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What Is Appraisal Bias?
Appraisal bias is a form of bias during the appraisal process and can occur when an appraiser considers factors unrelated to the property’s condition, quality or comparable market values. Bias may lead to discrimination based on factors such as the race or ethnicity of a homeowner or the racial or ethnic composition of a neighborhood when determining a home’s value. This type of bias can result in lower valuations for homes in specific communities, whether it happens consciously or unconsciously.
If you decide you want to dispute the appraisal, work with your real estate agent to reconsider the value. You'll typically need to back up your request with comparable evidence, such as comparable properties or records indicating that the initial appraisal used incorrect or incomplete information.
Differences Between a Home Inspector and a Home Appraiser
Home Inspector
A home inspector’s role is to conduct a thorough examination of your home. They will analyze and assess various aspects of the property for damage, wear, tear, and other issues that can affect the buyer’s investment. An inspector works for the buyer to determine what condition the property is genuinely in before they buy it. An inspection is a key step in the home-buying process, and it will ensure that buyers make an informed decision about the property.
Home Appraiser
An appraiser visits the property with a goal to survey the home and come to an accurate conclusion about its real value compared to similar properties. An appraiser works for the lender to help them determine if they should back the loan for a property. As a neutral third-party, appraisers are legally bound to provide an unbiased estimate of the home’s worth.
Common Signs of Appraisal Bias
Sellers typically don't receive a copy of the appraisal report, but you can ask the buyer if they're willing to share the report with you so you can check for incorrect or potentially problematic information. Double check the details. Make sure the appraiser didn't miss anything or input incorrect numbers, such as square footage, number of rooms, and other key information. Look for red flags in the appraiser's comments, such as language referencing the racial or ethnic makeup of an area.
You can also review the comparable sales (or “comps”) the appraiser used and make sure they are relevant. Comps should generally be located within a mile of the property being appraised, in similar condition, and close in age, square footage, and number of rooms. If the comps your appraiser used don't fit these criteria and there are comps available in your area that do, you may have a good case to dispute the report.
What Can I Do If I Believe my Appraisal is Too Low?
If you believe that your appraisal is too low, you can challenge the appraisal. Ask your lender for a reconsideration of value (ROV) which is a request to reassess the analysis and conclusions based on additional information that may affect the value of the property. During the ROV, you will have an opportunity to explain why you believe the evaluation is inaccurate and can request that the appraiser:
- Correct errors in the appraisal report
- Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal
- Provide further detail, substantiation, or explanation for the appraiser's value conclusion
What if I Believe I Have Been Discriminated Against in the Appraisal Process?
The Fair Housing Act and the Equal Credit Opportunity Act prohibit discrimination in the home appraisal process. Not every low appraisal is due to discrimination, if you think your appraiser has discriminated against you, contact the Appraisal Complaint National Hotline at 1-877-739-0096.
If you think your lender has discriminated against you by relying on a biased appraisal, you can file a complaint with the Department of Housing and Urban Development or a state or federal financial regulatory agency, including the NCUA.
Frequently Asked Questions
Pros of Obtaining a Reverse Mortgage include the following.
- Supplemental Income – Reverse mortgages can provide tax-free income, which can help cover living expenses, medical bills, or other costs during retirement.
- Stay in Your Home – You can continue living in your home without making monthly mortgage payments, allowing you to age in place.
- No Monthly Payments – Unlike traditional loans, you don’t have to make monthly payments. The loan is repaid when you sell the home, move out, or pass away.
- Non-Recourse Loan – If the loan balance exceeds the home’s value, you or your heirs are not responsible for the difference if the home is sold for the appraised fair market value. The lender can only claim the home’s value.
- Flexible Payment Options – You can choose to receive the funds as a lump sum, monthly payments, a line of credit or a combination of these.
High Costs – Reverse mortgages can come with high upfront costs, including origination fees, closing costs, and mortgage insurance premiums. Reduced Home Equity – As you receive payments, your home equity decreases, which can limit the inheritance you leave to your heirs. Ongoing Expenses – You are still responsible for property taxes, homeowners’ insurance, and maintenance. Failure to keep up with these can lead to foreclosure. Impact on Benefits – Receiving reverse mortgage payments can affect eligibility for certain need-based government benefits, such as Medicaid. Complexity – Reverse mortgage can be complex and difficult to understand, requiring careful consideration and possibly professional advice.
No. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI) generally requires credit unions to obtain appraisals for real estate-related transactions regulated by the NCUA. In 2020, the NCUA amended its regulations to require credit unions to obtain appraisals when originating residential real estate loans of $400,000 or more. Loans for less than $400,000 generally require written estimates of market value instead of appraisals. While written estimates of market value do not have to be issued by state-licensed or -certified appraisers, they must still be issued by individuals with qualifications and experience to perform such estimates.
Under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the Appraiser Qualifications Board (AQB) establishes the minimum education, experience, and examination requirements for real property appraisers to obtain a state license or certification. The AQB issues the Real Property Appraiser Qualification Criteria.
Appraisal discrimination is illegal under federal law and prohibited by professional appraisal standards. The Fair Housing Act and the Equal Credit Opportunity Act prohibit appraisers from discriminating against you. If you think you have been discriminated against, you can file a complaint with the state agency that regulates appraisers. To find out which agency to notify, contact the Appraisal Complaint National Hotline. The hotline doesn't handle complaints but will refer you to the appropriate authority. You may fill out a form on the website or call the toll-free number at 877-739-0096.
You may also file a complaint with a state or federal financial regulatory agency if you think your lender discriminated against you by relying on a biased appraisal. To submit a complaint against your credit union, please contact the NCUA’s Consumer Assistance Center or call 800-755-1030. You may also contact the Consumer Financial Protection Bureau at https://www.consumerfinance.gov/complaint/ or call 855-411-2372.
You may also file a fair housing complaint directly with HUD's Office of Fair Housing and Equal Opportunity, online at https://www.hud.gov/program_offices/fair_housing_equal_opp/online-complaint or by calling 800-669-9777.