On Jan. 24, The Appraisal Subcommittee (ASC) held its first public hearing on appraisal bias from the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C., welcoming groups representing federal agencies, experts from across the mortgage lending and appraisal industries, researchers, and consumers to give testimony and share concerns regarding the fairness and accuracy of home valuations for everyone.
“As the federal agency charged with oversight of the appraisal regulatory system, we have grown increasingly concerned about the stories of bias that have circulated in the national media in the past several years, as well as recent studies on the topic,” ASC Executive Director Jim Park said.
“The ASC is also very concerned about the lack of diversity among appraisers and the excessive barriers to entry that likely deter entry into the profession, particularly for people of color,” Park added. “The ASC has made these issues a cornerstone of its work. We are using the authority we have at our disposal to highlight appraisal bias and address the lack of diversity in the profession.”
U.S. Department of Housing and Urban Development (HUD) Secretary Marcia Fudge delivered opening remarks. Secretary Fudge noted that the overarching goal of the continued work on appraisal bias remains establishing the kind of change that can help “all families, in all neighborhoods, have a better chance at building generational wealth.”
The hearing featured witness testimony from Dr. Junia Howell of the University of Illinois Chicago, homeowners Tenisha Tate-Austin and Paul Austin, Michael Fratantoni, Mortgage Bankers Association chief economist, senior vice president, research and industry technology, and Craig Steinley, president of the Appraisal Institute (AI). Witnesses reflected on their professional and personal experiences with appraisal bias and provided suggestions to the assembled panel on how to best address this complex and multifaceted issue.
Howell, a visiting assistant professor of sociology, noted in her testimony that she, and her collaborator, Dr. Elizabeth Korver-Glenn, began studying the appraisal process a decade ago and created three empirical studies. They were both living in Houston, Texas, at the time, and just like other cities, homes in Houston’s white neighborhoods were appraised at considerably higher amounts than comparable homes in communities of color.
“Our qualitative data and analysis conclusively illustrated how appraisers’ racialized assumptions of neighborhoods were directly contributing to the observed inequality in appraised values,” Howell testified. “However, this is not how the appraisers themselves understood their processes. They perceived the sales comparison approach and their implementation of it as enabling them to accurately reflect the real estate demand. In other words, any racial inequality in the appraised values was not due to their decisions. Rather this inequality could be explained by differences in property characteristics, construction quality, neighborhood amenities, and, most importantly, what properties were most highly valued by buyers in the market.
“We began to investigate the industry itself, and we noticed something was significantly off,” Howell added.
The first study looked explicitly at Houston’s real estate market, where they interviewed and observed over 100 industry professionals.
“We noticed that homes in white communities were valued at 800 percent more than homes in communities of color,” Howell said.
In a second study, homes across all U.S. major metropolitan areas were examined (1980-2015) with white homes, on average, being valued at a quarter of a million dollars more than homes in communities of color.
“We see a growing racial wealth gap in large part due to our appraisal gap,” Howell said.
She also made references as to what can be done to address this problem of bias. One was to provide training in relationship to the actual appraisal methods. Additional investigating and the providing programs and resources to those affected by this inequality was another recommendation.
Tenisha Tate-Austin testified that for her (and her husband Paul’s) second appraisal, where Tenisha’s white friend posed as the owner, the result was a $487,500 difference, which was nearly 50 percent higher than the first appraisal.
“The two appraisers who inspected our house – one before we ‘whitewashed’ and one after – came up with entirely different comps and a difference in value of half a million dollars,” Tenisha said. “This should not be possible. This suggests that the process is too subjective.”
On Dec. 2, 2021, a federal lawsuit was filed in the U.S. District Court for the Northern District of California by the Austins alleging an appraiser and an appraisal management company showed racial bias in the appraisal of their Marin County (Calif.) home where they were seeking a mortgage refinance.
