Thursday, 5 August 2021 | The Latest Buzz for the Appraisal Industry

To Eliminate Perceived Bias, We Need Specialization

For decades, the appraisal process has remained a technician-centric model with one person completing the entire process. But today’s rapid advances in technology are challenging this traditional approach. The abundance of online data available to the technician and public has continued to grow in recent years, and this introduces new challenges to our relevancy by public perception.

It is not sustainable to continue the long-standing appraisal practice model. However, the current hybrid model falls short in elevating the profession and protecting all stakeholders. It is on the shoulders of lenders and appraisers to ensure the appraisal profession follows a sustainable model for the decades to come, as we both confront the perception of bias and utilize new technology effectively and responsibly.

Addressing Big-Data and Bias

The rise of the internet and the growing popularity of remote work has allowed AMC’s and lenders to locate and retain appraisers more efficiently, as well as use big data to review appraisal reports. Unfortunately, these industry benefits also come with setbacks. Public perception has raised allegations of bias in lending and appraisal based on neighborhood-centric methodologies.

Many times, the property inspection technician is the only person who interacts with the borrower, particularly in the tech-driven online lending marketplace. The public has not adapted to placing trust in non-professional staff visiting their homes, and untrained inspectors increase the opportunity for poor quality and bias. Furthermore, claims of discrimination, injury, or employment/contractor status-related lawsuits stemming from or by an unlicensed or novice property inspector could easily compound to tens of thousands of dollars or more in legal costs to the hiring lenders.

It is a reflection on the lender when they send non-professionals into the interior of their client’s homes.

As such, public buy-in for the current hybrid model would require training of property technicians and acceptance of a result by an appraiser who has never visited the property and probably doesn’t live nearby the market. It also has to make sense to an appraiser to trust the work of their technician team and risk professional censure of the team’s work product.

The Co-Specialist Appraisal Model

To deliver truly defensible appraisals, we need a model that involves engineering, environmental, insurance, title, and legal professionals all working together. Working with a specialist “team” is the best solution for establishing the accurate property condition, contamination, liability, ownership, and legal framework of each project.   However, considering the time and cost constraints of lending appraisal; an experienced appraiser remains the best inspector and data collection option.

Rather than a novice property inspector, a local licensed and certified appraiser would provide a property inspection report and market conditions report of data as well as proposed sales comparables, land comparables, and income comparables, and capitalization rate data. From there, a specialist appraiser would supplement this data with regional data and high-level market analysis to address the analytical deficiencies perceived by market participants during periods of great demand (e.g., lack of market conditions analysis resulting in low appraised values, and high appraised values in periods of oversupply).

A regional viewpoint would also remove perceived bias based on reporting of local comparison by assembling regional datasets (big data) and updating the data periodically.  Thereby, addressing every approach to value efficiently. This would aid in eliminating the perception of bias stemming from analysis based and reported solely on individual neighborhood or homogenous market area populations.

Counteracting Retirements with Specialization

As with every industry, technology will increase efficiency in the appraisal process while retirements simultaneously decrease the number of practitioners in Appraisal. With a specialist model, we have an opportunity to continue utilizing the expertise of local appraisers who are excellent at real property data collection and sales data collection. These talented people are locally knowledgeable and would benefit from working in a small geographic footprint and perhaps cresting into retirement with fewer work hours.  Training replacement local appraisers could be shared amongst multiple appraisers within a county.

A strategic policy that desires to encompass all concerned parties will result in the elevation of the appraisal profession. A team-based approach to valuation would cover the needs of lending clients and effectively solve real estate valuation problems for decades.

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