How lenders can combat appraisal bias

by Ashley Jelinek, Chief Operating Officer.

April, 2023.
Appraisal bias represents a significant source of regulatory, legal, and reputational risk to every mortgage lender. Here are the steps lenders can take to ensure their borrowers are getting fair and unbiased appraisals, and to protect themselves from the negative consequences of appraisal bias.

Why should lenders pay attention to appraisal bias?

Over the past several years, appraisal bias and potential violations of fair housing laws have become critical issues in the mortgage lending industry, facing increasing scrutiny from the media and regulatory agencies. An increasing number of news articles have highlighted persistent, ingrained bias within the home appraisal industry. This includes a number of high profile examples where the same home was appraised at a significantly lower amount when the borrowers were portrayed as Black, versus when they subbed in white counterparts.

In addition, last March, the Biden administration formed the PAVE Interagency Task Force on Property Appraisal and Valuation Equity. The PAVE Action Plan highlights recent research from Freddie Mac finding that appraisals for home purchases in majority-Black and majority-Latino neighborhoods were roughly twice as likely to result in a value below the actual contract price. Clearly, the government is taking a much closer look at this issue.

Recently, the stakes got even higher for lenders when the CFPB and DOJ filed a Statement of Interest in a pending Maryland court case that involves the example cited above. This statement explained that “mortgage lenders can be liable under the FHA and ECOA for relying on discriminatory appraisals”. The government agencies rejected the lender’s argument that it could not be held liable for its lending decision because the alleged discrimination was committed by a third-party appraiser.

Clearly, it is more important than ever for lenders to ensure they are taking every possible step to prevent appraisal bias in their lending process. No lender wants to be the subject of negative media coverage, lawsuits, or regulatory inquiries. Therefore, all lenders should do everything they can to protect themselves and their borrowers from the negative consequences of appraisal bias.

How can lenders work with their AMCs to combat appraisal bias?

Many lenders use appraisal management companies to oversee their appraisal processes. As we saw from the CFPB and DOJ statement, even with the use of an AMC or an appraisal company, lenders are still ultimately responsible for their appraisals. Therefore, it is critical for lenders to understand what steps their AMCs are taking to prevent appraisal bias.

To begin with, the AMC’s appraisal review process should contain several methods of identifying potential bias before the appraisal is finalized. First, the AMC should be using automated review technology on every appraisal that is capable of flagging a list of terms that may indicate bias. One such example is the ACI Sky Delivery and Review Technology tool. This tool includes a Fair Lending rule set that automatically scans each appraisal for any offensive language or terminology that might be associated with a violation of fair lending practices. Any appraisals that trigger a finding on these files should then be reviewed in further detail by an AMC staff member.

Along those lines, any AMC staff members who participate in the appraisal review process should be thoroughly trained on the Fair Housing Act, and on how to recognize the warning signs of racial bias or discrimination in an appraisal report. This should include prohibited terminology that presents or gives the perception of bias. If appraisal reviewers do identify any appraisals with signs of racial bias or discrimination, the AMC should have an internal process to track these appraisals. The AMC should also have a process to counsel the appraiser in question, or to remove the appraiser from future use all together depending on the severity of the issue.

The AMC should also have an internal process to log and escalate any borrower complaints concerning violations of fair housing laws and/or allegations of appraisal bias. These complaints should be reviewed by senior management. That review process should include an examination to determine if the appraiser completed the appraisal with bias. That examination could include a comparison to a second appraisal, evaluation of comparable sales and/or adjustments for potential bias, and a review for subjective discriminatory terminology. If the examination concludes there is a potential violation of fair housing laws, the appraisal and all supporting documentation should be submitted to the applicable state agency for further investigation.

How can lenders work with their appraisers to combat appraisal bias?

Lenders should ensure their appraiser engagement letters clearly lay out their expectations for a fair and unbiased appraisal process. If the lender is using an AMC, they should work with the AMC to make sure each appraiser receives a copy of this letter on every appraisal order.

In addition, lenders should encourage their appraisers to enroll in fair housing and appraisal bias classes. While some states are starting to incorporate these classes into ongoing licensing and continuing education requirements, they are not yet mandatory in most states or at the federal level. Therefore, lenders should make it clear that they prefer to work with appraisers who have chosen to educate themselves on these important topics. Ideally, the lender’s AMCs should have a way to track which appraisers have completed these courses.


Unfortunately, appraisal bias has become a pressing concern in our industry. Lenders must work closely with their AMCs and appraisers to ensure that everyone involved in the valuation process is observing fair housing laws and coming to an unbiased value conclusion. This is critical for lenders to protect themselves from serious reputational, legal, and regulatory risk.

At CSS, we work hard to combat racial bias and discrimination in every appraisal we manage. To learn more about our appraisal management services, please visit

Ashley has worked at CSS since 2015. She oversees all operations, as well as the Marketing, HR, IT, and Accounting teams.
She also works closely with the CEO to define and execute on strategic priorities for CSS. Prior to CSS, she worked as a management consultant at Bain & Company and The Bridgespan Group.
Corporate Settlement Solutions (CSS) is a single-source provider of real estate title, closing, valuation, flood, and recording solutions.
Our team is highly engaged in delivering results that make our customers more efficient, effective, and profitable.