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Fannie Mae Has Advice for Home Appraisers: Watch Your Language (2)

July 23, 2021, 8:45 PM

“Show, don’t tell,” has always been a guiding rule for writers. Now it’s also the advice being given to home appraisers as the industry comes to terms with its own biases.

Fannie Mae, or the Federal National Mortgage Association, recently identified “problematic phrases” that should be avoided in appraisals — the valuation reports that it and others rely on to provide financing to would-be homeowners. Four examples of this language are listed in Fannie Mae’s June newsletter for appraisal professionals: “Crime-ridden area,” “desirable neighborhood,” “affordable neighborhood,” and “integrated community” are all considered bad for business now. Fannie Mae instead suggests more objective descriptions, like stating an area’s crime rate.

This is all being done in service of the appraisal industry’s attempts to figure out how homes in predominantly Black neighborhoods routinely are priced at lower values than the same-sized and same-designed homes in white neighborhoods, even after accounting for neighborhood characteristics such as crime, poverty levels and proximity to amenities like parks. It’s what’s called appraisal bias or the appraisal gap, a problem that industry leaders were reluctant to acknowledge until very recently, despite decades of data showing such discrepancies.

Historically, federal housing officials and industry leaders encouraged appraisal professionals to judge home values by the color of the neighborhood rather than the house itself. Racial segregation directly informed how appraisers priced homes until the Fair Housing Act of 1965 and the Community Reinvestment Act of 1977 outlawed conditioning home values based on race. However, neighborhoods across the U.S. have since remained mostly racially segregated, and so real estate professionals have found ways — both intentionally and unintentionally — to traffic in home evaluations based on race even without needing to explicitly say anything about race.

The new Fannie Mae language guidance acknowledges this, which is why it suggests that using a term like “integrated community” in appraisal reports is loaded because it signals the racial demographics of a neighborhood. “The valuation should focus on the property, not the residents,” reads the guidance.

The problematic phrases are part of Fannie Mae’s list of unacceptable appraisal practices from its Selling Guide, which includes developing valuation reports based “either partially or completely on the sex, race, color, religion, handicap, national origin, familial status, or other protected classes” of the people who own the house or live in the neighborhood. Even saying something as seemingly benign as “desirable neighborhood” is problematic, in part because “desirable” has been coded as “white” throughout much of housing market history.

Read More: Four Ways Disparities in Homeownership Persist

University of New Mexico sociology professor Elizabeth Korver-Glenn explores this history and how it determines how housing is sold today in her 2021 book Race Brokers: Housing Markets and Segregation in 21st Century Urban America. For her research she interviewed more than 70 appraisers and real estate professionals to get a sense of their methods.

“In particular, they believed that White neighborhoods were the best, most desirable neighborhoods and that neighborhoods of color were less desirable,” writes Korver-Glenn. “They also assumed that White buyers were the ‘typical buyers’ whose taste would determine what was and was not ‘desirable’ and that ‘typical buyers’ would match neighborhood race.”

There’s data to back this up as well: A study that Korver-Glenn and fellow researcher Junia Howell published last year found that a neighborhood’s racial composition was a “stronger determinant” of housing values in 2015 than it was in 1980 — in other words, the racial appraisal gap has only widened.

Language changes may be a suboptimal way of addressing the problem. Korver-Glenn’s research suggests that the bias is actually baked into the methods and practices of the industry. For example, a standard way for appraisers to determine a house’s value today is by looking at what houses in the surrounding neighborhood have sold for. But since racial segregation is still entrenched in most neighborhoods across the U.S., that means the 20th century undervaluing of homes in Black neighborhoods has been carried over into 21st century appraising — “desirability” and maximized home values are still tied to a neighborhood’s whiteness.

Which is why Korver-Glenn says that the Fannie Mae guidance on problematic phrases misses the mark. In an interview with Bloomberg CityLab, she likened it to a cookbook publisher advising bakers to drop the word “chocolate” from their published chocolate chip cookie recipes after a hypothetical finding that chocolate was unhealthy.

“This intentionally ridiculous scenario helps illustrate what is problematic about the ‘avoiding problematic phrases’ guidance: Absolutely nothing has changed about the recipe, its ingredients or its bake,” said Korver-Glenn. “Expecting a different cookie result by deleting the word ‘chocolate’ is as realistic as expecting a different [or] less racist appraisal result by deleting some problematic, racially coded phrases.”

Read more: What It Will Take to Close the Race Gap in Home Appraisals

Fannie Mae’s selling guide for appraisers still lists among its unacceptable practices: “failure to comment on negative factors with respect to the subject neighborhood, the subject property, or proximity of the subject property to adverse influences.” For Korver-Glenn, that is evidence that “they are encouraging appraisers to avoid some racially coded words while doing exactly nothing to address the racist logic and methods that infuse and animate” appraisal work.

Leaders at the Appraisal Institute and the Appraisal Foundation — organizations that develop training and standards for the industry — recently decided to study the appraisal gap issue and are looking to institute new industrywide reforms in the near future. Among those changes is the creation of a “Personal Characteristics and Valuation Practice” guidance, which encourages appraisers to “ignore and avoid ethnographic and other personal characteristics in property appraisals,” and a new five-hour training course on unconscious biases.

But appraisals are only one part of the issue in the broader landscape of housing discrimination. Sarah Wheeler, editor-in-chief of HousingWire, a publication for housing professionals, wrote in a recent newsletter that the new language guidance from Fannie Mae is “great advice not just for appraisers, but real estate agents and lenders too.”

(Updates with links to appraisal industry and racial wealth gap coverage. A previous version of this story corrected the number of interviews conducted by Elizabeth Korver Glenn.)

To contact the author of this story:
Brentin Mock in New York at

To contact the editor responsible for this story:
Jennifer Sondag at

David Dudley

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