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Video: NCRC Appraisal Bias Investigation

Online Event Archive Recorded October 26, 2022

NCRC released a new report documenting a groundbreaking study using mystery shoppers in Baltimore, MD, which showed that real estate appraisers are providing better service to White homeowners than Black homeowners, and assigning higher values to homes that they believe to be White-owned.

Black/White interracial couples who own homes served as “testers.” Seven tests were conducted, consisting of 14 appraisals. Half of the appraisers met with Black testers, and half of the appraisers met with their White partners. The results revealed that the White homeowners received better treatment from appraisers and that overall the appraisers deemed the homes to be more valuable when the White partners presented them.

To dive deeper into the report’s findings, NCRC’s leading experts discuss appraisal bias’s effects, challenges and potential solutions, and answer your questions.

 

Bias is a serious issue affecting the appraisal industry, which is one of the least diverse industries in the United States. Previous research studies have shown that appraisers assign far higher values to homes in White neighborhoods than comparable homes in neighborhoods that are predominantly Black and/or Latino. NCRC’s new study shows that the race of the homeowner can also play a substantial role in the valuation of a home. Communities of color have lost billions of dollars in wealth because of the routine devaluation of their homes.

Download the powerpoint here.

Transcript:

NCRC video transcripts are produced by a third-party transcription service and may contain errors. They are lightly edited for style and clarity.

McCracken 00:00

Good day, everyone. Thank you for joining us. I’m Tracy McCracken, Director of fair housing for the National Community Reinvestment Coalition in CRC. We are a 600 member organization dedicated to economic and social justice throughout this country. We are hosting this webinar today to discuss a report on appraisal bias testing we conducted appraisal bias is as old as the housing industry in this country. This week, the Federal Housing Finance Agency FHFA announced it is providing new public access to millions of uniform appraisal datasets using two tools. You add aggregate statistics data file, and you add aggregate statistics dashboard FHFA states they remain focused on valuation and assessing potential areas of bias. But that but we that work in fair housing and fair lending, know that testing will be essential to root out appraisers who discriminate. A Freddie Mac study conducted in 2021 shows that 15.4% of homes in Latino census tracts appraise for less than contract price and black census tracts is 12.4%. Yet and white census tracts is 7.4%. The Brookings Institution in 2018 estimated that black neighborhoods are undervalued on average by $48,000 NCRC has published a report on systemic testing in Baltimore, looking at how race affects valuation and discriminatory treatment. Jake Lilian, our counsel for Fair Housing enforcement came up with this testing methodology and conducted the testing. He is joining us today. And now I will turn it over to him. Thank you.

Lilian 01:47

Thank you, Tracy. And thank you everyone for joining us. Tracy and I are broadcasting live from OBL Alabama where we did a training together last night. So as you can see, from the emergency evacuation plan sign on the door, I am in a hotel room. This means that this is the very first webinar I have ever lead where I don’t have to worry about my cats stealing the spotlight or mooning the camera. So this is a very big day for me. So the topic of today is appraisal bias. Most of the webinar today is going to be focused on the appraisal testing report that Tracy just mentioned, which we released yesterday, and I realized that a lot of you probably have not had a chance to read the report yet. And a lot of you probably had no idea we even released a report until Tracy mentioned it just now. So I’m going to give you a quick overview of what we did. NCRC has many years of experience doing Fair Housing testing, which is a form of mystery shopper testing. Lots of fair housing groups do testing. And to give you an example, an organization like us might hire a white tester and a tester of color to this day housing provider on the same day, and they would both ask about the same type of home. And the goal is to see if they’re treated the same way or not. And apartment complexes and real estate agents and mortgage lenders get tested all the time. And they know that being tested as part of the business that they’re in. So far as we know, though no one has released a testing study of appraisers until now, testing appraisers is a lot trickier than most other types of testing. Because you need actual homes for the appraisers to visit and evaluate. And you need to pay for a bunch of appraisals, which are expensive. There’s a lot of moving parts to be dealt with a lot of things to consider. If anyone here works for a fair, free Fair Housing group and you’re interested in doing appraisal testing. And you have questions for me, please email me, I will put my email in the chat right now. We absolutely encourage other groups to do appraisal testing in their communities. So what the way we did appraisal testing is we found some black white interracial couples who own homes in the Baltimore metro area who were willing to be our testers and we paid for them to get their homes appraised multiple times. Sometimes the white partners were the ones who met with the appraisers and sometimes the black partners were the ones who met with the appraisers. So in each test, you had a home being appraised twice, once by an appraiser who believed it was a white owned home and once by an appraiser who believed that it was a black owned home. And we found that appraisers who met with the white partners valued the homes about $7,000 higher on average than the appraisers who met with the black partners, and they saw the exact same homes. Also, all of the appraisers who met with black partners treated them professionally. Whereas some of the appraisers who met with black partners provided them with really terrible customer service. And I’ll go into more What that entails later on. But these results were not particularly surprising to us. Back in the 1930s, the federal government made it its official policy to consider the racial composition of the neighborhood as a factor in determining the value of the home. I’m going to share my screen right now, just a moment.

