Tech’s Role in Eliminating Appraisal Bias

This piece originally appeared in the June 2023 edition of MortgagePoint magazine, online now.

With more than 25 years of product development and technology experience under his belt, Kenon Chen is an industry-recognized leader in real estate and fintech. Chen’s creativity and passion for people-focused solutions allow him to work towards a simple goal: making real estate better for homeowners, homebuyers, and industry professionals alike.

Chen’s start in technology-enabled solutions began in 1997, when he honed his skills in several technology firms across San Francisco.

After his foray into the mortgage space, Chen discovered his passion for creating progressive technology solutions that exceed industry needs and allow for simpler, fairer, more efficient real estate transactions.

As EVP of Strategy and Growth, Chen sits at the intersection of Clear Capital’s executive, product, marketing, and sales teams—guiding growth and ensuring consistent, long-term value for customers and partners.

Since joining Clear Capital in 2003, he has been instrumental to the company’s product strategy and vision, and has developed and brought to market some of the company’s solutions such as ClearProp and ClearCollateral Review.

Chen recently spoke with MortgagePoint to discuss the PAVE Action Plan, appraisals, and eliminating appraisal bias.

Q: For those who may not be familiar with the PAVE (Property Appraisal and Valuation Equity) Action Plan, can you give us a quick rundown of the intent of the program?
So, the Pave Task Force was formed by the White House. It is an interagency task force on property appraisal and evaluation equity. It’s composed of 13 different federal agencies and offices that are working together to advance appraisal, equity, and valuation equity.

The PAVE Action Plan really came out of this collaboration between these 13 agencies.

The goal is to make specific commitments and setup a roadmap of actions that they believe would advance the cause of equity, reduce bias in the process, create more diversity within the appraiser workforce, empower consumers that might have experienced discrimination, and set up better solutions and better data to make appraisal and evaluation processes more effective.

Q: What are the most common forms of appraisal bias? How does this affect people of color?
I tend to put these into three different, larger categories. Unconscious bias, which is a person that might have preconceived bias—unconscious bias, by the very definition, is unaware of how their biases might be impacting the way that they approach a particular situation. Most commonly, those are things where someone who works in a profession like appraisal goes through training and gains expertise on how to be aware of their own unconscious biases and how to approach something in an unbiased manner.

Appraisers, by their standards, have been set up to take an unbiased approach when it comes to creating an opinion of value on a property.

Then there’s more explicit bias, which is when someone knowingly allows their biases to influence how they approach a particular situation. Those bad actors are working against what their profession demands of them and what they know they’re being asked to do.

The third category is systemic bias—the results of larger-scale bias decisions that perhaps were made historically. This includes things like historic redlining, government policies, and local policies that were put in place with specific biases built into them, such as racial bias built into the covenants of certain neighborhoods, built into the planning process.

Q: Can bias sway appraisal values higher and lower, or is it just typically seen that an appraisal will be lowered?
When we talk about appraisal and evaluation, what we want is accuracy—a value that’s consistent, one that’s fair. So, it shouldn’t be biased either direction—overinflated or overvalued—and it shouldn’t be undervalued.

Both can have negative impacts on the homebuyer or the homeowner. And both of those situations can reduce the amount of sustainability in homeownership, because we all want to see homeownership as a gateway to wealth-building and generational positive impact. As such, overvaluing can cause damage as well. If someone is in a position where their home is not actually worth what they thought, they could end up in a situation where they can’t use that home as collateral.

Q: In the past year since the plan was announced, what has Clear Capital changed to reduce appraisal bias?
They just recently celebrated the one-year anniversary of the action plan. The announcement of the task force was in June 2021, and then they produced the action plan last year. Clear Capital has been very much engaged with the PAVE taskforce since it was formed; we’ve been involved with sitting in on listening sessions and working with agencies directly. We’ve been a member of certain trade organizations that have also been very active, such as Real Estate Valuation Advocacy Association (REVAA). We’ve been partnering with Fannie Mae and Freddie Mac for over four years now, leading the charge to modernize the appraisal process. We’ve been participating in numerous test-and-learns to demonstrate that it’s possible to use technology to have a more standardized way of approaching gathering data at the property and digitizing the process so that so there’s greater transparency, visibility, and objectivity and the way that that every home is valued, and the way that every home is assessed in terms of its characteristics, using more science than art when it comes to understanding the gross living area of a home. We have developed technology in partnership with the GSEs that allows anyone to walk your home with their mobile phone, scan the property, and generate an ANSI-compliant floor plan and measurement of what the square footage is of that home.

Prior to that, it could differ by area of the country or how individual appraisers are applying their practice; some round to the nearest inch and some round to the nearest half foot. There are a number of different ways that that’s been done, so we found that starting with the basics and adding consistency to the process makes it harder for bias to remain a part of the equation.

Q: What approaches can appraisers take to eliminate bias?
First of all, we certainly believe that the vast majority of appraisers take their profession very seriously, and they take the goal of being unbiased very seriously. The work we’re doing with appraisal modernization is about bringing practices into the modern era using the tools that we have at our disposal now to create more standards in the process to create better guardrails and tools. We’re trying to ensure that every home is approached the same way and with the advancement of mobile technology and standardized datasets.

The Uniform Appraisal Dataset redesigned by Fannie and Freddie is one more way to reduce the amount of commentary that’s within the form and increase the number of objective data points that are used to support the value. This is about using what’s at our disposal right now to take the appraisal profession forward and provide better tools, better guardrails, and better transparency: to move technology and appraisals forward.

Q: What else can be done to eliminate appraisal bias that is not already being done?
On May 15, Fannie Mae’s Value Acceptance + Property Data Program became available to all of their lenders. Freddie Mac, with their ACE + PDR Solution, is also moving in the same direction, which is to have a standard way that, when someone visits the property and they’re collecting data to be considered in the appraisal process of the valuation process, that it’s done the same way every time, in every house, regardless of the occupants and regardless of the community that that property is in.

Q: Has technology helped speed along these processes overall?
Absolutely. During the pandemic, we did see an acceleration of the use of technology because we couldn’t send people into homes for safety’s sake and for social distancing.

Capture technology helps anyone use technology to digitize the home and then bring that to someone at their desk instead of someone having to physically enter the house. We saw more use of virtual tours and 3D scans, even in the real estate listing process.

It caused more data to now be available online in a standardized way, which is only a good thing for all the other stakeholders involved, including the homebuyer.

I think mobile technology has overwhelmingly helped reduce the risk of bias for two reasons. One is thinking about what this is replacing. Mobile technology is replacing what today is the use of either a clipboard or some other manual process that relies on humans to be consistent all over the country. Since humans are trained locally, it’s very difficult to ensure that humans are applying their principles the same way all across the country, because they are all independent. Mobile technology lets you roll out a nationwide standard that can be available to everyone; regardless of who’s holding the mobile technology, it can guide them through different things the same way. That’s huge.

Number two, most people have mobile technology in their pocket every day, which means that we’ve democratized access to the tools available to consumers and homeowners. If you choose to scan your home, you know what the gross living area is, you know exactly what’s considered above-ground or below-ground, as well as whether it’s going to factor into the valuation or not.

That’s powerful information that same way as giving consumers access to their credit scores. Having access to your credit score gives you power and understanding of how you should approach any sort of financial decision. Having access to your home data in a digitized format gives you the ability to approach the process a bit differently and be empowered.