The appraisal industry has come under fire recently due to perceptions of racial bias. A number of news outlets have reported stories about people of color who felt they received unexpectedly low appraisals before receiving higher ones when white family members or friends displayed the same home.
Then Freddie Mac conducted its own study of 12 million appraisals from 2015 through 2020 and found that Black and Latino applicants received appraised values that were lower than contract prices more frequently than white applicants. The appraisal industry takes the claims seriously, said Rodman Schley, president of the Appraisal Institute, an association that aims to foster professionalism, ethics and standards in the industry.
“It goes against everything that an appraiser stands for,” Schley said. “We’re not making markets; we’re just trying to reflect what the market is telling us. When we hear these stories about somebody that feels that they’re being treated unfairly, it’s heartbreaking.”
Schley spoke to Scotsman Guide about how the appraisal industry can reassure people of color that they’re being treated fairly. He also spoke about the shortage of appraisers and what this means for the housing and mortgage industries.
What do you make of the anecdotal stories of appraisal bias?
Just because it’s the highest appraisal, doesn’t always necessarily mean it’s the right appraisal. Without seeing these appraisal reports, it’s really hard to get our arms around what’s right and what’s wrong, or if it’s a bias issue or if it’s a quality issue.
Did the Freddie Mac research on the racial gap for home appraisals surprise you? And could this lead to new regulations?
It surprised me a little bit. We’ve been waiting for the data. Does it point to bias? Maybe, maybe not. We’ve identified a problem, but now we’ve got to dig deeper and see what the actual cause of these differences is to really be able to find a solution for it.
There might be new guidelines on the horizon. I’m hoping that everybody takes their time to really, truly identify what the specific problems are, because once those problems are pinpointed, then it gives us an opportunity to look at legislation around those things to make us all better.
We’ve identified a problem, but now we’ve got to dig deeper.
How can the industry reassure people of color that they’re being treated fairly?
You really need to understand what your rights are as a consumer so that you can ask for a reconsideration of value. If I’m a homeowner and feel my appraisal was too low, I can take other data to support something different than what was submitted in the appraisal report.
What is the Appraisal Institute doing to support diversity and inclusion (D&I) efforts?
We’ve always wanted diversity. One of the best things that have come out of the D&I efforts right now is the fact that people are starting to see our scholarships that we’ve had for a long time. Some of these scholarships sat vacant. We have the Appraiser Diversity Initiative that we’re working on now with Fannie Mae, Freddie Mac and the National Urban League to offer education on what an appraiser does, what a career in appraisals is like. We also just received a $3 million commitment — $1 million a year for the next three years — from Chase Bank to work on D&I efforts.
What can you say about the current shortage of appraisers?
If you look at things in a typical market condition, we probably have about the right (number) of appraisers out there. With interest rates this low and homes moving so quickly off the market, there is a backup and what seems like a need for more appraisers. That could change in the next six months.
There used to be a significant number of appraisers more than there are right now. With technology, the amount of work that can be done is significantly more. We’ve got a pretty good appraiser number.
What should mortgage originators understand about the shortage of appraisers?
If I were sitting in the shoes of an originator, I would understand that the market is very aggressive right now. It’s moving very quickly. Everybody is working as fast as they can. There will come a time when things will scale back. We’ll slow down a little bit and get back to normal. ●