Lilian 05:32

So, racism and appraisals was baked in to the process by the federal government back in the 1930s. The one of the architects of appraisal discrimination was also one of the main architects of redlining. The FDR administration was championing redlining and appraisal bias. At the same time, there was an FHA employee named Frederick Babcock, who did everything he could to get bias, to make bias part of the system of appraising home’s value and deciding who gets loans. And the biased appraisal values that the government calculators in the 30s have gone on to affect home prices for decades. And when the federal government stopped explicitly using race as a factor, they weren’t able to reverse the damage that they did. These continues to affect homeowners of color today. Nowadays, homes in a majority black neighborhoods are worth on average, about half as much as homes in white neighborhoods. And people will try to justify that by saying that black neighborhoods generally don’t have the same kind of amenities that homes in white neighborhoods do. So they tried to say that what neighborhoods generally don’t have the same amenities that white neighborhoods do. And so Tracy mentioned a Brookings Institution report earlier, this was a brilliant report, they did a study comparing equally desirable homes in equally desirable neighborhoods, with some of the neighborhoods being white, and some of them being black. So these were homes with the same square footage, the same number of rooms, the same features in neighborhoods that had the same features. They controlled for the home and the neighborhood. And they found that these equally nice homes in black neighborhoods that were equally nice, were valued 23% Less than a similar homes in white neighborhoods. According to that study, this devaluation of black Homes has caused black communities $156 billion in wealth. So in light of that, there are still people who will defend the gap in home valuations. They will say that it’s about discrimination in the marketplace, that is the problem. And there is discrimination in the marketplace. The average American will pay more for a home, if it’s in a white neighborhood than if it’s in a community of color. And so defenders of the appraisal industry will say appraisers are just doing their jobs. They are just evaluating how much the home will actually sell for not how much it should sell for in a fair world. And yet, there is some truth to that it is their job to determine how much the home will sell for. The issue is they aren’t necessarily good at that. The the study that Tracy mentioned earlier by Freddie Mac, they they looked at how often homes are undervalued. Sometimes an appraiser will assign a value to a house and then it will be sold right after that. And sometimes it sells for more than the appraiser said it was worth. That is much much more likely to happen if the home is in a black neighborhood or Latino neighborhood. If the home is in a black neighborhood, it’s 50% more likely to sell for more than the appraiser said it would if it’s in a Latino neighborhood. It is twice as likely to sell for what for more than the appraiser said it would when compared to homes in white neighborhoods. So there is a problem in the appraisal industry. You can’t blame that on the marketplace. appraisers are more likely to undervalue a home if it’s in a black neighborhood or if it’s in a Latino neighborhood. So let’s talk about the appraisal industry for a moment. It is 97.7% White. I’ll repeat that is 97.7% White, and it is 70% male that makes it the least diverse profession in the United States. And if you’re wondering how an industry can possibly be that white in this day and age here’s a here’s one of the main reasons why it’s still so white.

