Appraisal Discrimination in Residential Mortgage Lending: Past and Present
BY: Nicole Chatt González, RBFL Editor
One way to fool appraisers and increase the value of your home — make the appraiser think the current occupants are white. In 2021, a black family’s picture hanging in the living room made a nearly $300,000 difference when Nathan Connolly and Shani Mott had their home initially appraised. On a second appraisal, with the photos replaced with pictures of a white family friend, the home’s value jumped from $472,000 on the initial appraisal to $750,000 after the changes were made. This is just one example of a long-standing practice in the appraisal industry, where appraisals conducted for the same home, just with differing evidence of the homeowners’ racial identity, have resulted in discrepancies of thousands of dollars.
These practices are nothing new in the residential appraising sphere. The earliest examples of, not only racist tendencies, but racist directives from appraisal authorities, stem from the 1946 McMichael’s Appraising Manual, used in both public and private appraisal sectors. The Manual went as far as ranking races and nationalities in order of desirability in American neighborhoods. This led to racial redlining, a form of racial segregation where, generally, a neighborhood’s racial composition is largely determined by discriminatory lending and appraisal practices.
The logical next question is to ask who oversees the appraisal industry and why this discriminatory conduct is allowed to continue. Essentially, appraisal supervisory bodies grant a significant amount of discretion to appraisers, enabling usage of race-related conclusions and generalizations in the appraisal process, under the guise of it being appraiser discretion. Further, the appraisal profession still operates on an apprenticeship model, where individuals looking to become real property appraisers must find an established appraiser to supervise them. This creates an “appraiser pipeline” that discourages involvement from those without connections to the profession. Because the appraisal industry is estimated to be between 78-99% white, minority applicants may feel particularly intimidated and discouraged, perpetuating its lack of diversity.
From a governmental standpoint, there have been indications of attempts towards improvement. While Congress has held power to regulate the appraisal profession through the Appraisal Subcommittee, this power is limited as it only applies to federally related transactions. A private organization, The Appraisal Foundation, sets the standards and rules that are adopted in all 50 states. However, it is worth noting the congressional subcommittee oversees the Foundation and, subsequently, has the authority to respond to the widespread issues regarding appraisers’ “discretionary” choices.
One recent development has been President Biden’s implementation of the Property Appraisal and Valuation Equity (PAVE) Task Force in June 2021 whose stated goal is “strengthening guardrails against discrimination” through various executive agencies, such as the Federal Housing Finance Agency and the Department of Housing and Urban Development. Despite no indication of direct congressional involvement in the Task Force, perhaps executive branch actions will lead to improvements in the industry.
Sources:
Debra Kamin, Home Appraised With a Black Owner: $472,000. With a White Owner: $750,000., N. Y. Times, https://www.nytimes.com/2022/08/18/realestate/housing-discrimination-maryland.html.
Stanley L. McMichael, McMichael’s Appraising Manual: A Real Estate Appraising Handbook for Use in Field Work and Advanced Study Courses, 3rd ed. 1944.
Safia Samee Ali, Black appraisers call out industry’s racial bias and need for systemic change, NBC NEWS (June 7, 2021, 11:57 PM), https://www.nbcnews.com/news/us-news/black-appraisers-call-out-industry-s-racial-bias-need-systemic-n1269452.
About the Appraisal Subcommittee, Appraisal Subcommittee, https://www.asc.gov/about.
Action Plan to Advance Property Appraisal and Valuation Equity, PAVE: Interagency Task Force on Property Appraisal and Valuation Equity, https://pave.hud.gov/actionplan.