeking the Democratic presidential nomination. Specifically, Mr. Biden’s inclusion of a policy to “tackle racial bias that leads to homes in communities of color being assessed by appraisers below their fair value” has appraisers wondering what, exactly, they are doing that could be perceived as systemically devaluing homes in minority communities. After all, USPAP specifically prohibits any kind of explicit or implicit bias from affecting an appraiser’s opinion of value.
In a recent letter to Mr. Biden, ASA worked to bridge the gap in the conversation, both by acknowledging that USPAP and its enforcement by state licensing agencies is sufficient protection from overt acts of bias against communities of color, but also addressing a concern expressed in multiple conversations that something in the appraisal process has the effect of carrying forward historic bad acts – such as redlining – that disadvantaged communities of color in the first place.
In the letter, ASA makes it clear that “[t]he cornerstone of USPAP is its requirement that an appraiser must be objective, impartial, and neutral in determining an opinion of value in connection with any appraisal assignment.” This bedrock, and its enforcement, demonstrate clearly there is no need to “establish a national standard” specifically focused on appraisals in minority communities. A standard which addresses this issue already exists.
ASA goes on to discuss how a potential overreliance on the Sales Comparison approach by the mortgage lending community and a nearly exclusive use of a retrospective approach to developing an opinion of value could lead to unintended outcomes that perpetuate historical acts of bias in housing finance. By encouraging lenders to more fully and appropriately incorporate the Cost Approach and Income Approach into the process, and allowing appraisers to apply appropriate weight to the findings that each approach shows, there is more opportunity for single family and multiple dwelling homes in communities of color to reflect values to those in similar, non-minority neighborhoods. ASA does caution, however, not to push for intentional overvaluation where no evidence exists to support higher home values.
The letter closed with this summation of ASA’s point: “[T]hat comprehensive use of all the approaches to value, and reviewing and analyzing future trends, could begin to overcome historical factors that led to depressed home values in minority communities in the first place.”
When asked about ASA’s letter, International President Douglas Krieser, ASA FRICS noted “There are a range of experiences with the homebuying process, including when the home is appraised. While we believe – and would expect – that no one is intentionally depressing home values simply because of someone’s race or ethnicity, we are sensitive to anything in the appraisal process that can unintentionally disadvantage communities of color. We welcome a full conversation around the issue, and hope that open minds from all corners can figure out if there’s a problem and, if there is, developing solutions that are well-thought out and based upon the excellent Standards already in place.”
To read ASA’s letter, click here.