Lilian 09:57

For many people, the only way they can become a certified appraiser, is by doing an apprenticeship with an appraiser who is already certified. And there is no financial incentive for a certified appraiser to do one of these apprenticeships. They actually take a they take a financial hit by training someone. So if you’re a certified appraiser and you decide to take on this financial burden, who do you think you’re going to do it for? Not someone you’ve never met, you’re probably going to do it for your family members, maybe a friend, a friend’s kids, you’re extremely unlikely to take on this financial burden for someone outside of your social circle. And with 97.7% of appraisers being white. Their social circles probably involve a lot of white people. So that tells you something about why the industry is so white, and it tells you something about why there are very few young people in the appraisal industry they can’t get in. In the past few years, appraisal bias has become a really hot topic in the Fair Housing world. And that has something to do with the studies that I mentioned, but it also has a lot to do with some widely publicized examples of appraisal discrimination. Many of you have already heard about these onshore. Here is one example. Carlat, Duffy and Indianapolis. She had her home appraised in 2020. Her home was appraised for $125,000. She was extremely disappointed by that. So she went out and paid for home money for a market analysis of her home. And that said that the home should sell for $187,000. There’s a huge gap between $125,000 and $187,000. But the lender would not change the valuation based on that. So she had her home appraised again, she went through all the trouble of having an appraiser over scheduling the appointment showing them around. That appraiser valued the home for even less for $110,000. And she heard she read something about racial bias in in appraisals and she is African American, and she got the idea maybe her home would be valued higher if appraisers believed that she was white. So she asked a white friend to pose as her brother and scheduled a third appraiser. The third appraiser Kane met with a white man who said he was her brother. That appraiser valued the home for $259,000. More than twice as much as the original valuation. Significantly more than twice as much as the second valuation. We’re talking $259,000 Compared to 125 or 110. That case got a lot of publicity. Another case that has gotten a lot of publicity is the case of Paul and Tanisha. Austin. They are an African American couple, who bought a home in Marin City, California in 2016. Marin City is a very upscale, a very upscale neighborhood. It is also it also has a lot of African Americans. So they bought this expensive home, they spent 1000s of dollars renovating it. And then they decided to refinance in 2020. Same year as when Carla Duffy got her appraisals done. And the Austen’s were shocked when their home was appraised at $995,000, they were thinking it would be worth about $1.5 million. That’s a $500,000 gap. They were very disappointed. And it occurred to them that this could have something to do with their race. So they had a white friend, pose as one of the homeowners got a different appraiser to do it. And that appraiser value of the home at $1,482,500. So that’s almost exactly what they were expecting. That’s a a 50% jump from what it was before. Only difference was the race of the person showing the home. So these stories were in the news. And I was as a fair housing advocate, I was very interested in them. And so I read all the newspaper articles that I could find about them. And I also read the comments that people left on the newspapers, websites. And you know, reading, reading public comments is always an interesting proposition. There were a lot of very negative comments, meaning negative towards the homeowners. And a lot of those comments were clearly made by racist trolls and I ignored those comments. Who who could have predicted that there would be trolls in an article about racism in America right. But there were other comments that question the validity of these little experiments. And not all of them were from racist trolls. Some were from people who made the point that race was not necessarily the factor, it could be that the two appraisers just had very different takes on the home or on the neighborhood. There, there wasn’t enough to say that it had to be about race. And they also made the point that there may have been other people of color who have done similar experiments. But yeah, they said, maybe, maybe for every one couple like the Tate’s. There are five other couples who were disappointed by the appraisals they got. So they had white friends pose as them and hired another appraiser. And then the second appraisal came in around the same as the first one or maybe even less, they said, those things could be happening all the time. And we wouldn’t hear about it because the homeowners wouldn’t publicize that. And so that really got me thinking, wouldn’t it be nice if someone did a study with a bunch of appraisals, to show people that there is something that there’s something systemic going on, it’s not just one example here. And one, one example six months later, this is something that happens routinely. And so I got the idea to do a survey of appraisal discrimination in a major metro area, where we would examine whether homes were appraised differently when white people were presented as the owners compared to when black people were presented as the owners. And so we decided that Baltimore would be a great place to do it. It’s nearby, we have a very valuable partner there with the Maryland Consumer Rights Coalition. And we decided that interracial couples would be an easy way to test for this, you’ve already got a black homeowner and a white homeowner whose names are on the lease who know the home who can eat, who you don’t need to worry about passing themselves off as the owners because they are the owners. So what we ultimately did was seven tests on time, sorry, just a second. As I said, I’m in a hotel room. I’m doing a late checkout. Yes, my apologies. Gotta be prepared for anything here. So we decided to do seven tests. That means 14 appraisals. For each test, a home was appraised twice. We would select appraisers at random. These were not appraisers who we had any reason to suspect of wrongdoing. We wanted to avoid that. We wanted to do a survey showing what happens when the average person chooses an appraiser without knowing their background or their record. So we chose appraisers at random from some Google business listings. We’d hired two appraisers for each test, they would both be hired to appraise the same home. When the when one of the appraisers arrived, we made sure that only the black partners when the one of the appraisers arrived, we made sure that the white partner was the only one there to greet them. And we whitewashed the home. That means that we took down all of the Family Photos took down anything that might suggest that a black person lived there. So for example, if there were posters of black celebrities on the walls, those would be taken down as well. So the appraiser would have no reason to think that anyone lived there except a white couple or a white family. When the other appraiser arrived for the home inspection, we made sure that only the black partner was there to greet them, and the home was black washed. Black washing is exactly what you would expect. It’s the opposite of white washing. So then we compared how the testers were treated. And what values the appraisers assigned to the homes, there really shouldn’t have been much of a difference because these are the exact same homes being appraised around the same time. There was no difference in how the testers behaved around the appraisals around the appraisers. So things should have been close to even. And what we found was that what we found was that the white presented homes were appraised at about $7,000 More than the black presented homes. And all seven of the appraisal, all seven of the white partners were given really good customer service. They had no nothing to complain about regarding the customer service, they got their reports within a reasonable amount of time. They were treated well the appraiser was in communication with them. And five of the seven black and five of the seven black testers who did this had similar experiences. They got good customer service, they got their reports in a reasonable amount of time. They had nothing to complain about. But in two of the seven tests, the black partners received terrible, terrible customer service. And that did not happen to any white people.