“When comps were not included, ignored in fact, we had immediate concerns,” Tenisha said. “This issue is more than one bad actor; it is systemic and requires a systemic solution. Given our experience, I would assume there are plenty of people that don’t know what to do if they find themselves victims of appraisal bias and discrimination.
“We believe that the whole process is too arbitrary and too dependent on the opinion of one person,” she added. “There needs to be more oversight on the appraiser to get the information correct, or more than one appraiser who conducts the analysis of value. There needs to be a streamlined and explained process for evaluating the home that doesn’t introduce bias.”
Fratantoni, via a Zoom call, testified to several things, including the role of AVMs (automated valuation models) when it comes to appraisal bias.
“Accurate valuations of homes are essential to risk management within the mortgage industry,” Fratantoni said. “Industry leaders agree that the adoption of technologies and hybrid strategies for valuation could relieve stress on the appraiser workforce and reduce individual appraiser bias.
“Increased use of technologies and more robust data sources, including wider industry adoption of AVMs, also can help combat bias in the appraisal process,” Fratantoni added. “AVMs are used to support valuations, aid quality assurance review in originations, and assist as valuation assessments during post-origination processes. The use of AVMs may not eliminate all elements of bias in valuations, but it could improve upon the current system by potentially reducing conscious and unconscious human bias, which would be a welcome step forward as regulators and industry leaders continue to work to address systemic bias in the long term.”
Representatives from all seven agencies comprising the ASC Board asked questions of the witnesses with a focus on the consumer experience, the barriers to entry in the appraisal profession, and the impact on the market.
Steinley, who also testified, told Valuation Review how he perceived the testimonies given and if they were helpful in what needs to be recognized when it comes to the subject of appraisal bias.
“It certainly was valuable to hear the different perspectives, which reinforced that while good progress has been made, there are still opportunities for all stakeholders to collaborate on creating solutions,” the AI president said. “The Reconsideration of Value or Appraisal Results was one area that seemed to gain the interest of agency members. Since the hearing, we have participated in additional industry and regulatory conversations about the prospect of installing a Tidewater-like process in the conventional market, which makes clear the hearing was successful in building awareness around the issue.
“I took something away from everyone who testified at the hearing, as we all shared varied experiences that remain vitally important to this ongoing conversation,” he added. “The homeowners, Paul Austin and Tenisha Tate-Austin, also shared compelling stories and would seemingly have benefitted from a more upfront and transparent appeals process like the Tidewater Initiative.”
We asked Steinley if he sees a time within the year 2023 where he believes the industry will see significant improvements when it comes to appraisal bias.
“I think we’ve already seen improvement in terms of acknowledging that unconscious bias exists and the concrete steps that the Appraisal Institute has taken to help address these issues,” he told us. “The ongoing efforts from the Appraiser Diversity Initiative are paying dividends for diverse aspiring appraisers, and when the Appraisal Institute’s Practical Applications of Real Estate Appraisal (AI PAREA) program launches this year, that will be another major achievement in addressing DE&I in our profession. We hope the agencies take advantage of the opportunity to install more upfront and transparent appeals processes like the Tidewater Initiative – the opportunity is before them today.”
Steinley also told us that he thought the hearing was positive based on the different ideas that were shared, and from an appraiser’s standpoint, he hopes it was made clear that the AI organization, and profession, continue to take this issue seriously, and remain dedicated to finding solutions.
“This is an important area to address, and future success is most likely to be achieved when all parties involved truly listen to and learn from each other,” Steinley said.
Park concluded his remarks at the hearing by thanking the organizations and committees present, as well as the Austins for coming forward to share their story.
“No one should have to hide who they are to obtain a credible appraisal that is independent, non-biased and performed in a competent manner,” Park said. “It won’t be easy, and nothing worthwhile ever is, but by working together, I’m hopeful we’ll find solutions to these longstanding problems.”
Members of the public were invited to share their perspective on and experiences with the appraisal industry, including appraisal bias, suggestions for data and tools that should be made available to help educate consumers about their rights, and topic ideas for future public hearings.