The Appraisal Institute said last week it’s partnering with organizations including the American Society of Appraisers, the American Society of Managers and Rural Appraisers and the Massachusetts Board of Real Estate Appraisers to support the development of new industry training that aims to eliminate unconscious bias in their evaluations of homes.
“Acknowledging that bias exists is but one small step,” said Lorrie Beaumont, president of the American Society of Appraisers International, in a statement. “Together with our partners, we commit to doing the hard work of educating our members about the various ways bias can affect their work, and provide them the tools necessary to overcome bias. By doing this as a profession, and not merely as individual organizations, we hope to underscore to our members and the public just how important this issue is to all of us.”
Home appraisals are important because they’re meant to serve as an unbiased, professional opinion of a home’s value. Appraisals are used in purchase and sales transactions and also in refinance in order to determine the contract price is appropriate given its condition, location and features. With refinancings, the appraisal is designed to ensure borrowers aren’t being given more money than their home is actually worth.
It’s therefore important to eliminate any unconscious bias from appraisals. Should an appraisal be negatively biased, it means the appraised value is in correctly judged to be lower than the transaction price, which means the mortgage loan-to-value ration is higher than it should be. In other words, the borrower ends up paying more, or could be refused a loan altogether.
Home appraisal bias is most commonly believed to occur with borrowers in minority racial groups, such as Blacks and Hispanics.
Each of the four organizations has also committed to reviewing their code of ethics and governing documents to help ensure they can better address bias and discrimination issues among protected classes, they said.
Jefferson Sherman, president of the Appraisal Institute, said the organizations are standing together to enhance existing training and ethics initiatives and that they will work even harder to ensure that the appraisal process in every part of the country is “free from bias or discrimination”.