Lilian 19:59

There was One other interesting finding to it regards comparator homes. When appraisals are conducted appraisals, appraisers will locate similar homes in the area that were sold recently to help give them an idea of the value of the house that they’re appraising. That plays a big role in determining the value how much did a similar home in this how much a similar homes sell for recently, and there’s been a lot of discrimination over the years, where appraisers either consciously or subconsciously, only choose comparator homes in black neighborhoods, when they’re dealing with a black homeowner, or when they’re appraising a home in a black neighborhood. There might be homes that made better comparisons that were closer by in white neighborhoods, but they only chose homes in black neighborhoods. That’s that’s a very hot topic in the appraisal industry is in the appraisal industry and in the Fair Housing world, the selection of inappropriate comparator homes that drives a lot of appraisal discrimination. We found that the appraisers were slightly more likely to choose homes in black or in neighborhoods when they were dealing with the black homeowners. And we found that the appraisers chose homes that were 40% further away when they were dealing with black homeowners rather than white homeowners. Now, choosing a home that’s further away isn’t necessarily a bad thing. Sometimes you have to do that to find the most appropriate comparison. And some fair housing advocates have actually encouraged appraisers who are dealing with black homeowners, telling them, you know, don’t just look for the closest thing you can find in the neighborhood. If you have to go further away to a white neighborhood to find a better comparison go for it. So we’re not saying that it’s always bad to look further away. But you have appraisers here who were who were appraising the same house, you, you wouldn’t expect there to be a 40% difference, you would expect the homes chosen for black homeowners to be 40% further away. So that was a very interesting finding. Now, I’ve been talking about all this, in the aggregate, it may not really give you a sense of what kind of discrimination occurred. So I am going to lead you now through the appraiser Hall of shame. There were three appraisers we dealt with who did not come across looking well at all. And we’ve we’ve assigned them the pseudonyms of appraiser a, appraiser B, and appraiser C. So let me let me move the PowerPoint along. Here’s appraiser A, and the very first test appraiser a met with a black homeowner, and appraise their home at $310,000. Another appraiser met with the white spouse and appraise the home at $350,000. That’s nearly a 13% increase in value, just because the home was presented by a white person.

Lilian 22:58

That’s the biggest difference we found in any test 13% was more than any other test. And it was the very first test that we did. Now from that. We don’t necessarily know if the appraiser who came up with a $310,000 figure was wrong. Maybe that was the actual value of the home. Maybe the $350,000 appraisal was overblown, right. But interestingly, the same home, we use the same home for test number five, right, the same couple had their home appraised twice again. And it was appraised at $370,000.03 $180,000. So it became pretty clear that the $310,000 value was the outlier, not the $350,000 valuation. So this made appraiser a suspect. Also, I should mention that it’s considered automatically suspect when two appraisers appraise the same home, and they’ve there’s more than a 10% difference in the values. That’s a lot. Like really, there shouldn’t be more than a 5% difference between the values. But you know, sometimes it’s a little outside that but 10% is considered highly suspect. So this was highly suspect from the start, then we get to other appraisals that are significantly higher, that $310,000 appraisal is looking like a real problem. So what did we do? We retested appraiser a, in test seven, we hired to appraiser a to meet with a white person this time. And so appraiser a inspected their home, met with the white partner and appraise the home at $553,000. The other appraiser who dealt with the black partner appraised the home at $507,000. So when they dealt with a white person, they went way higher. What do you $6,000 was the biggest difference in terms of dollars of any of the tests. It was the same appraiser who gave us the biggest difference before when dealing with a black partner. Now interesting, interesting ly enough This home was also appraised on two other tests. It was appraised a total of six times in the course of our testing. There were four couples, one couple had their home appraised one couple and participated in two tests. And one couple participated in three tests. And then the other two participated in one test. So this home that appraiser a valued at $553,000, it was a brace six times once the 553 Once that 507 Once that 510 Once that 500, another time at 500. And once that $460,000. So appraiser a went way below when dealing with a black partner, and then way above when dealing with a white partner. Like I said, not a good look. So that’s that’s discrimination in terms of valuation. Let’s talk now about discrimination in terms of in terms of customer service, test two, there was an appraiser, let’s call him appraiser B, he agreed to appraise a home in a suburb of Baltimore that has significantly more white people than black people. This home is in Hanover, Maryland, which is about 20 minutes south of Baltimore. All the other tests were conducted in Baltimore itself. So this was a significantly whiter neighborhood than any native any other neighborhood we dealt with in the study. So appraiser B agreed to appraise the home in this neighborhood. He showed up for the home inspection and was greeted by a black person and the appraiser ghosted. The homeowner after that he never turned in a report even though he went to the trouble of inspecting the home. He never turned it into a report. He never explained why he wasn’t turning in a report. He never said a word about payment. He just ghosted the homeowner. And so we decided, hey, let’s retest this guy, like we did with appraiser A. So we tried to retest him. We reached out about appraising a home in Baltimore in a black neighborhood. And the idea was we would have a meet with the white spouse and see if he ghosted them. He turned the assignment down. Now, we don’t know for sure why he ghosted the homeowner, we don’t know for sure why he turned the assignment down. It’s not necessarily because it wasn’t a black neighborhood. I mean, there’s various reasons why he might have turned that down. But let’s keep in mind, none of this ever happened to any of the white testers. It’s a real problem when a homeowner schedules an appraisal has the appraiser over to their home shows the appraiser around is expecting a report is waiting for a report and it never comes and the appraiser never explains what happened. That’s bad. And of course it leaves you feeling like you’ve been discriminated against if you’re a person of color. We really wanted to retest this appraiser, but he did not want to appraise a home in a black neighborhood.

