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Avoiding Biased Appraisals and Discrimination Lawsuits

We all come from different backgrounds, with learned ideas and perceptions based on our experiences. This can contribute to bias, whether conscious or unconscious. Bias, at its core, is the act of treating someone differently because of your own personal opinions or judgments. It can happen in any aspect of life, including real estate appraisals. 

National Association of REALTORS® Research Group
2022 Appraisal Survey Results

The National Association of REALTORS® (NAR) Research Group Appraisal Survey, undertaken in May 2022, gives some insight into bias and discrimination in real estate appraisals. NAR REALTOR® Magazine reported that 3% of real estate professionals said they had experienced discrimination with appraisals. This may seem like a relatively low percentage, however, 16% stated that they believe bias/discrimination exists. 

In the survey, 78 people provided insight into the bias they had witnessed or experienced. 

Most were related to discrimination by an appraiser on the basis of the seller’s race, ethnicity, or neighborhood. 

Some of the responses in the NAR survey about biased appraisals are disturbing. Below are just a few responses from survey participants who were asked to describe the bias or discrimination they had encountered in the appraisal process:

“Appraiser came in 30K with comps a mile away. When I protested and gave 4 comps 2 miles away, he said those were in better neighborhoods. When asked how next door is a better neighborhood but a mile isn’t, he hung up on me. My clients were Puerto Rican with dark skin and I’ve never encountered a lack of reasoning as was here.” 

“Bias/discrimination in refinance. Black homeowners’ home located in an all/predominantly white neighborhood. Home is in pristine condition, all bells and whistles. Good location and is neither the largest nor smallest on the block. Appraiser comes out, all seems well. Appraisal came back at least 37k lower than the lowest comp. Appraisal challenged. The difference is that all artwork/personal photos/fraternal items removed. Owners not there and white neighbor opens door for appraiser. Within eight days and using the same comps the value increased by almost 50k.” 

See the NAR 2022 Appraisal Survey for more detailing findings.

The Impact of Biased Appraisals 

A biased appraisal can lead to a discrimination lawsuit for an Appraiser. A lawsuit can lead to significant reputational damage, financial costs, and could lead to the end of your real estate appraisal business. NPR recently reported about a recent legal settlement over a biased appraisal. In 2020, a Black couple was shocked that the appraisal of their home came in at only $995,000, much lower than a previous assessment. The appraisal was done by a white appraiser. The couple then invited their white friend to pose as the owner. All of their family photos were replaced with artwork and their friend put up a family photo. This appraisal came in at a much higher $1,482, 500. The case was settled in March 2023. An undisclosed amount of money was provided to the couple and the settlement agreement mandated that the Appraiser must agree not to discriminate in the future. 

How Appraisers Can Avoid a Lawsuit for Bias

Keep Appraisals Fact-Based 

Appraisers need to appraise based on the facts. Subjective language or opinions based on other factors can be deemed discriminatory and need to be avoided. Set aside your preconceived beliefs and look at the property with an objective lens. 

Be Aware of Discrimination Laws and Fair Housing Requirements

Like all real estate professionals, Appraisers need to be aware of all legal requirements that pertain to their job. Of particular importance is familiarity with Housing Discrimination under The Fair Housing Act and the Federal protections against national origin discrimination. 

Adopt a Lifelong Learning Approach

Appraisers undertake education and training to become certified Appraisers. However, learning does not stop just as soon as you start work. Appraisers can adopt a lifelong learning approach and seek out published guidance for Appraisers to grow their knowledge about fair appraisals and minimize bias. Fannie Mae has published a good summary of ‘Unacceptable Appraisal Practices’ in their Selling Guide. 

Unconscious Bias 

It can be difficult to avoid unconscious bias if a real estate professional doesn’t actually realize what they are doing is discriminatory. However, Appraisers can self-reflect and look critically at their appraisals, ask for second opinions, and be receptive to feedback from others and their perceptions of bias. 

Consider CRES E&O + ClaimPrevent®

CRES offers  real estate E&O Insurance specifically for appraisers. As part of one of the largest insurance brokers in the world, we have unparalleled access to more appraiser E&O options than just about anyone.

With CRES E&O + ClaimPrevent®, you’ll have access to our qualified team of attorneys pre-claim. This can help Appraisers to minimize risks and avoid costly litigation. Contact the CRES team at 800-880-2747 today.

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