Wednesday, 28 September 2022 | The Latest Buzz for the Appraisal Industry

Racial Bias in Appraisals – Fact or Fiction?

Karen Connolly, Vice President of Operations for Allterra Group, LLC

The Collateral Risk Network, Inc. hosted a webinar entitled Racial Bias in Appraisals – Fact or Fiction? When we first sent out the information on this program, we received a number of responses from our subscribers who felt it was unfair to suggest an appraiser might be biased. In light of the recent cases, which have been broadcast in the national news, we found it warranted further discussion. If there is bias in society, then it is possible that bias exists in a subset of the society.

The speakers were Ed Pinto, Director of the American Enterprise Institute (AEI); Tobias Peter, Senior Research Analyst of AEI; Lisa Rice, National Fair Housing Alliance; Peter Christensen, Christensen Law Firm; Jillian White,; and Joan Trice, Collateral Risk Network.

Ed Pinto and Tobias Peter spoke on a study AEI completed which analyzed big data to determine the presence and levels of appraiser racial and ethnic bias. Ed and Tobias set out to estimate the level of racial and ethnic bias in appraisals. The conclusion of the presentation states “The survey of CRN lenders and AMCs, suggest that Reconsideration of Value (ROVs) are infrequent as are reappraisals based on an ROV. Further, ROVs with an allegation of racial or ethnic bias on the first appraisal are also infrequent. The CRN survey and the Home Mortgage Disclosure Act (HMDA) data both support the conclusion that the data set used, consisting entirely of closed loans, does not suffer from a significant level of selection bias. Thus, big data used for this study can contribute to determining the presence of levels of racial and ethnic bias by appraisers. The more biased appraisals there are and the larger the under-valuation, the easier it would be to detect them in the results and vice versa. The implications of the results are that intentional or intentional appraisal bias is not commonplace and that the differences are small and potentially due to other factors.”

Lisa Rice of the National Fair Housing Alliance walked through some examples using the appraisal report itself as a guide to illustrate where racial bias has been observed in appraisals through the years. The National Fair Housing Alliance is a trade association for fair housing organizations on a local level who investigate claims of racial bias in appraisals under the Fair Housing Act or a state statute. Lisa has been involved in hundreds of cases related to racial bias in appraisals. This includes properties overvalued. The methods used to overvalue or undervalue a property include inaccurate neighborhood description, predominate value for the neighborhood, inaccurate information on improvements, excessive adjustments, and incorrect selection of comps. These specific areas at issue have been developed from hundreds of appraisals over Lisa’s 40 year career.

Peter Christensen, attorney for Christensen Law Firm, presented the legal side of alleged discrimination in appraising. Peter has seen dozens of fair housing complaints. Most of the claims have been related to predatory lending and overvaluation. Based on the most recent cases of alleged discrimination related to undervaluing properties of minorities, Peter spoke about two primary theories of liability. The first of which was Intentional discrimination. This occurs when a person within a protected group is shown to have been singled out and treated less favorably than other similarly situated persons. The second is Disparate impact. This is a policy or practice which may be neutral on its face but a statistically significant negative effect on a protected group of protected persons. Disparate impact without discriminatory motivation began to be recognized by courts in the early 80’s. Peter suggested AMCs and lenders take a closer look at ROVs to ensure the consumer is being heard. Peter expects there will be State level rule changes related to discrimination.

Jillian White is the Chief Valuation Officer for the mortgage lender, Jillian is an appraiser of 17 years with her SRA. Jillian gave a detailed and personal look into black homeownership. Jillian spoke of her aunt and uncle selling their home and being asked by the listing agent to remove all photos and indicators that an African American family resided in the home. She went on to speak of internal family discussions about removing any black related items that might jade a refinance valuation. Jillian has discovered as a lender that more than 95% of reconsiderations of value fail. When ROVs are considered, the typical change in valuation is on average very small- averaging $5,000 or less. Remarkably, Jillian went to college with Abena Horton, the African American woman in Jacksonville, Florida who alleged racial bias in her home appraisal. Abena shared the two appraisals with Jillian so she could take a look at the discrepancies and evaluate. Jillian launched a poll with multiple choices for comps which the audience could choose from. The comps provided sale date, distance from the Subject property, lot size (single or double), Pool, Condition, GLA, and the existence of External Obsolescence. Resoundingly, the audience chose the comps that supported a higher value on Abena’s property. Jillian went on to detail several instances of bias she had observed in the industry through conversations with appraisers.

Without question, it was one of the best presentations I’ve ever attended. Had it been held in-person, Jillian would have received a standing ovation. Her presentation of the details related to bias in the industry was very powerful. Granted, some of what Jillian spoke of was bias in the market. But some of what she spoke of was appraiser bias. For those who quickly call out that there is no racial bias in appraisals, you might want to pause and consider that appraisers are people too. If there is bias present in people, logic would dictate that appraisers are not exempt.

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