A study from the Federal Home Loan Mortgage Corporation, known as Freddie Mac, adds to a growing body of research that finds racism in the appraisal industry is undervaluing the homes of Black and Latino Americans compared to white-owned homes.
In an analysis of more than 12 million housing appraisals, Freddie Mac researchers found that “appraisal gaps seem pervasive” in lowering home value determinations in Black and Latino neighborhoods.
Other recent studies have shown that homes in Black neighborhoods are appraised at lower values than similar homes in white neighborhoods by as much as 23% on average, and that that appraisal gap is
For years, the leading professional appraisal organizations have denied that racism is at work in the industry, and explained away news stories about it as the actions of a few individual appraisers. Only recently did appraisal industry leaders acknowledge that a problem exists, and have begun taking steps this year to investigate it.
The new Freddie Mac study shows a few places in the industry where it can be found. Examining housing appraisals from Jan. 1, 2015 to Dec. 31, 2021, researchers found:
- 12.5% of appraisals in majority-Black census tracts came in below the contract price of the houses they assessed compared to 7.4% of appraisals in white tracts. For appraisals in majority-Latino tracts, 15.4% were valued lower than the contract price. For both Black and Latino areas, the percentage of undervalued appraisals increased as the white population percentage decreased.
- The undervalued appraisals occurred more frequently in Black and Latino tracts even when taking structural and neighborhood characteristics into account.
- Racial gaps were found even when just looking at the race of the mortgage applicant as opposed to the neighborhoods the homes were in: 8.6% of Black applicants received appraisals lower than the contract price of the house, as did 9.5% of Latino applicants, compared to 6.5% of white applicants and 7.1% of applicants overall.
As for the idea that bias might only occur among a small number of appraisers, the study found when analyzing the appraisal reports of several thousand appraisers that the majority of them reported “statistically significant” racial gaps in their valuations. The study’s authors wrote that they hadn’t identified a root cause for these gaps, but that they are testing alternative appraisal methods for more equitable outcomes.
Junia Howell, a sociology professor at the University of Illinois, Chicago, who’s conducted several studies on appraisal bias, says this study reinforces that the disparity is systemic.
“The question of: Is it just a few bad apples? Is it just a few appraisers that are creating this inequality? What [the study] shows is actually, no, it’s almost everyone,” says Howell. “Yes, individual bias is definitely affecting these things, but it’s actually a structural issue, across different appraisers who have different backgrounds, and in different counties. We’re seeing this inequality across the board, really demonstrating that it is deeply embedded in the ways and the methods of appraising.”
The Appraisal Institute, an international professional association representing the real estate appraiser profession, has only recently
“Appraisal is one piece of a larger ecosystem, and appraisal groups are working alongside consumer groups, real estate brokers and agents, banks, government agencies, think tanks and others to explore where housing inequities may stem from and what combination of solutions should be considered,” Schley said.
Freddie Mac isn’t the only federal entity looking into this problem. Earlier this year, President Joe Biden announced the creation of an interagency task force to address home appraisal inequities. That group, called the Property Appraisal and Valuation Equity task force, chaired by U.S. Department of Housing and Urban Development Secretary Marcia Fudge and Domestic Policy Council Director Susan Rice, will release a report in the months ahead detailing the “extent, causes and consequences” of appraisal discrimination and a policy roadmap to help root it out.
Appraisal bias complaints have increased tenfold since 2019, HUD’s Alanna McCargo said at a June event
hosted by the Consumer Financial Protection Bureau. Freddie Mac is currently working with the Appraisal Institute on diversity initiatives to bring more people of color into the industry, which is 96.5% white, according to data from the U.S. Bureau of Labor Statistics. Over the last 12 years, there has been a “20 to 25% decline” in the number of registered appraisers overall, according to Jim Park, executive director of the Appraisal Subcommittee, the federal oversight agency for appraisers.
“Not only is the profession faced with a lack of diversity, it is also faced with an aging population, declining numbers, and few new entrants, even as demand for appraisal services has been increasing,” Park said during a panel discussion at the June CFPB event. Referencing earlier research on bias in the industry, he added: “I find these allegations and revelations about the appraisal industry to be deeply disturbing.”
(Changes the description of Freddie Mac to clarify that it is the Federal Home Loan Mortgage Corporation.)
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