Class Valuation Stamps Out Appraisal Bias

The appraisal industry has come under greater scrutiny of late amid growing reports of bias in the way properties are valued. Class Valuation continues its efforts to tackle the problem, using organic tactics related to training and diversity augmented with the use of cutting-edge technology to mitigate systemic errors. Along the way, Class Valuation has distinguished itself as an industry leader in implementing measurable changes in the appraisal process.

“Our main goal at Class is … responsible modernization, which currently involves mitigating bias, but also bringing diversity into the industry,” Cristy Conolly, executive vice president of valuations modernization, told Mortgage Professional America. “The appraisal profession right now is 70 percent male and 97 percent white, so the industry as a whole has a really big focus on trying to bring diversity into the industry. As a woman, I’m even a minority as an appraiser.”

Class Valuation has a number of initiatives aimed at diversity and mitigating appraisal bias. One grassroots example centers around training pods situated across the country, where trainees are hired to work under supervisor appraisers.

“We have a focus on hiring minorities and bringing diversity to the industry through our trainees,” she said.

The company also works closely with Fannie Mae’s Appraiser Diversity Initiative, having signed on as a sponsor for the program. Launched in 2018, the program is a collaboration with the National Urban League aimed at attracting new entrants to the residential appraisal field, overcoming barriers to entry – such as education, training, and experience requirements – and fostering diversity. Since its launch, the Appraisal Institute and Freddie Mac have also joined the initiative.

The initiative has already lured “diverse, aspiring” appraisers, Fannie Mae reports, who have been awarded scholarships to move them toward the goal of launching their careers. Class Valuation has fully embraced the GSE initiative’s goals, Conolly said.

“They award minorities scholarships and provide all the education and materials they need for their apprenticeship. Then we come in and work to match the scholarship winners with supervisory appraisers. A big piece of the challenge of becoming an appraiser is finding a supervisor to work with. We have a strong focus on aiding that throughout the country.”

Class Valuation doesn’t just talk the talk but also walks the walk, with two district appraisal panels and contractors under the firm’s management of the process. In-house, Class Valuation has 150 staff appraisers scattered across the country.

“We have some who are supervisors with one to three trainees working under them to bring new appraisers into the profession,” Conolly noted.

While making the earnest effort to help mitigate appraiser bias, Class and it peers must contend with disparate state regulations that can add to the challenge. For example, Conolly pointed out that some states allow for virtual training through Practical Applications of Real Estate Appraisal (PAREA), while others don’t. Despite this patchwork of requirements, the key thread, to Conolly, is responsible modernization.

“Each state has its own regulations and requirements for becoming an appraiser, but the focus of the industry is to build diversity. In general, it’s very challenging for new entrants because of these supervisory apprentice models, which is why PAREA was developed. I think we’ll see more states adopt this as a future path for appraisers.”

Technology goes hand in hand with the goal of ending bias, and Class Valuation is well-covered on that front as well.

“There’s a lot of discussion today regarding appraisal bias,” Conolly said. “There are things that have come to light that [mean] the industry is banding together to take a step back, look at the appraisal process, and determine how to modernize it in a responsible, meaningful, and equitable way.”

At its most nefarious, bias can be conscious. Yet many times, it’s unconscious. The angle from which imagery is recorded furthers unconscious bias and subjectivity, Conolly said. Class Valuation’s tech tools also yield cohesion, given the variety of methods appraisers use – some appraisers still use tape measures, while others employ distance lasers, for instance. The company’s 3D scans provide a consistent, repeatable process that results in source-of-truth property data. Class Valuation has armed itself with an entire technological arsenal to further weed out bias.

“We have property data collectors that complete a full 3D scan of a property,” Conolly said. “They use technology to obtain property data that’s consistent and repeatable, not subjective.”

She gave an example of this principle at work: “The technology captures a 360-degree view of the property in every room. So there’s a virtual inspection for the appraiser to review. You literally can look around the entire property from top to bottom and can zoom in on any area. So there’s no subjectivity or missing information on what is relayed and forwarded to the appraiser and any downstream investor.”

Sadly, racial bias – intentional or otherwise – is real. An egregious example emerged late last year in Northern California, where a Black couple’s home was valued at far less than they expected – especially as they had spent years renovating the property. Seeking a second opinion, the couple had a white friend pretend to own their home after they removed all artwork and photographs that would have hinted at its actual ownership. The new appraisal was more than $1.4 million – over half-a-million dollars higher than the initial appraisal.

Yet not all bias is racial, Conolly noted. Any bias can affect an appraiser’s opinion of value, either positively or negatively, whether racial, socioeconomic, political, religious, etc. The results are inaccurate values, and risk for all involved parties. The cold, unyielding objectivity of a machine eliminates systemic errors in terms of both positive and negative biases, she said.

This technology also helps to mitigate bias because the appraiser has no interaction with the homeowners or the seller, Conolly said.

“When appraisers don’t go to the property, they have no idea what ethnicity the borrower is. Any kind of bias can be presented when you’re in person, when you meet people, when you have conversations. This piece completely eliminates that. Appraisers are still provided with everything they need to know about the property, but they have none of the interactions that can bring positive or negative bias into the equation.”

How to ensure an accurate appraisal without ever having set foot on the property?

“The digital appraisal we have provides a report called the Property Fingerprint Report,” Conolly explained. “The property data collector scans the entire interior and exterior of the property. Outside, you can see every angle, every side of the house, every direction of the street, anything in the backyard – if there are power lines back there, you’ll see them. It also provides a floor plan that meets ANSI standards, which is now a Fannie Mae requirement. They have all the information they need, provided with a digital twin of the property.”

Rather than physically entering through the front door, there is an online portal for virtual inspection. “When they log into our portal, [appraisers] can literally walk through the entire property from their desk, as if they were on-site inspecting it themselves. It’s been said that technology is your friend – when it works.”

At Class Valuation, technology is one of the tools deployed to root out bias, and it does work. For its clients, this moves the needle and offers a growing and beautiful friendship – one they strive for that helps eradicate bias in the system.