Lilian 27:58

Again, we can prove it with racial discrimination but it does not look good. And then the the final appraiser and the appraiser whole of Shane was appraiser see in the third test out of seven appraisers see met with a black homeowner, and it took him 11 weeks to produce an appraisal report for this home owner. Now, that might not sound like that much, but it is one week is considered a decent wait for an appraisal report. Two weeks is considered law. This was 11 weeks. He provided no explanation for why it was so late. We thought we’d just been ghosted again, like in a second test. Then 11 weeks later, and a call was made. He ignored a phone call asking why the report wasn’t ready. He never never returned the call. But then 11 weeks after the inspection, he provides an appraisal report and says I apologize for the delay. No explanation you get it. So you wanted to see would he do this with a white person. So in test five, we hired the same appraiser to appraise a home in Baltimore and we had the white partner meet with him. This is a different home. And the appraiser reached out to the homeowner a week during the week after the home inspection. The appraiser himself reached out and said I am sorry, this is taking so long. And then the next week he produced the report two and a half weeks later, when he deals with a black person and takes 11 weeks no explanation given doesn’t even respond to a phone call asking whether he’s going to whether he’s going to do the report or not or when it’s going to be ready. When he deals with a white person. He reaches out and apologizes that it wasn’t ready a week later, and then he produces the report two and a half weeks later. So that was some of the worst of what we saw in the study which is smelly So, this raises the question of what can be done about appraisal bias. Because it is a systemic problem. It’s not just about the biases of appraisers, although, as we’ve seen, that can certainly play a role. There’s there’s a lot of reasons why Black homes are devalued to the point that it cost black communities $156 billion, and well. So what can we do about? Well, I highly recommend if anyone has not read the pay of report, I recommend reading it. The paid report was an interagency report that was commissioned by President Biden, there were a bunch of federal agencies that participated in this report. And it gives a broad overview of what’s wrong with the appraisal industry and what can be done and what they’re planning to do. So they talk about the fact that the appraisal industry is so, so white, and so lacking in diversity, they make proposals saying that we need to strengthen the guard rails against discrimination, that there needs to be more enforcement activity. Testing is a great enforcement activity, diversifying the impression of the profession, empowering consumers to take action and providing better data. Right. And we intended for this study to complement the work of the page report. You know, our study goes to show why the action plan created by the agency is so necessary. If we are going to tackle this problem. As fair housing advocates, it’s going to take all of us working together. Now in our appraisal testing report, we made some recommendations of our own.

Lilian 31:54

We said there needs to be incentives for the appraisal industry to recruit a more diverse apprentice pool. There needs to be ways for people to become appraisers without convincing a certified appraiser to take them on as an apprentice. And there, there have been some ways opening up some programs to help young people and people of color, get a foot into the appraisal industry. We strongly welcome that. One thing that is preventing some upgrade some appraisers from getting work is that in order to be certified, you need to have a college degree or a certain number of college credits. And the appraisal industry has never been able to explain why that would be necessary. You know, college is great, but someone could easily be a very qualified appraiser. Without having gone to college. If you have been trained properly. You can be a great appraiser. This is the kind of discrimination we see in many industries where high school degrees or college degrees are considered necessary, even though there isn’t necessarily a good reason for it. So certainly, it would be great if government agencies that work with appraisers sought out some appraisers that did not have the college education and maybe weren’t certified but were nonetheless qualified. Another recommendation we made is to require appraisal companies to report demographic data on their clients and their valuations. I’m sure a lot of you know what humba is, if anyone does not HMDA stands for the home mortgage disclosure act that requires the mortgage lenders to provide all kinds of demographic data about their clients, and what kind of loans they walk through to them and whether they applied and whether they were rejected or whether whether they withdrew the application on their own. Honda has been an incredibly useful tool in combating mortgage lending bias. It would be wonderful if there was something like Honda for appraisers. This is not an original idea of ours. There have been a lot of people ringing this bell saying we need something like Honda for appraisers. Professor Greg squires of George Washington University has been confronting pub, he’s been confronting HUD officials publicly every chance he gets asking them when are we going to have 100 for appraisers, and that’s always entertainment gold. So it’s not an original idea, but it’s a very necessary idea. Appraisers should have to share with the government who they’re appraising and what values they arrive at and what they’re and what races the homeowners are and the demographics of the neighborhoods. This is how we can find out whether individual appraisers are discriminating if they share their data with the government. If a if a homeowner believes that their home has been undervalued, and whether racial bias was involved or not. They can request reconsideration Unfortunately, appraisers often they often blow it off. When they find out that there’s been a request for reconsideration. They often just say, No, I, I will not reconsider this. And that’s, that’s sometimes considered good enough to say sorry, the appraiser didn’t want to reconsider their needs to there needs to be incentives for appraisers to participate in the process. They should be required to participate in this process. If they think that if they think that their original valuation was correct, that’s fine. But they need to show their work a little explain why instead of just saying, I refuse to budge on this, and homeowners need to know more about their reconsideration options. A lot of homeowners don’t know that they can fight a low appraisal. Another recommendation is to require fair housing training for appraisers. There isn’t any right now. People in the appraisal industry were arguing that the Fair Housing Act doesn’t apply to appraisals. It is in the language of the Fair Housing Act, that appraisals are covered by the Fair Housing Act. But they still argued that appraisals were outside of the Fair Housing Act. So in the Austin, in the the Austin’s case in, in California, there’s a lawsuit going on currently, and the Department of Justice had to file a they had to make a statement saying that the Fair Housing Act does in fact apply to appraisals. This belief that the Fair Housing Act doesn’t apply, might not be so prevalent, if appraisers had to do some fair housing training. fair housing training takes many forms. It’s not just telling them what’s in the Fair Housing Act. Although that’s important, it can also be about subconscious bias.

