Is it a violation of the Fair Lending laws for an appraisal to include the racial and ethnic demographics of an area?

Not in and of itself. But if the appraisal takes these factors into account in its determination of value, that would be discriminatory.

I would certainly be suspicious if these demographics appeared in an appraisal. If these factors were not considered in the determination of value, why are they included?

You may want to look at the Appraisal Foundation's Advisory Opinion 16. Click here to see their guidance to appraisers on this issue. You may also want to look at section 805 of the Fair Housing Act.

An independent appraiser must adhere to a code of conduct as well as professional standards promulgated by USPAP (Uniform Standards of Professional Appraisal Practice).

One issue that the appraiser must comment on are those factors which could adversely affect the value of a specific property. An appraiser who notes that properties immediately surrounding the subject property are boarded up is doing his/her job to honestly convey those factors that can have an effect on real estate. A home on a 2-acre suburban or country lot will have different adverse-affecting factors than will the same home in an area where it is surrounded by boarded-up properties, graffiti, and abandoned cars.

If your appraiser noted basic adverse factors, that's one thing. However, if he/she specifically referenced the neighborhood composition as being "an African-American dominated neighborhood" or "predominantly Hispanic neighborhood", these latter references would be in violation of the USPAP code of conduct, and would obviously violate the tenets of the ECOAct/FHAct (Fair Lending).

Along these same lines, one of our bank's appraisers used a photo in the appraisal that showed a minority coming out of the house being appraised. Is this okay?

I would only be concerned about that if there is information in the appraisal that would indicate that the residents of the home had some effect on the value.

The photo is no big deal if it was taken while doing the standard photo's. As mentioned, it the title below it is "African American Leaving Home" you've got a different issue. You rarely see people in pictures but I've seen it once or twice, workers, etc. I didn't think twice about the validity of the appraisal because they didn't list out the etnicity of the area or any other issues that would lead you to believe the photo was taken to show the people verses the structure.

As an appraiser, our industry is informed in our fair lending law courses to avoid including people in the photos. With the age of digital cameras, it is very easy for the appraiser to note that a person is in the photo and should take the opportunity to reshoot the scene.

The same goes for graffiti. It shouldn't be included in the photos. It gives an impression of possible ethnic characteristics of the property.