An Appraisal Subcommittee roundtable discussion about bias in appraisals struck a nerve with attendees of the virtual summit, many of them appraisal professionals.
Department of Housing and Urban Development Sec. Marcia Fudge, who headlined the event, gave a short presentation to stress the Biden administration’s continued focus on addressing bias in appraisals.
“If we want to change the narrative of disinvestment and marginalization, then we must transform the lending, appraisal and insurance industries to prevent lost revenue caused by misevaluation and undervaluation of properties,” said Fudge.
The Biden administration’s efforts to combat racial bias need “industry cooperation and good corporate citizens,” she said. But her statements may have alienated appraisers who were expecting a dialogue.
“Nationwide, appraisal discrimination robs Black families of billions of dollars in home equity and household wealth,” Fudge said.
Several appraisers in attendance countered that while they are now accused of devaluing Black homes, in the aftermath of the Great Recession, they got heat for overvaluing them.
This week, Freddie Mac released a first-of-its-kind analysis of appraisal reports, which found that appraisals in minority neighborhoods are more likely to fall short of the contracted sale price. The research is a leap forward in the understanding of potential bias in appraisals.
“It is important to look at as much appraisal data as we can,” said Rodman Schley, president of the Appraisal Institute.
Those representing appraisers have criticized prior research because it relied on sources other than appraisal reports. Fannie Mae and Freddie Mac receive appraisal reports for purchase mortgages, but that data is not publicly available.
Yet significant gaps in understanding appraisal bias remain. It is unclear whether bias is unconscious, or baked in to the long-standing valuation process, which relies on previous comparable values. While anecdotes of appraisal discrepancies have been brought to the fore in media reports, there have been few formal complaints alleging appraiser bias. HUD has received only a handful in recent years.
One panelist hinted that there may be other factors influencing appraisals. Post-recession reforms sought to place a firewall between appraisers and those who underwrite the loan, but there may now be pressure from lenders to be more conservative.
“Lenders and appraisers do have conversations. I will just leave it at that,” said B. Doyle Mitchell, CEO of Industrial Bank.
Later in the presentation, Cy Richardson, senior vice president at the National Urban League lobbed a bomb at appraisers, calling the profession “male, pale and stale.”
One person in attendance called Richardson’s statement “childish (biased?) name calling.”
Richardson said he stood by his remarks. Indeed, 89% of all appraisers and assessors are white, 75% are male, and the profession’s median age is 52. Still, some appraisers in attendance were taken aback.
“Presenters need to find a better way to make the case. I don’t know exactly what it is, but insulting the audience is not the way to do it,” said Francois Gregoire, a Florida-based second-generation appraiser who attended.
Having a robust and potentially uncomfortable conversation was the intention of the virtual event, organizers said.
The roundtable was the first in a series of discussions hosted by the subcommittee to engage with the industry. The subcommittee is the lone member representative of appraisers on the Task Force on Property Appraisal and Valuation Equity, an inter-agency effort spearheaded by HUD to root out bias in appraisals.
In the months to come, the task force will be reaching out to the appraisal and related industries, and will give appraisers an opportunity to provide feedback on its direction, said James Park, executive director of the subcommittee.
“The appraisal industry is not going to be left out.”