An accurate appraisal plays a critical role when buying, selling, or refinancing your home or commercial property. But what happens when that valuation isn’t truly objective?
Real estate research and stories from numerous property owners reveal a troubling truth. Some homes are being undervalued due to factors that have absolutely nothing to do with the property itself.
Known as appraisal bias, this issue can have a serious impact on loans, equity, and generational wealth. Let’s explore what appraisal bias is, how and why it happens, and what our team at Akrivis is doing to minimize it and protect our customers.
What Is Appraisal Bias?
Appraisal bias is when a property’s valuation is influenced by factors unrelated to the actual market value, such as the property owner’s race, ethnicity, or the demographics of the surrounding area.
While appraisers should provide objective assessments based only on the property’s condition, location, and comparable sales, systemic inequities and human bias can, unfortunately, still influence outcomes.
Appraisal bias can have real consequences, ranging from unfavorable financing terms to reduced equity and long-term impact on generational wealth building for certain groups.
Examples of Appraisal Bias
Consider these examples of appraisal bias. Keeping these scenarios in mind can help you spot and combat potential issues.
- A neighbor of a different race is selling their house, and it’s appraised at a significantly different value than yours, despite similar size, condition, and amenities.
- A property in a lower-income or diverse neighborhood is valued lower than properties of similar size, age, and condition in other areas due to stereotypes about the area’s desirability.
- An appraiser seems to favor certain architectural styles or neighborhood features based on personal preferences rather than actual data or value.
Why Appraisal Bias Happens
Appraisal bias in the real estate industry stems from both explicit discrimination and implicit bias, where the appraiser unintentionally allows their own preferences and biases to influence their assessment.
Common reasons that bias happens during the appraisal process include:
- Reliance on comparable sales in historically skewed and undervalued neighborhoods
- Subjective elements in the appraisal process (like curb appeal ratings)
- Lack of diversity in the real estate industry
- Insufficient oversight and accountability mechanisms
How Akrivis Is Moving Toward a More Equitable Valuation Process
While appraisal bias is a deep-rooted problem, our team is doing our best to address it and minimize bias in our valuation reports.
Policy Changes
In addition to following all state and federal standards, Akrivis has implemented stricter oversight and additional safeguards internally to detect and address bias in our valuations.
Awareness & Training
Akrivis requires mandatory bias training to help appraisers recognize and mitigate implicit bias issues.
Diversifying Workforce
As we grow our nationwide network of real estate appraisal experts, we continuously look to attract and retain appraisers of all different backgrounds and ethnicities. This helps bring varied perspectives to our company and our clients.
Data-Driven Valuation Tools
Our valuation models and AI-based tools help Akrivis significantly reduce human subjectivity in our appraisals. These modern appraisal methods are monitored carefully to avoid compounding existing biases based on historical data.
Consumer Education
We encourage all property owners, including our clients, to review their appraisal reports for inaccuracies. If they’re concerned, they can request reconsideration of value. We also offer second opinions on appraisals and evaluations done by other companies.
What Property Owners Can Do to Minimize Risk of Appraisal Bias
While we’re doing a lot of work internally and as an industry, there are some things you, as the property owner, can do to help minimize bias as well. Clear documentation and communication can go a long way in ensuring a fair and accurate report.
Document Your Home’s Condition
Keep detailed records of home improvements, upgrades, and repairs, including receipts, photos, permits, and more.
When it comes time for an appraisal, these help ensure that these home upgrades are taken into account and that your home is valued against properties with similar conditions and features.
If you suspect appraisal bias has impacted the report, these documents can help your case moving forward.
Know Your Comps
Take some time to familiarize yourself with recent comparable sales in your area before your appraisal.
Diving into these numbers will give you a baseline or range for what you can expect when the appraisal comes back. With that number in mind, it’s easier to spot potential bias or ask questions when need be.
Request Reconsideration
It’s essential to speak up if you have questions or concerns. If you suspect bias, provide evidence and ask your lender for a review. The Akrivis team is also here to offer a second opinion on any appraisal or evaluation to help you move forward with confidence.
Let’s Fight Appraisal Bias Together
Appraisal bias undermines trust in the real estate system and has far-reaching financial consequences for homeowners and communities. By doing our part to increase awareness and embrace fair valuation practices, we can move closer to equitable housing and real estate for all.
If you have questions about our process or want a trustworthy team to handle your valuation, we’d love to chat.