3 Things You Need To Know About Mortgage Appraisal Bias
Land and homeownership are, arguably, the most tried and true methods to generate, grow, and pass down wealth. Home appraisals determine the value of your property and are a standard part of any real estate transaction. In 2022, the National Fair Housing Alliance published a report discussing the prevalence of appraisal bias in the United States to identify issues and promote greater equity. Here are three things every homeowner should know about appraisal bias.
What Is Appraisal Bias?
Appraisal Bias occurs when the appraisal of a home is perceived as lower in value based on the homeowner’s race or by the neighborhood's racial makeup. According to the New York Times, “The appraisals, which were compiled between 2013 and 2021, present evidence of a persistent, widespread practice in the home appraisal industry to give higher values to homes when the occupants are white, and devalue them if the owners are people of color” (Kamin, 2022).
There are legal protections for homebuyers, such as Title VIII, which made it unlawful for lenders to discriminate against borrowers based on race, religion, sex, familial status, disability status, or ethnicity. These protections were implemented after redlining became common in the 1950s and 1960s. Redlining refers to the practice of lenders denying loans or real estate agents refusing to show houses in specific neighborhoods based on discrimination.
While these legal protections have helped ensure the right of all Americans' right to more equitable housing opportunities, there is still work to be done to ensure equity throughout the home-buying process.
What Oversight Currently Exists In The Appriasal Indursty?
According to The Appraisal Foundation, each state has it’s own appraiser regulatory agency that licenses and supervises appraisers. The Appraisal Subcommittee (ASC) is a federal council that maintains oversight over state agencies and ensures ethical conduct.
The Appraisal Foundation currently upholds a requirement that the majority board of trustees must be appraisers. The 2022 National Fair Housing Alliance’s report suggests that more equity could be achieved by setting a requirement that a certain percentage of the board are consumer advocates. Reserving seats at the table for civil rights advocates and cosumer protection advocates on the Board of Trustees, Appraisal Standards Board, and Appraiser Qualifications Board could provide additional oversight as well as new perspectives, ideas, and problem-solving approaches to current industry issues.
Should I Be Worried?
It’s crucial to know and remember that the appraisal industry and oversight committees are made up of well-intentioned, hard-working, equity-minded, honest people. However, it’s also important to acknowledge there are documented instances of licensed appraisers who, intentionally or unintentionally, provide unfair property valuations.
Relying on recommendations from your homebuying team is a great way to find a credible appraiser; you can also research online reviews of local appraisers to find a credible professional to work with.
If you believe that you’ve been a victim of appraisal bias, what can be done about it? PAVE is an active task force that is dedicated to property appraisal valuation equity. On their Get Help page, it walks you through the process of reporting an incident of appraisal bias.
Resources: PAVE, New York Times, NFHA 2022 Report, Fair Housing Act, Appraisal Foundation