Revisiting Advisory Opinion 16

Agent holding a house in her hands
Real estate transactions should be bias-free.

As most appraisers know, the Appraisal Foundation issued an exposure draft of a complete revision of Advisory Opinion 16 on March 1st. With two weeks to go until the deadline for comment submissions, we urge all appraisers to make their voice heard.

Advisory Opinion 16

Advisory Opinion 16 made its debut in USPAP’s 1997 edition. This Opinion addresses Fair Housing Laws: Avoiding Bias in Real Property Appraisal and Appraisal Review Development Reporting.

Until the last year or two, the wording of this Advisory Opinion seemed sufficient to satisfy any of the needs of appraisers to avoid the appearance of bias in their appraisals. What changed?

Why Change Advisory Opinion 16?

For 24 years Advisory Opinion 16 had very little change. In the last couple of years though, whistleblowers and subsequent national media attention of racial bias by appraisers hurtled the appraisal industry towards an overhaul. This increased public attention culminated in 2020-2021. Because of the public outcry over perceived racial prejudice by appraisers, government and appraiser leadership prepared to take action.

Bias Study

In an effort to determine if these accusations were valid, the American Enterprise Institute (AEI) conducted a study, published on January 4, 2021. The results of the study showed “that knowing the race of the applicant results in racial bias by appraisers on refinance loans is uncommon and not systemic. This same analysis supports the conclusion that unintentional bias based on race is also uncommon and not systemic.”

Enacting Change

While widespread appraisal bias is unproven, the reported instances of racial discrimination were enough to begin the process of enacting change. Some governmental agencies have begun legislating and enacting significant changes. Effective March 17, 2021, new regulations enacted by Governor Andrew M. Cuomo, take effect in New York State. These regulations are aimed at alerting appraisers to unintentional biases they might hold. These reforms also aim to eliminate explicit biases among appraisers.

Appraisers in New York State will be required to “successfully complete an approved course of study in Fair Housing and Fair Lending, every two years, or its equivalent, as required in subdivisions (b) or (c) of this section, in order to renew their licenses or certifications.”

The Appraisal Foundation has heeded accusations of bias. The Foundation is doing its part to remedy the problem. By highlighting the need for appraisers to thoroughly explain conclusions in unbiased language, the Appraisal Foundation intends to enable appraisers to easily defend themselves against bias. Eliminating any form of bias, be it racial or social class bias, is the end goal for all parties involved.

The Exposure Draft

If you haven’t read the exposure draft yet, or need to brush-up on it before responding to it, you can read it here:

Key Takeaways

GSEs Versus The Appraisal Foundation

GSEs are trending towards turning reports into checklists. On the other hand, in Advisory Opinion 16, The Appraisal Foundation encourages lengthy and detailed explanations. The two appraisal behemoths contradict each other. Do appraisers need a checklist? Do appraisers need a vocabulary list of approved and banned words? Unfortunately, this is not an opportunity to address the overhauls that the GSEs are poised to implement. However, this is an opportunity to address the opinions of the Appraisal Foundation.

Should appraisers be given a list of banned and approved words? Should they write lengthier explanations? Let The Appraisal Foundation know your opinion!

An Appraiser’s Point of View

Keven Ewell, an appraiser who owns his own appraisal business, works with DataMaster, and sits on the Utah State Appraisal Board, shared a story about his education in bias detection. He also shared his opinion of the need for the rewrite of Advisory Opinion 16:

When I was a younger appraiser, working underneath a more experience appraiser, I came across a unique home. The color scheme of the walls and carpets was unconventional. Purple clashed with red, vibrant blue clashed with neon pink, and other interesting color choices.

I took my notes from my inspection of the home back to the office and began putting the appraisal report together. I discussed the color scheme with my mentor, expressing distaste for the homeowner’s choices.

My mentor taught me something very valuable that day. He told me that I was using my own bias on what colors were appropriate in a home. He told me that my role was to appraise the home as-is, without my personal twist on the conclusions. After all, someone had chosen those colors because they liked them. It wasn’t my place to pass my own personal judgement on the color schemes.

This story ties into the events of 2020 and 2021 with the accusations of bias in the appraisal industry.

It’s just the nature of where we’re at in the industry. It’s a great reminder for appraisers that even when we have hidden biases, we need to be careful not to cave into them. We have to be more diligent in making sure we’re looking at the data and not using bias in our conclusions.

We all have bias, so be careful not to concede to it. Be clear in your reports. Use unbiased language, thoroughly describe your conclusions, and you should be fine!

Contact The Appraisal Foundation

Wherever you stand on the exposure draft of Advisory Opinion 16, make your voice heard!
You have until March 31, 2021, to respond to The Appraisal Foundation!

Respond via SurveyMonkey:

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