Real Estate Appraisal Bias – How to Spot It, What to Do About It, Why it Matters

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In a perfect world, everything goes according to plan. People are kind and fair, and no one is out to get one over on anyone else. Unfortunately, this isn’t the world we live in.

Despite quality efforts, bias is a continuing problem in the real estate industry. Appraisers are no different. Some are great. Some aren’t. Sometimes people just make mistakes.

If you think you’ve been a victim of appraisal bias, here are some tips on how to spot it, what you can do about it, and most importantly, why you shouldn’t stand for it.

What is Appraisal Bias?

A number of factors can contribute to appraisal bias, which is when a property is valued either higher or lower than it should be.

For example, let’s say a homeowner needs cash and they want to open a fixed-rate HELOC to pay off some debts. They’re sure the value of their home is $200,000, but the appraisal comes back at only $165,000. Now this family is in a really right bind because they can’t borrow as much as they thought. So what happened here?

There are a couple of things. First, the homeowner could have simply overvalued their property. But we have to at least take appraisal bias into consideration as a possibility. 

One common source of bias is the availability heuristic, which occurs when appraisers base their valuation on properties that are similar to the one being appraised but that have recently sold for either more or less than the subject property.

Another factor that can lead to bias is confirmation bias, which occurs when appraisers allow their own preconceptions about a property’s value to influence their opinion.

Finally, anchoring bias can also play a role in appraisal bias. This occurs when an appraiser focuses too narrowly on a single comparable sale and fails to consider other relevant data points. All of these factors can lead to significant errors in the appraised value of a property. If you’re concerned about bias for your mortgage, you can apply for an SCCU fixed rate mortgage and know that you’ll be treated fairly.

How to Spot Appraisal Bias

Bias can occur when the appraiser is influenced by factors such as the owner’s asking price or the buyer’s offer price. 

Appraisers may also be affected by their own personal preferences or prejudices. To get the best and fairest assessment possible, it’s a good idea to become familiar with the signs of appraisal bias.

These can include an appraised value that is significantly higher or lower than comparable properties in the area, or an appraiser who refuses to provide detailed information about their methods or assumptions. If you suspect that an appraisal is biased, you may want to consider obtaining a second opinion.

What to Do About It

When it comes to appraising a property, objectivity is key. However, several factors can lead to appraisal bias, including the race or ethnicity of the property owner, the neighborhood where the property is located, and the overall market conditions.

First and foremost, you should always ask questions and ensure that the appraiser uses the most up-to-date data. If you suspect bias in the appraisal process, you can also call for a review or find another appraiser to give you a second opinion.

You would think that we wouldn’t have to bring this up in this day and age. But it unfortunately still happens. If you believe that factors negatively impacted the appraisal outside of the scope of professional judgment, such as racism or sexism, then you can file a professional complaint with your local real estate board.

However, it can be pretty hard to prove this was a factor in your appraisal.

While it can be difficult to eliminate bias from the appraisal process completely, some steps can be taken to minimize its impact. For example, appraisers can be trained to recognize their personal preferences and adjust their valuations accordingly.

They can be required to justify their appraisals using data and market analysis, rather than relying solely on their own subjective opinions. By taking these measures, we can ensure that real estate appraisals are as accurate and objective as possible.

Information All Homeowners Should Know

As a homeowner, you have the right to appeal your property tax assessment if you believe it is inaccurate. The first step is to contact your local assessor’s office and request a copy of your property record. This will include information on the appraised value of your home and any exemptions or abatements that have been applied.

Once you have this information, you can compare it to similar properties in your area to see if there is any evidence of appraisal bias. If you believe that your assessment is too high, you can file an appeal with your local board of equalization.

This process can be complex, so it is important to gather supporting documentation before submitting your appeal. With a little persistence, you can ensure that your property taxes are fair and accurate.

Why You Should Care

Homeownership is a key component of the classic American dream. Unfortunately, when it comes time to sell their home – which is often people’s most valuable asset – they want to see a reasonable return on that investment.

There are a number of reasons why people should care about appraisal bias in the real estate industry.

First and foremost, appraisal bias can lead to properties being valued inaccurately, significantly impacting buyers and sellers. If a property is undervalued, the buyer may pay more than they should, while the seller may miss out on potential profits if it is overvalued.

In addition, appraisal bias can also create disparities in the housing market, as properties in specific neighborhoods may be appraised more favorably than those in others. This can lead to gentrification and other undesirable outcomes.

As such, everyone involved in the real estate industry should be aware of appraisal bias and try to prevent it from happening. By doing so, we can help homeowners receive fair and accurate appraisals of their properties.

Conclusion

Appraisal bias is a problem that can have severe consequences for homeowners, buyers, and sellers alike. It can lead to inaccurate property values, disparities in the housing market, and other unfortunate outcomes.

While it can be difficult to eliminate bias from the appraisal process entirely, some steps can be taken to minimize its impact.

By taking those measures, calling them out when we see them, and not letting discriminatory actions stand, we can help ensure that real estate appraisals are as accurate and objective as possible.