New Federal Datasets Are An Important Step Forward In Understanding Appraisal Bias

The complicated question of whether homeowners of color get a fair shake from real estate appraisers will become easier to answer thanks to new data released from the Federal Housing Finance Agency (FHFA).

The new numbers provide loan-level appraisal data from a 5% statistical sample of all such figures, allowing researchers to form a valid model of the appraisal industry nationwide. That model will facilitate a richer understanding of appraisal bias, which has thusfar been a difficult issue to address for both policymakers and well-intentioned industry actors.

“Nobody should have to worry that decades of hard work to set their children up for a better life might get derailed by one unaccountable actor erroneously undervaluing their home when it’s time to sell,said Jesse Van Tol, President and CEO of the National Community Reinvestment Coalition (NCRC). “But that’s exactly what’s happened to some Black homeowners in recent years. And our research has suggested that appraisal bias may be a widespread problem – potentially even a systemic one. Until now, though, it’s been hard to get community advocates and appraisal industry stakeholders onto the same page, because appraisers operate in a regulatory shadow that thwarts such conversations. The FHFA’s new data throws some sunlight into that shade – which will hopefully jumpstart the kinds of productive conversations about policymaking that are only possible when all parties have a clear, objective set of facts to stand upon.”

As anecdotal evidence of racial bias in the appraisals industry has accumulated in recent years, policymakers and the public have not been able to draw firmer conclusions or identify appropriate reforms because they have not had precise or thorough data. Appraisals are not subject to the thorough disclosure requirements that govern other key moments in a family’s efforts to build wealth, such as mortgage reporting under the Home Mortgage Disclosure Act (HMDA). While fears of a systemic appraisal bias problem are supported by individual stories such as Terry Horton’s – and narrow probes like NCRC’s recent “mystery shopper” investigation of appraisals in Maryland – there has not previously been any strong, statistically sound tool for assessing the industry as a whole. 

The FHFA’s move helps illuminate that previously obscured picture. The sampled model of loan-level appraisal data significantly enhances understanding of how the appraisal sector is serving its customers at a vital moment in the generational wealth-building process.

The agency should go further, however. This initial data release takes a more cautious approach to privacy concerns than is necessary, and loses some statistical precision as a result. Property records, including values, sales transactions, liens and mortgages are historically considered public data in the United States. This is with good reason: A transparent market is a more efficient market. If we want to create an environment where renters have a fair chance at transitioning to homeownership, transparent data is a key element. 

Still, the new dataset expands greatly on the previous appraisal data available from FHFA. It includes tools allowing researchers to properly weigh the sample to extract more insight than ever before on property details such as size and amenities, neighborhood information on comparable sales and growth rate of the community. Information about the comparator homes used to calculate the appraised value, the time the home was on the market at the time of the appraisal and the contract price offer previously unavailable detail of the role of appraised values in maintaining the racialized gap in home values.

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