Lilian 36:52

Appraisers don’t currently have to go through anything like that. And it would be very helpful if they did. There needs to be more funding for enforcement resources, I should make it very clear to anyone who is interested in doing appraisal testing with their own organization. This testing project was not funded by HUD. We applied to HUD for funding, various fair housing groups have applied to HUD for funding for appraisal testing. So far as I know, none of it has been approved yet. So we had to look to an outside source. So if you want to get if you want to do appraisal testing and get it and get it funded by HUD, please do not look at our report and say, Okay, if I do this the same way that NCRC did it, then we’ll get the funding. That’s not necessarily how it works. We don’t really know how HUD feels about our testing. It would be great if HUD provided more funding for enforcement resources like testing, not just HUD, but really any agency that deals with appraisals, and a lot of federal agencies are involved in appraisals in one way or another. Also, there needs to be industry standards for fair appraisals. Right now, appraisal guidelines come from the appraisal foundation. That’s what it’s called THF, the appraisal foundation, that is a private organization, a private organization is making these decisions, and the public can weigh in and say we think you should do this, we think you should do that. But they don’t have to listen to the public. They’re a private group. It would be great if there was a way for the public to have a real say in the appraisal guidelines. And right now there is not one. And our final recommendation is please do more testing. If you can’t get funding from HUD there are other avenues available. We encourage other groups to do testing in areas that we did not. Remember that study I mentioned that, that that measured when homes were undervalued by appraisers compared to what they actually sold for that showed that undervaluation is even more common with Latino homes than with homes in Latino areas than with homes and black areas. And the undervaluation of homes and black areas is extreme. So with it being even worse in Latino areas, that’s a huge problem. It would be great if there was some testing of Latinos, using Latinos and whites as testers to see if Latinos are being treated unfairly in the process. With our testing, with the Baltimore area, being very African American and not being able to just pick and choose whichever couples you want. And as testers, six of the seven tests were in majority black areas, it would be great if there was a testing study where it was roughly half and a half, where half of the homes were in communities of color and half of the homes were in white neighborhoods. So that if anyone can pull that off that we would highly recommend doing that. And we also would recommend doing some studying and six specific states, Alabama where I am now. Georgia, Louisiana. In Mississippi, North Carolina and South Carolina, nearly half of all the undervaluation in that study were in those six states. And that’s not nearly half the US population. That’s a whole lot less. So clearly undervaluation of homes and communities of color is a big problem in the Deep South and the Carolinas. And we highly recommend doing some testing here.

Lilian 40:25

So that is the end of my slideshow. I would like to take this time to give some shout outs. Tracy mentioned earlier when she was introducing me that this that I came up with the idea for this study and the testing, but Tracy and Ali letterer, who was our director of fair house or director of Fair Lending, they believed in this project from day one, and they secured the funding for it so this project would not have happened without them. Brad Blower our General Counsel, he edited the report and really shaped it, and he gave it its title faulty foundations, which I think is great. Sarah Oreos, Alan Pike, Andrew Natchison, Marissa Calderon, Megan have really and Jesse VanTol all played very significant roles in this and I appreciate your hard work. If there’s one thing I’d like to point out before we end, it’s that this project was very much focused on the biases of individual appraisers. And that’s a real problem. The results show that this is a problem. But the problem in the appraisal industry goes much deeper than the biases of individual appraisers. There are system wide problems. And there’s a lot of discrimination in the marketplace, which is going to affect how much homes are valued. So even if every single appraiser in the United States was magically cured of any racial biases they have communities of color would still be facing major disadvantages in the appraisal process because of systemic just because of systemic issues in the appraisal industry itself. And because of racism in the marketplace. So there is a lot more work to be done.

