More Objective Appraisals: A Practical Guide for Appraisers
I’ve talked a lot recently about the importance of developing more objective appraisals. This is important in helping to deliver a more transparent and precise housing finance process, but it’s also addressed in the Unacceptable Appraisal Practices section of our Single-Family Seller/Servicer Guide (Guide) – Guide Section 5603.4. We’ve even begun to implement feedback messages that alert lenders when certain words or phrases show up in appraisals, to assist them in their compliance with this Guide section.
Changing the Mindset – Facts First
What’s the number one thing appraisers should be doing when they develop an appraisal? Stick to the facts. Here are a few more best practices that can help appraisers achieve more objective appraisals.
- Don’t think like a salesperson – avoid words that may be common in Multiple Listing Service (MLS) and used to help sell a home.
- Don’t use shorthand – both ‘123 Church Street’ and ‘123 Church’ could refer to an address but might come across differently in an appraisal.
- Don’t copy and paste – avoid copying from Wikipedia or old appraisal reports or commonly used templates when providing neighborhood descriptions for similar communities.
- Use pre-screening practices – while you can implement your own pre-screening process, some appraisal companies can implement them too.
“One rule of thumb that will always help appraisers – when in doubt, stick to the facts.“
Instead of That, Try This…
So, how can appraisers create more objective appraisals? Below are examples of common words and phrases that are triggering feedback messages. Some of this language is subjective in nature, while some is potentially biased. The one thing they’ve all got in common is that they’re unnecessary in the development of an opinion of value. Let’s take a closer look at these problematic words and phrases and what appraisers can do to avoid them.
Saying a property or area is “desirable” is subjective – what’s desirable to one person might not be to another. Further, an appraiser’s use of the word “desirable” could be seen as the appraiser showing bias that influences their opinion of value because the property or area is desirable to them.
Instead, if an appraiser notes that the property has a kitchen that was renovated in the last year or is located on X acres, these are facts that can be used to objectively assess the property.
Just like with desirable, “family friendly” is a subjective description of an area or neighborhood. Instead of using “family friendly,” an appraiser can provide factual examples of the infrastructure or amenities in the area, such as how many schools or public facilities are available within a certain distance of the subject property.
“Prestigious” and “sophisticated” are other examples of subjective descriptions of a property or surrounding area. An alternative approach to conveying the idea that buyers are interested in this property or similar properties in an area or neighborhood is to provide the price ranges for nearby, comparable properties, as well as listing the number of days those properties were on the market.
Saying that a property is “convenient to” or “within walking distance of” amenities in the surrounding area is subjective and could also suggest bias against those with physical limitations that might make it difficult to travel or walk to those amenities. A more objective approach is to state the actual distance the subject property is from things like schools, shopping and highway access.
Describing a market or area as “strong” or “weak” is subjective and could be interpreted as showing bias; to avoid this, an appraiser can focus on the facts surrounding current market conditions and what is actually happening in an area. By providing sales prices and trends, an appraiser offers data that can be used to objectively assess the market or area.
A word like “gentrification” is even more problematic, as it can be associated with class, displacement and income. Vague words can be viewed as veiled and possibly implying another meaning. An appraiser can avoid this by providing the number of renovated homes within X miles of the subject property.
These are examples of common words and phrases we’re seeing that trigger feedback messages. Many appraisers are already employing a lot of these practices.
“Another rule of thumb… appraise the property, not the people in the property.“
More Words and Phrases to Avoid
| Word or Phrase | Why Potentially Problematic |
|---|---|
| Quiet Quality Starter Move up | Subjective |
| Polish Spanish Black White | Context matters |
| Nationality references (e.g. Asian, Hispanic, Immigrants) Religions (e.g., Baptist, Catholic, Muslim) Age references (e.g., Retired, Millennials, Boomers, Senior citizens) | Potentially biased or discriminatory |
| Pride of ownership Diverse Community Inner city Section 8 Theft/crime | Potentially veiled or code words |
By considering these examples and suggested best practices, appraisers can create more objective appraisals – and that’s the goal. We’ll continue to do everything we can on that front by providing education and insights to appraisers and offering tools and technology to help lenders. Together, we can all play a part in delivering a more transparent and precise housing finance process.