Can the value of a home depend on who lives in it? For too many homeowners, particularly those in communities of color, the answer has been a resounding “yes.” Appraisal bias — intentional or unconscious — continues to impact home valuations, resulting in undervalued properties that restrict access to home equity and wealth-building opportunities.
This concern is not simply anecdotal. Numerous studies and high-profile lawsuits have highlighted bias in the appraisal industry. Accurate and credible appraisals help build trust and maintain a fair housing market, and they’re especially critical for mortgage lenders.
The reconsideration of value (ROV) process has emerged as a crucial tool for combating appraisal discrepancies. With new regulations introduced by U.S. Department of Housing and Urban Development, Fannie Mae and Freddie Mac, changes are designed to address appraisal bias more effectively so borrowers and lenders can challenge questionable valuations.
These changes reflect a significant shift toward transparency and accountability. And advanced technologies like computer vision — a field of artificial intelligence (AI) that allows machines to interpret and analyze visual data — will play a vital role in reinforcing appraisal integrity.
Subjective factors
How can new technology drive industrywide change to ensure greater equity and fairness in the appraisal process? Today, emerging technologies such as AI and machine learning support these efforts, setting the stage for a more accurate and equitable future in home appraisals.
A reconsideration of value serves as a formal avenue for addressing discrepancies in property valuations. It allows lenders, borrowers and appraisers to request a re-evaluation of an initial appraisal when it is disputed, providing a much-needed mechanism to ensure that appraisals accurately reflect a property’s value. The importance of this step cannot be understated, especially in situations where the initial appraisal appears to have been influenced by bias or inaccuracies.
Reconsideration of value stands out as a tool that can bring accountability and transparency to the forefront of the appraisal process. When appraisals are challenged, additional evidence — such as comparable sales or condition reports — can be submitted for further review, offering borrowers and lenders a second chance to ensure the valuation is accurate.
Historically, appraisals have faced inconsistencies stemming from subjective factors such as neighborhood demographics, unconscious bias and outdated methods of comparison. Studies have shown that minority-owned homes are often undervalued, perpetuating systemic issues that hinder wealth-building opportunities for marginalized communities.
The PAVE Action Plan — created by Property Appraisal and Valuation Equity, a government initiative aimed at addressing appraisal bias — has shed light on these persistent disparities. The group advocates for more objective and standardized appraisal practices.
The reconsideration process offers a lifeline, allowing homeowners to contest valuations that might otherwise go unchallenged. As the mortgage industry faces increasing scrutiny over its valuation practices, the importance of this process continues to grow, with recent changes aiming to make it even more robust and accessible.
Significant step
The recent updates to the process represent a significant step forward in promoting more transparent property valuations. Spearheaded by HUD through Mortgagee Letter 2024-07 and supported by Fannie Mae and Freddie Mac, these changes are designed to give borrowers more control and provide clear guidelines for both lenders and appraisers.
At the heart of these changes is a focus on addressing appraisal bias, ensuring that every homeowner can challenge questionable appraisals effectively. In the past, it was primarily the lender’s prerogative to request a reconsideration. Now, homeowners themselves can initiate the appraisal re-evaluation process, empowering them to take a more active role.
Another crucial update involves enhanced requirements for appraisal reviews. Lenders must now ensure that appraisal reports undergo more thorough scrutiny before they are finalized. This means looking for material report deficiencies, inconsistencies in property condition ratings and unsupported adjustments to comparable sales. The goal is to rein in biased appraisals, providing an additional layer of quality control before any re-evaluation requests are made.
The new standards also clarify conditions that allow ordering a second appraisal. If material deficiencies are found in the original appraisal, or if the borrower submits strong evidence — such as additional comparable sales — that indicates the original appraisal was flawed, a second appraisal can be requested.
The evolution of the this process has not occurred in isolation. It is deeply tied to the broader legal and regulatory landscape shaped by numerous lawsuits and government actions.
One case that stands out is against Santander Bank by a Connecticut couple, which involved allegations of racial bias in a home appraisal. In this lawsuit, which was settled, the plaintiffs accused an appraiser of undervaluing their home based on race, resulting in a significantly lower valuation than when the house was “whitewashed” by removing personal items and family photos. This case underscored the persistence of bias in the appraisal process and the financial harm it can inflict on marginalized communities.
