Bias, We Got it Handled?

We got standards, we got smarts.  And we have issues . . .

This is the second of a series asking questions and seeking answers about bias in valuation. Part One is here.

President Biden proposed to “establish a national standard for housing appraisals.”  The purpose is to ensure adequate training and neighborhood familiarity.  And particularly that appraisers “do not hold implicit biases” in value opinions.

Bias is not an easy topic.  What is clear to you, is not clear to me, and not clear to others.  (Although “my opinion is clear to me and should obviously be true for you and everyone”.)

In Part I, we reduced the issue to critical parts and pieces.  First, the difference between personal, and analytical bias.  They are different.  Next, we separated intentional from unintentional bias, which we then reduced to issues of ignorance, bad training, and human response bias.  This last element, the ‘psychology’ of natural human prejudices itself has dozens of types of human bias.

Here, in Part II we focus on the valuation or “appraisal” issue.  In USPAP (Uniform Standards of Professional Appraisal Practice), by the non-profit Appraisal Foundation – the definition is:  a preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment.

We note that much of this attention to racial bias now has been motivated by the work of Andre Perry,  and others of the Brookings Institution.

The concepts and assumptions of his work are relevant.

So, we need to take this one step at a time.

Response from the Appraisal Institute has been that appraisers already are required to “work with impartiality, objectivity and independence, without bias.”

In the ‘USPAP Ethics Rule; Conduct’:  “An appraiser must not perform an assignment with bias.”

The ‘Scope of Work Rule’ then states that clients’ objectives should not cause the appraiser’s results to be biased.

In the certification, the appraiser must state “I have no bias …”

Such admonitions continue and are repeated numerous and many, many times in USPAP.

So what’s the problem.  No bias – clear as a bell!  Hmmm.

AVMs (Automated Valuation Models) are not subject to these admonitions.

BPOs (Broker Price Opinions) are not subject to these admonitions.

Lender “Evaluations” are not subject to these admonitions.

So there you have it.  You are not allowed to be biased, ever.  Just don’t be an appraiser!

Oh, and by the way, you must stop at a stop sign, always.  Be good, or else . . .

(We will continue this series alternate weeks until the next president is inaugurated . . .)

(Editor’s Note: We don’t make any money off links to Amazon or to The Brookings Institution.)