Real estate professionals can combat racial bias by identifying red flags and providing buyers and sellers with knowledge about the appraisal process.
WASHINGTON – Lee Davenport became a real estate professional in 2008. Since then, she says, there hasn't been a year in which racial bias in appraisals hasn't been suspected by either clients or the agents she teaches.
Multiple news articles have explored potential bias in appraisals, with Black homeowners receiving lower appraisals and higher appraisals a second time after all identifying photos and cultural property were removed. is reported.
A September 2021 Freddie Mac report found that appraised values are more likely to fall below the contract sales price in neighborhoods with Black and Latino populations than in majority-white neighborhoods. After conducting 12 million appraisals, 12.5% of properties in black census tracts and 15.4% of properties in majority-Latino neighborhoods received an appraised value below the contract price, compared to It turned out that real estate in the district was 7.4%.
And in December 2021, the Federal Housing Finance Agency released a report that examined millions of real estate appraisals and found thousands of instances of potential bias related to neighborhood descriptions written by appraisers. (link is external) announced. The report cites examples in which appraisers cited the racial composition of neighborhoods and the proportion of immigrants in the local population. In February 2022, Rep. Maxine Waters (D-Calif.), Chair of the House Financial Services Committee, appointed the Department of Housing and Urban Development, the Evaluation Subcommittee, the Evaluation Foundation (link is external), and the Evaluation Organization. sent a letter. The institute is calling for an investigation. Meanwhile, HUD Secretary Marcia Fudge chairs the Interagency Task Force on Real Estate Valuation and Appraisal Equity (PAVE), which was created in June 2021 to address discrimination in the real estate appraisal and home buying process. He is in charge of
Industry reaction
The Appraisal Foundation, which sets standards and qualifications for congressionally recognized real estate appraisers, has included a portion on fair housing law and bias in its required seven-hour continuing education USPAP course. And the appraisal association recently added a five-hour seminar focused on addressing unconscious bias and updated its code of ethics, requiring appraisers to ignore ethnographic characteristics and other personal characteristics in real estate appraisals. We have created a practical guide that affirms what you should do.
“We're trying to build a more just housing environment in this country…and we're trying to make sure unconscious bias doesn't influence ratings,” said Valbridge, 2022 president of the rating association. Jody Bishop, senior managing partner at Property Advisors.Located in Mount Pleasant, South Carolina
One way to combat bias is to promote diversity in the industry, says Corey Hammonds, founder and CEO of Hammonds Group in Nashville, Tennessee. Mr. Hammons became the youngest African American Certified General Appraiser in Tennessee in 2016.
“It's an unintended lack of access. Many people don't know what an assessment is and what it does,” Hammonds says. “The qualifications to become an appraiser are very expensive. And people tend to deal with people they know, and it's difficult to break into this industry if you don't have enough connections.”
According to the Appraisal Association, there are 78,000 appraisers in the United States, of whom 85% identify as white and 77% identify as male. The institute is partnering with Fannie Mae, Freddie Mac and the National Urban League on appraiser diversity initiatives to reach a more diverse pool of candidates and educate them about the appraiser profession.
The National Association of Realtors® has unique diversity, equity and inclusion initiatives, including a mentoring program known as NAR Spire. NAR is also working with the Biden administration on the PAVE Action Plan announced in March to improve government oversight of the appraisal industry and to work with federal agencies and stakeholders to recognize potential appraisal cases. It offers 21 recommendations regarding both educating consumers on how to report. bias. The action plan also proposes developing procedures to ensure that automated valuation models do not incorporate bias into their estimates of value.
What salespeople can do
Real estate professionals can play an important role in combating racial bias by identifying red flags and taking remedial action on behalf of their clients. Hammons says agents need to educate buyers and sellers about the appraisal process. Marginalized borrowers, including those from Black, Hispanic, and Indigenous communities, often lack a model for homeownership.
“They may not know that they can appeal an appraisal or what steps they can take to request a second appraisal,” said CBC Mortgage Agency's Head of Diversity, Equity and Inclusion. Ty Christensen says. CBC Mortgage Agency's Director of Diversity, Equity and Inclusion is an FHA expert whose mission is to help close racial disparities. real estate. “We put a lot of effort into homeowner education, and prospective buyers are taught about appraisals and appraisal bias and what that means.”
Davenport suggests asking your lender about its policy on addressing racial bias in appraisals.
As another proactive move, agents can present comparable sales and facts about the home, including a list of recent updates and repairs. “I accept any information that homeowners or real estate agents give me. It's helpful,” Bishop says. “If the appraiser rejects it, that's a red flag to me.”
If you still believe the appraiser reached an inaccurate or biased conclusion, the Appraisal Institute's site outlines steps to reconsider the value. Additionally, agents who suspect bias can work with clients to file reports with state housing authorities or federal agencies such as HUD, said Jacob Channell, senior economic analyst at LendingTree. “The Federal Trade Commission (link is external) provides excellent resources on how to spot mortgage discrimination and what those affected can do about it,” he added.
“I believe there are far more people today who are willing to listen, learn and change,” Bishop says.
© 2024 National Association of Realtors® (NAR)