Another notable example is the LoanDepot settlement. In that case, a Black homeowner’s appraisal was allegedly undervalued by nearly $300,000 compared to a second appraisal conducted after removing cultural identifiers from the home.
The settlement highlighted lenders’ role in ensuring accurate appraisals and reinforced the need for stringent oversight and accountability. These cases have pressured regulatory bodies to strengthen the reconsideration of value process as a tool to combat bias and protect homeowners from discriminatory practices.
Reshaped expectations
The recent changes to the process are reshaping the responsibilities and expectations placed on both lenders and appraisers. Appraisers are at the center of these changes. They must be prepared to justify their assessments, particularly when challenged by borrowers or lenders.
With the introduction of borrower-initiated reconsideration of value, appraisers are now tasked with responding to re-evaluation requests more frequently and with greater precision. The pressure to deliver unbiased appraisals is higher than ever. Today’s regulations emphasize data-driven, objective valuations. Failure to adhere to the standards could lead to severe consequences, including loss of professional credentials or exposure to legal liability.
Appraisers must also understand that their work can be subject to second appraisals if the original report contains material deficiencies. As a result, appraisers are expected to conduct thorough research, validate comparable sales carefully, and remain vigilant for potential biases in their assessments.
Lenders also face new challenges in ensuring compliance with the updated reconsideration of value process. As part of their responsibility, lenders must implement strict quality control measures to ensure that appraisals meet the new standards before finalizing loans. This includes verifying the accuracy of comparable sales, confirming that data clearly supports the appraiser’s conclusions and reviewing appraisals more thoroughly for potential errors or biases.
These changes create an opportunity for lenders to build stronger relationships with their clients by demonstrating a commitment to unbiased lending practices. By embracing the updates and supporting transparent and equitable appraisals, lenders can foster greater trust with borrowers, particularly those in marginalized communities who may have historically faced housing discrimination.
Powerful tool
As the appraisal industry strives to eliminate bias, technology has emerged as a powerful tool for driving change. Among the most promising advancements are computer vision and AI, which have the potential to revolutionize the appraisal process by reducing human subjectivity and delivering more consistent, data-driven valuations.
These technologies not only address bias head-on but also improve the overall accuracy and efficiency of appraisals. Computer vision, using computers to derive meaningful information from digital images and videos, is at the forefront of this transformation. In the context of real estate appraisals, computer vision technology can analyze property photos to assess the condition of a home, identify structural elements, and even detect small details that may otherwise go unnoticed by the human eye. By leveraging vast data sets and deep learning algorithms, computer vision can ensure that property conditions are evaluated with remarkable consistency and precision.
“Accurate and credible appraisals help build trust and maintain a fair housing market, and they’re especially critical for mortgage lenders.”
For instance, Fannie Mae thoroughly tested computer vision technology as a tool for the appraisal review process, achieving a remarkable 98% accuracy rate. This technology can automatically compare interior and exterior photos of homes with vast databases of comparable properties, identifying potential discrepancies and ensuring that appraisers assign accurate condition ratings. The ability to standardize these valuations reduces the likelihood of human bias creeping into the appraisal process.
By eliminating subjective judgment and relying on objective data, computer vision helps ensure that properties are appraised based on their actual physical condition and comparable sales rather than on factors such as neighborhood demographics or personal bias. This approach is essential for minority homeowners, who have historically faced undervaluations due to bias. Computer vision can also identify people, pictures, people in artwork, mirrors, etc., and blur the images to remove any identification of race, helping to significantly reduce appraisal bias.
The integration of AI and computer vision into the appraisal process is not merely an incremental improvement — it represents a paradigm shift. As these technologies evolve, they will make identifying and addressing potential appraisal disparities easier, enabling lenders, appraisers, and homeowners to trust that property valuations are based on hard data rather than personal perceptions.
As computer vision and AI technologies become more widely adopted, they could help establish a new standard for transparency and accountability in the real estate market. This would benefit marginalized communities and protect lenders and appraisers from costly legal challenges related to appraisal accuracy and bias.