Q&A Section

I think now is a good time to take some questions. Here’s a question. Does this happen to prominent black and blacks and Latinos like actors, musicians and athletes? It certainly would not surprise me, but I have not heard anything about that. It might be worth reaching out to some people, because there’s a lot of people who have experienced this and are angry about it, but never really knew that they had recourse. So I highly recommend if anyone here is aware of any cases of appraisal discrimination, or they just think there might have been a case of appraisal discrimination. Please reach out to us we investigate reappraisal discrimination, even if it has nothing to do with our study. We have several cases currently going where we’re investigating discriminatory appraisals, there are things we can do, we can test that appraiser to see if they have a pattern of this kind of thing. If you would like NCRC to investigate, please reach out to me and I’ll see what we can do.

43:06

Yes, that questions come up quite a bit. If you Yeah, if you think or know anyone who might have been discriminated against this, feel free to reach out to us. Also there are other fair housing organizations throughout the country, some of which are members who can be helpful with this.

43:22

I gave a shout out to the pay report earlier I’m going to put that in the comments a link if anyone wants to read that.

43:43

Someone said finding an appraisal is almost impossible in practice. Nobody wants it 12 to 24 months complaint and legal process when all they want to do is purchase a home or get a HELOC. That is absolutely true. One issue that we had here with with the appraisals in this study. Let’s say that the appraiser the the tester who had to wait 11 weeks for report. Let’s say she was getting her home appraised because she was thinking of getting a is because she was thinking of refinancing her home and she didn’t know if it was worth it or not. So she paid for an appraisal to see what what the House would be valued at. If the appraiser had gotten the report back to her in a reasonable reasonable amount of time, she would have been able to refinance at a time when the rates were ideal for refinancing. But during those 11 weeks when she was waiting for her appraisal report, the Fed increased the rates more than ever before. That happened during those 11 weeks. So if she had been waiting for that report to get started, she would have missed out on great refinancing rates when making people wait is a huge problem because people are trying to sell their homes or they’re trying to get their homes refinanced. And those aren’t things you can just put off for a while while you reconsider an appraisal.

45:07

Yellow people are talking about their own issues with appraisals. There’s so many stories out there I just want to ask if there’s a trade school that provides training for appraisers, I am not aware of one. I would love it if there was one. There are there are programs that are being a few that have opened up in some that are being designed that allow that allow diverse people to enter the appraisal industry. I don’t know if they have actual school setup for them, though. It may be that they’re just given a mentor, I could look into that

45:50

someone asked if you’ll be receiving the slide deck, you will be receiving the slide deck Yes. How many black homeowners has this happened to I’m sure more than anyone could possibly count? I mean, I know people it’s happening to people generally don’t know, when they’ve been the victim of appraisal bias. Sometimes the appraiser will actually say something Something overtly racist. Like, for example. I’ve heard from black women who greeted an appraiser and the appraiser said, Are you the homeowner? And she said yes. And they said, are your your the homeowner, they just could not wrap their mind around it. And then of course, the home came in lower than expected. Most of the time appraisers know not to say anything overtly racist. People get low valuations and they don’t know if it’s because of their race, or maybe the area just isn’t worth what they thought it was. Maybe the home isn’t in the condition they thought it was. It’s very hard to say and so the true number of people is huge.

47:05

Someone asked if all the appraisers were white? No, the Baltimore area appears to have significantly more black appraisers than other places in the United States. There were a few black appraisers who were part of our testing

47:25

someone’s someone said they’d love to know how the economic status of the appraiser affects the decision and whether Jealousy is a factor. It certainly could be. A lot of the cases that we’ve heard about were black homeowners with lovely homes. The Austin’s and in California, they have an amazing home. Someone reached out to us who has a mansion in Atlanta and their home was undervalued by an appraiser. It would not surprise me if there was some resentment creeping into the appraisals when the when you have a person of color who is very wealthy.

48:19

You did. People are asking about whether they’ll be able to watch this in the future. Yes, you will, you will receive a recording. I will see about getting everyone copies of the chat because some people have asked that.

48:50

A lot of people have have made it clear that they are interested in investigating discrimination. There’s a if you if you believe you’ve been the victim of appraisal discrimination or you know someone who may have been if you don’t want to take it the NCRC if you’d rather take it as somebody local, there’s lots of local groups who are interested in investigating this stuff.

49:10

Oh, Jay, one of the questions that come up multiple times is the appraiser who ghosted US did they get paid?

49:18

No. No, he never requested payment. Yeah,

49:22

that’s what I thought he never actually requested the payment. He just ignored us after after it happened.

