Over the past few years, evaluation biases have come to the forefront of conversations about evaluation and how they can be corrected. According to several reports, this has been an issue for a long time, but recently came into limelight with a high profile case in 2022 and increased discussion about fair and equal housing.
Thank you for reading this post, don't forget to subscribe!“You can’t ignore it. It’s a problem, it’s real, it’s documentable,” said Shannon Johnson, Touchless Lending Product Manager at Tavent. “Today, we really have an opportunity to combat this in a way we didn’t have five or 10 years ago, which is taking advantage of automation, artificial intelligence (AI) and machine learning.”
At Tawant, they are taking a look at the past and present of assessment to prepare for a better future.
Problems with the current state of evaluation
One of the current problems with valuation is the barrier to entry, said Don Swedberg, Tavant’s vice president of sales. The profession is not widely known, and there are significant barriers to entry, she said. We often hear the statistic that the average appraiser is a 57-year-old white male.
To start appraising, you essentially need to apprentice with an existing appraiser, and you often need to have a close relationship with them in order to spend so much time training for them.
Additionally, evaluations are conducted today in the same manner as they have been conducted for the last 60 years, he said.
“Appraisal can be a subjective process in many ways – because appraisers are always working within dollar limits and incomplete information. Increased data access has improved the process, but there is still a lot of ‘gut’ bias can maintain,” he said. “We are trying to inject more analytics – regression, time value and others – to increase fairness. Progress has been made, but there is still a long way to go.”
Recent Rating Changes
Fortunately, changes in valuation are still being made today. In March, Fannie Mae released an update to its Seller Guide outlining more options for property appraisals, including Price Acceptance (prior appraisal discount), Price Acceptance Plus Property Data and Hybrid Appraisal.
“These additional assessment options will reduce the opportunity for assessment bias.” Johnson said. “In many cases the need to physically inspect each property will be replaced with data or other inspection options. I think that’s a really good move.”
Evaluation concerns are also mitigated by more easily accessible data. In the past, real estate data was hidden behind paywalls and subscriptions, and any consumer who wanted to know what was available or what a home sold for had to reach out to a realtor.
Now, anyone can easily browse real estate listings and find out which homes have sold and what inventory is available. Consumers can also look at comps for their own home and are fairly accurate at estimating what their home is worth when they’re either going to buy or refinance, Swedberg said.
This gives them an idea of whether they are being discriminated against in the assessment process, reducing the risk of assessment bias – or at the very least, increasing the potential of the consumer if it occurs to them. Used to be.
connecting the data dots
According to Tavant, the next step towards eliminating evaluation bias is to connect all these data and information points.
“I think it will give lenders the comfort of knowing that they have a solid appraisal and then the loan can go forward,” Johnson said. “95% of the time bias doesn’t exist, but we need to identify it and determine its impact so we can address that 5%.”
Tara Dugan, who works in marketing and real estate for Tavant, said the focus should be on technology integration and aggregation.
“Information is becoming more accessible, but we need to integrate and aggregate all the different platforms and be effective and cohesive at a very granular level in real time to be more collaborative with the data – and standardize everything should,” she said. “At the industry leader level, that’s where we need to be. I think we’ve seen that [it may not happen] At the government level, so it’s probably going to take the private sector to take the lead.
Tawant’s Approach and Touchless Lending
Johnson said he and his team at Tawant are approaching the issue in a few different ways. The first involves data – looking at the subject property and its comps, then overlaying it with neighborhood and demographic information to make sure the comps make sense.
They also use image analysis to ensure there are no potentially bias-causing objects in the home, and natural language processing to read context-free comments and relate them to assessment adjustments.
“Everything is like a spider web, it’s all connected,” Johnson said. “When you pull all this information together, you can start to do regression testing. As more appraisals go on, you can see patterns for a particular area, maybe even for a particular appraiser.
The ultimate goal is to ensure that everyone in the process has confidence that appraisers, lenders and technology companies are doing their best to keep lending fair and equitable.
Svedberg said Tavant’s work to eliminate valuation bias is tied to its touchless lending platform, where it is building in its collateral analysis valuations.
Many lenders set up manual appraisal review teams using the same people who do the appraisal work, which can lead to issues with objectivity and scale. But Tavent’s Touchless Lending Collateral Analysis Appraisal will allow lenders to review appraisals comprehensively and learn which may need a closer look.
“Tavant’s Touchless Lending Collateral Analysis will provide lenders with an additional quality and consistency check by using information from multiple data sources and will include an valuation bias flag,” Svedberg said. “Allowing lenders to focus on outliers and streamline their operations while providing a better and fairer experience for their borrowers.”
“It’s information, automation and transparency,” Johnson said. “Tavant has the subject matter expertise to ensure that everything we develop related to mortgages is relevant to the people who are going to use it. This is the journey we are on, and after decades of discussion, it is great to see lenders and borrowers benefiting today.
Click here to know more about Tavant’s touchless lending platform.
