This communication by the Appraisal Standards Board (ASB) does not establish new standards or interpret existing standards. Advisory Opinions are issued to illustrate the applicability of appraisal standards in specific situations and to offer advice from the ASB for the resolution of appraisal issues and problems.
SUBJECT: Fair Housing Laws and Appraisal Report Content
APPLICATION: Real Property
THE ISSUE:
In developing and reporting an appraisal, appraisal review, or appraisal consulting assignment, what should an appraiser consider to comply with current fair housing laws?
BACKGROUND:
Fair housing law(s) preclude the use of certain specific information or supported conclusions related to protected group(s) in some assignments. Accordingly, an appraiser should be knowledgeable about the laws that affect the subject property of an assignment. Laws and public policy on fair lending and fair housing (such as the Fair Housing Act; the Equal Credit Opportunity Act (ECOA), and the laws and public policy of applicable federal, state, and local jurisdictions) continue to evolve. Further, appraisers must continue to provide appraisals that do not illegally discriminate or contribute to illegal discrimination. The Conduct section of the ETHICS RULE states in part, “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” (bold added for emphasis).
In some cases, even supported conclusions in assignments relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or group homogeneity cannot be used because they are precluded by applicable law.
ADVICE FROM THE ASB ON THE ISSUE:
Relevant USPAP & Advisory References
The PREAMBLE states, “It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading.”
The Conduct section of the ETHICS RULE states, “An appraiser must perform assignments ethically and competently, in accordance with USPAP and any supplemental standards agreed to by the appraiser in accepting the assignment. An appraiser must not engage in criminal conduct. An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.”
The COMPETENCY RULE states, “…an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently….”
The Comment to Standards Rule 1-1(a) states, “Social change has also had an effect on appraisal theory and practice. To keep abreast of these changes and developments, the appraisal profession is constantly reviewing and revising appraisal methods and techniques and developing new methods and techniques to meet new circumstances. For this reason, it is not sufficient for appraisers to simply maintain the skills and knowledge they possess when they become appraisers. Each appraiser must continuously improve his or her skills to remain proficient in real property appraisal."
Standards Rule 2-1(a) states, “Each written or oral real property appraisal report must clearly and accurately set forth the appraisal in a manner that will not be misleading.”
The content of the certification in Standards Rules 2-3, 3-3, 5-3, 6-9, 8-3, and 10-3 requires the following disclosures: “I certify that, to best of my knowledge and belief, … the reported analyses, opinions, and conclusions are my personal, impartial, and unbiased professional analyses, opinions, and conclusions …[and] my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.”
The Conduct section of the ETHICS RULE states, “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.”
Appraisers must be aware that jurisdictions have laws or public policy that may affect the consideration of certain information in the development and reporting process. In some of these cases the JURISDICTIONAL EXCEPTION RULE or SUPPLEMENTAL STANDARDS RULE may apply.
An appraiser must ensure that his or her appraisal, appraisal review, or appraisal consulting opinions and conclusions are impartial and objective and do not illegally discriminate or contribute to illegal discrimination through subjective or stereotypical assumptions.
The use of terms or descriptive phrases in place of factual information in a report imposes particular obligations on an appraiser to ensure that the user properly understands the report and is not misled. An appraiser needs to have, and should report wherever possible and appropriate, factual information to support the use of terms or descriptive phrases that reflect a scale or rating of a market or property that affects value or marketability conclusions. If such factual information is absent, an appraiser should clearly disclose that the rating or descriptive phrase is the appraiser’s opinion but that no factual information was available to support that rating or descriptive phrase and ensure that the use of the term or descriptive phrase is not illegally discriminatory.
An appraiser should research the actions of participants in the subject’s market to identify factors having a direct favorable or unfavorable influence on marketability or value. Failure to extract pertinent market information (e.g., sales, rents, occupancy rates, expense ratios, capitalization or discount rates, construction costs, depreciation, or exposure times) from the subject’s market could produce conclusions that are misleading and/or illegally discriminatory.
Appraisers should exercise care that comments made in a report will not be perceived as illegally biased or discriminatory. Factual descriptions, rather than subjective phrases, allow the user of a report to draw his or her own conclusions. The use of terms that reflect a scale such as “high,” “low,” “good,” “fair,” “poor,” “strong,” “weak,” “rapid,” “slow,” “average,” or the like should also provide contextual information that properly explains the frame of reference and the relative position of the subject property on the scale. For example, if absorption is stated as “rapid,” the context of the rating should be cited as well (“rapid” relative to what?).
Appraisers should be aware that some jurisdictions may have laws, administrative rules, regulations, or ordinances that stipulate requirements within their jurisdiction that address discrimination issues that may affect the information an appraiser may consider in developing opinions or conclusions in an assignment. In some such cases, the SUPPLEMENTAL STANDARDS RULE or the JURISDICTIONAL EXCEPTION RULE may apply.
Situations such as those listed below require specific research and competency to avoid the use of unsupported conclusions:
the property is designed to suit the needs of a protected group;
there is little or no transaction information available on similar properties;
the property is in a market setting where similar properties have not previously existed;
market conditions are not similar to the conditions prevailing during the time frame in which previous market transactions occurred; or
there are financially subsidized rental or ownership programs.
An appraiser is completing an assignment in an area where crime activity has recently been publicized. The appraiser considers the use of the term “high-crime area.”
This is a subjective term that may be understood by the appraiser but may mislead the client. This term does not provide the evidence that the appraiser used in making the observation. The appraiser may provide a specific reference that is factual and objective (e.g., one crime per 100 people or one crime per 1,000,000 people) but may still mislead the client. If the appraiser is to be competent with these types of statistics, the crime ratio should be correlated to the actions of the market in reflecting a valuation adjustment or other indication of property demand. If all of the comparables used by the appraiser are from a market sharing the same crime characteristic, the appraiser should question whether the term and/or the statistic(s) are relevant to the appraisal assignment.
2. A religious organization requests an appraiser to determine if a facility offering unique services to specific religious members is feasible. The appraiser must research a geographic market and identify concentrations of individuals that are members of that specific religion. Is the appraiser permitted to complete the assignment under USPAP?
The assignment is not covered by ECOA or the Fair Housing Act. Under USPAP, the appraiser must comply with the ETHICS RULE concerning discrimination.
The key in this case is not to use or rely on unsupported conclusions. If the appraiser can identify the market behavior of the religious members and relate that behavior to the assignment, the appraiser is not in violation of USPAP.
An appraiser is requested to review a portfolio of apartment appraisal reports in a market area where apartments with public rent subsidies also exist. How does the Conduct section of the ETHICS RULE affect the appraisal reviewer’s actions?
The review and conclusion of acceptance or rejection of the reports should not rely on the appraisal reviewer’s unsupported conclusions regarding public assistance projects.
An appraiser is requested to appraise a house with specific features (e.g., ramps, wider doorways, and special plumbing fixtures) designed to accommodate handicapped individuals. How does the appraiser analyze the unique improvements?
The appraiser should reflect market preferences for the components of the structure. However, the appraiser should not draw an unsupported conclusion that the fixtures either enhance or diminish value.
This Advisory Opinion is based on presumed conditions without investigation or verification of actual circumstances. There is no assurance that this Advisory Opinion represents the only possible solution to the problems discussed or that it applies equally to seemingly similar situations.
Approved June 10, 1996
Revised September 16, 1998
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