This is Part II of HousingWire’s deep dive into the appraisal profession, and the wave of racial bias claims that has rocked it. In Part I, we looked at the origins of the profession, its present demographic makeup and leadership, and the many struggles of appraisers. In Part II, we examine the evidence around race-based discrimination by appraisers.
The news reports and horror stories of residential appraisers undervaluing a home because the homeowner is Black would presumably lead to a trail of formal complaints, federal investigations and lawsuit payouts.
They do not.
In fact, a review of court documents, and interviews with dozens of industry experts, housing officials and researchers, revealed little hard evidence of appraiser bias.
The U.S. Department of Housing and Urban Development can receive allegations of appraisal discrimination. But from 2019 to 2020, the Washington Post reported, HUD received just 12. For this story, a spokesperson for HUD declined to specify how many complaints it has received this year, or any details about the complaints.
“There are a number of cases before HUD related to bias in appraisals,” a HUD spokesperson said. “We do not disclose the complaint and responses provided by the respondent while an investigative matter is still pending at HUD.”
The Consumer Financial Protection Bureau can receive whistleblower grievances from appraisers who feel pressured by sellers or agents. But the Bureau declined to provide any information on the number of such complaints.
The CFPB said that, due to recent press reports, it too is evaluating the issue of appraisal bias.
There’s also no known track record of cases filed with state fair housing agencies. For example, Information provided by the California Department of Fair Employment and Housing show hundreds of housing discrimination complaints filed in the last three months of 2020, mostly against landlords, and some pertaining to lenders. None were filed against appraisers.
There’s also an apparent lack of civil lawsuits.
Legal nonprofits such as the Shriver Center on Poverty Law that work on fair housing said that they could not think of any cases against appraisers. The nonprofits pointed to Fair Housing Center of Central Indiana, which, as the Indianapolis Star first reported, filed a fair housing complaint on behalf of homeowner Carlette Duffy and against individual appraiser defendants.
The 12-page complaint, filed with HUD, has no mention of prior cases. Amy Nelson, executive director of the Indiana group, said she did not know of prior complaints against appraisers. Nelson, instead, referred to lending bias cases against banks (JPMorgan Chase and Citibank), not appraisers.
Unlike HUD and CFPB complaints, there’s no database of private lawsuits, whose records can be lost amid quick settlements, arbitration proceedings and poorly funded state courts.
But an American Enterprise Institute report from this January sides with what the legal record indicates, which is that it is lenders, not appraisers, who face repeated bias charges.
To be sure, it’s potentially more lucrative to sue JPMorgan Chase than a lone appraiser. But, according to the American Enterprise Institute report, loans are more frequently denied to Black applicants because of their credit score, and debt-to-income ratio, not because of an unfairly undervalued home.
The problem, the report concludes, is the mortgage lender. The role appraisers play is a “percentage of a percentage of a percentage.”
Reflect discrimination…or perpetuate it?
A study published last year in the academic journal Social Problems suggests inequality in home values have actually grown worse since redlining was outlawed. Disparities in value between white and minority-owned homes doubled between 1980 and 2015, wrote Junia Howell, a sociology professor at the University of Pittsburgh and Elizabeth Korver-Glenn, a sociologist at the University of New Mexico.
“An average home in an average socio-economic status neighborhood located in an average metropolitan area was appraised at $125,000 in a Black and Latinx neighborhood,” Howell and Korver-Glenn write. “Yet, this same hypothetical house was appraised at $370,000 in a neighborhood with no Black or Latinx residents.”
But the numbers cited were homeowners’ self-reported valuations — a figure they may have culled from an appraiser, but also perhaps from a tax assessor or another source — and not from appraisers.
HousingWire does not have a record of appraisal valuations because the federal government did not even collect such data until 2011. That’s when government-sponsored entities mandated that appraisals be submitted to them, formatted for the Uniform Appraisal Dataset. Researchers, including Howell and Korver-Glenn, have been unable to access this data.
Absent a smoking gun connecting appraisers’ handiwork with growing inequality, the appraisal industry couches itself as objective, tethered to the Appraisal Foundation’s exacting standards.
“We look at the numbers and the facts and mirror what the market tells us,” stated Rodman Schley, the Appraisal Institute president.
“We observe and report,” Jeremy Bagott, an appraiser based in California, said. “We don’t make the real estate markets.”
But Myra Lillard, of the National Society of Real Estate Appraisers, says that bias is “baked into the cake” of appraiser reports.
Appraisers using Appraisal Foundation reports, for example, check a box on neighborhood growth, with the choices “rapid,” “stable,” or “slow.” How are these words defined in the context of a valuation? And what do they even have to do with a home’s value? We’re not sure.
The crucial element of any appraisal is the selection of “comps,” at least three similar homes in the neighborhood. A palatial abode in the mostly Black and Hispanic Watts neighborhood of Los Angeles, then, cannot be compared to similar-looking homes in Pasadena or Santa Monica. It must be compared to other Watts homes.
The Appraisal Institute sees no problem with this.
“Appraisal methodologies such as the sales comparison are grounded in economic principles intended to fairly and objectively value property for all,” Schley stated. “These approaches have been tested through time and economic crises and are observed across the world.”
Nor do some individual appraisers acknowledge the potential pitfalls of this approach. Discussing the low valuation of homes in Chicago’s mostly Black South Side, Michael Ford of Michael F. Ford Appraisal wrote, “The reputation for responsiveness and adequacy of protection by police, fire and other emergency services is a big concern to many people. The perceived quality of local political leadership is also an issue.”
Ford added, “Most Americans don’t pay location premiums to live in neighborhoods where needles or human feces line the streets.”
But other appraisers, like Jillian White of Better.com, acknowledge, “There is a lot of artistry to the selection of comparable homes.”
She sees her industry hitting an “inflection point” where federal reform is likely.
White wants industry change. But she says more is needed to overcome the larger history of U.S. housing segregation.
Appraisers alone cannot stop “systemic bias,” White said, “even if we all banded together.”
We are just starting our reporting on the appraisal industry, and evaluating the extent of bias claims. If you have first-hand experiences of bias, or conversely, have seen appraisers work to pro-actively reduce discrimination, please let us know. Send an anonymous email to firstname.lastname@example.org or email@example.com. Our next story on the appraisal industry will focus on the role of appraisal management companies.