Real Estate

Nationwide Appraisal Ethics Rule Changes Postponed Until 2024

The nonprofit in charge of federal appraisal standards has proposed changes to an ethics rule that regulators slammed as potentially allowing discrimination against protected classes, but the earliest those changes may see the light of day is 2024.

That’s because The Appraisal Foundation’s Appraisal Standards Board, which, by Congressional authority, sets minimum standards for the appraisal profession, last week decided to extend the current edition of its minimum standards, known as the Uniform Standards of Professional Appraisal Practice, through December 31, 2023. This is the second extension for the 2020-2021 USPAP, which was first extended February 2021.

Racial discrimination in appraisals has received increasing scrutiny in recent years due to well-publicized instances of home valuations rising after Black homeowners remove any trace of their race from homes, the Biden administration’s Interagency Task Force on Property Appraisal and Valuation Equity, and a recent study by the Federal Housing Finance Agency (FHFA) in which the agency examined millions of appraisal reports and found thousands of overt references to race, ethnicity and other protected classes, “indicating the continued presence of valuation bias.”

In February 2022, the Appraisal Standards Board launched a review of its ethics rule after eight federal regulators responsible for enforcing nondiscrimination standards under the Fair Housing Act (FHAct) and the Equal Credit Opportunity Act (ECOA) expressed concerns that the rule and proposed changes to its fair housing guidance, known as Advisory Opinion 16, didn’t make it clear that discrimination against protected classes is illegal.

In July, the ASB released its latest, third draft on changes to the rule. The board indicated that it approved the USPAP extension through 2023 because it needed more time to assess the proposed changes.

“As USPAP matures, revisions such as this will take more time to conduct the requisite research to ensure changes continue to uphold the public trust,”  said ASB Chair Michelle Czekalski Bradley in a statement.

“I am proud of the work we have done, in conjunction with the preeminent fair housing law firm Relman Colfax, to develop the proposed changes to the ETHICS RULE in the Third Exposure Draft, and the Board looks forward to receiving public comment on this proposed change.”

The ASB also said future editions of USPAP will not have expiration dates.

“Future editions of USPAP will have beginning effective dates, but no end dates to give the ASB greater flexibility to thoroughly examine proposed changes and respond in a timely manner to a changing marketplace,” the board said.

The latest draft for changes to the ethics rule proposes adding a “Nondiscrimination” section to clarify that any violation of applicable anti-discrimination laws, including the federal Fair Housing Act and the federal Equal Credit Opportunity Act (ECOA), is also a violation of USPAP.

“The Fair Housing Act prohibits making housing unavailable or discriminating in residential real estate appraisals and other related transactions on the basis of race, color, religion, national origin, sex, disability, or familial status,” the proposed section reads.

“An appraisal or the development or reporting of assignment results that are subject to the Fair Housing Act may not be based either in whole or in part on information involving any of those protected characteristics, regardless of the appraiser’s intention, unless expressly permitted by law.”

The proposal also goes beyond the protected classes included in the Fair Housing Act to include sexual orientation, gender, gender identity, gender expression, age, receipt of public assistance income, and military status.

“When engaging in appraisal practice, or otherwise acting in their professional capacity, an appraiser must not act with bias, or otherwise discriminate against or treat differently, individuals or groups based on a protected characteristic such as race, color, religion, national origin, sex, sexual orientation, gender, gender identity, gender expression, marital status, familial status, age, receipt of public assistance income, disability, military status, or any other characteristic protected under applicable law or regulation,” the section reads.

The proposed section also points out that the rule applies to the demographic characteristics of the people who live in a neighborhood as well.

“It is impermissible to base a conclusion or opinion of value upon the premise that homogeneity of the inhabitants of a neighborhood is relevant for the appraisal,” the section reads.

“An appraiser must not use, rely on, or consider assumptions, stereotypes, or proxies related to protected characteristics in an analysis, opinion, or conclusion,” the section continues, noting that a “proxy” is a nonprotected characteristic intentionally used as a stand-in for a protected characteristic.

“An appraiser also should avoid the use of ‘code words’ that could be understood to reference the protected characteristics of a client, owner, resident, or neighborhood,” the section said.

“For example, references to ‘pride of ownership’ or ‘crime-ridden areas’ may be understood as having a potentially discriminatory meaning.”

The proposed section stresses that discriminatory behavior can include both disparate treatment and disparate impact.

“Disparate treatment refers to treating people differently in whole or in part because of a protected characteristic; evidence of hate or animus is not required,” the section reads.

“Disparate impact refers to the use of neutral policies or practices that disproportionately harm a protected group except when justified by business necessity and absent a less discriminatory alternative.”

In addition, the proposed ethics rule changes would also eliminate language about unsupported conclusions in the current ethics rule that federal regulators objected to as potentially leaving the door open to illegal discrimination.

That part of the rule says, “An appraiser … must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.” The latest draft changes would eliminate this sentence.

The deadline for public comment on the changes is Sept. 24.

“While discrimination against protected classes has always been prohibited by USPAP, these revisions ensure that this is crystal clear to anyone who reviews the standards, whether they are a seasoned appraiser or a consumer,” said Dave Bunton, president of The Appraisal Foundation, in a statement.

Email Andrea V. Brambila.

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