49:37

Have we seen this for single women, whether with children or not, regardless of race? There hasn’t been a lot of studying on gender. There should be more. When I say Stephanie I’m not just talking about appraisal testing, which is a very new thing. I’m talking about the research that’s been done into this i i am not familiar with anything relating to single women. It certainly wouldn’t surprise me if appraisers were undervaluing homes owned by single women. Whether it’s conscious bias or unconscious bias. Yeah, I mean that that would be a great thing to test for would be gender or familial status, whether the person has children, you have one person, you have one person presenting themselves with a single woman with no children and another homeowner presenting herself as a single mother. That would be a fascinating test to do. One question that has come up a lot has been? How do you just how do you just hire an appraiser, a lot of people are under the impression that the only way to get your home appraised is to do it through a lender, you can just ask for what they call a private appraisal. You can some appraisers do them, some don’t. It can be a little difficult sometimes to find an appraiser who will do a private appraisal. But if you look hard enough, you should find one. You can just call an appraiser and say, Hey, I’m curious how much my home is worth, or you know, I am going through a divorce. I’d like to know, you know how much my assets are worth, or I’m doing estate planning. There’s all kinds of reasons you can give for why you would want to know how much your home is worth and he wouldn’t necessarily be going through a lender. So yeah, it is possible to schedule these things yourself. Do we have plans to track long term impact on generational wealth created in communities adversely affected by this? Or have any insight on that currently, I recommend looking at the Brookings Institution report, that was the one that was the one where they determine the $156 billion value. Let me

51:46

see how it works? I don’t have that right in front of me. But if you search for a Brookings Institution appraisal report, you’ll be able to find it. How did you find the appraisers? Where are they at first time homebuyer classes? And could that possibly be predatory practices? We found the appraisers just by going to Google and using a randomization pattern we’d look for, like, this isn’t actually what we did. But for example, you might calculate the 20 appraisers who are closest to the home being being tested and then choose the one who is 10th in alphabetical order. That’s the kind of thing you can do to to achieve randomness. So we we didn’t look into the appraisers backgrounds. We didn’t consider the quality of their websites or anything like that. It was just oh, this appraiser is the right number. Let’s choose that one.

52:44

Have we planned to perform studies regarding the use of automated valuation models? We don’t have any plans to do that. At this time. I think it would be great to do that a lot of people in the fair housing community have raised concerns about these ABMS Automated Valuation models. People think a lot of people think that just because the computer is calculating the value of something, there’s no bias involved, but it can easily be thought be bias on the part of the person who programmed the algorithm. There’s all kinds of discrimination cooked into the appraisal process. That’s why this that’s why this system is so hard to deconstruct. That’s why it’s such a hard issue to tackle. Individual appraisers with racist biases, that’s, that’s something you can test for pretty easily. Delving into all of the policy reasons, dealing with generational wealth that explain why Black homes are valued so much lower, that’s much more complicated.

53:44

I’ll put my email again for someone to ask it. Please reach out to me, there are certain things that I don’t want to say publicly about how we did the testing. Because who’s to say we’re done appraisal testing, right? And I don’t, and if I have a feeling other groups may try to use some of our same practices. And we don’t want appraisers to know what these practices are. So I can’t necessarily share with you, you know, specific details about how we contacted appraisers What excuses we gave that sort of thing, but I am happy to talk to people from fair housing organizations. Please reach out to me if you want to do appraisal testing.

54:28

Do you have any suggestions on how the quality control processes that Fannie and Freddie and HUD require can be improved? That is a complicated question. We think a really crucial part is more data. Fannie and Freddie are sitting on appraisal data that they have not shared with the public. They shared some of it and that’s been great. That study about the under evaluations that was done through Freddie Mac, I think that has been absolutely crucial in in convincing people that this is problem in the industry. And it’s not just about the marketplace, it’s about appraisers. We there could be more insights gleaned from the data that Fannie and Freddie have not released to the public. So we call on the people in charge to, to make some rules requiring those agencies to share their data. Have we ever requested policies or procedures from the appraisers or their teams? No, we think that would have looked suspect. We wanted them to think that these were totally ordinary appraisals.

55:41

Can you tell an appraisal, how to appraise Can you tell an appraiser how to appraise a home because it’s being built with HUD fun to lowball you you can always tell an appraiser you know, I think the home was worth this much. You can leave out you can tell them here the comps I think you should use. They are not necessarily going to listen to you. That is what I have found. Not not from none of our testers did this. But we’re working with people who have been victims of appraisal discrimination. And they pointed out great comps to appraisers who did who simply ignored them, it shows different ones for reasons that are beyond me. Okay, well, we’re coming up on new now and I have to check out of this apartment in this hotel immediately. Thank you so much for your questions. You if you want to see a recording of this that will be possible. You’ll be able to see my slides to please reach out to me at J li l i e n at NCRC dot o RG if you have any questions about this. All right. Thank you so much, everybody.

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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