NFHA and Interagency Task Force Issue Action-Oriented Reports to Address Bias in Appraisals

By: Hope Williams, Supervising Attorney

The first months of 2022 brought significant news impacting ongoing efforts to address the legacy of discrimination in housing appraisals. In January 2022, the National Fair Housing Alliance and its partners, Dane Law LLC and Christensen Law Firm, published a federally-funded report, entitled “Identifying Bias and Barriers, Promoting Equity: An Analysis of the USPAP Standards and Appraiser Qualifications Criteria.”

The report documented the structural challenges in the appraisal process and outlined specific recommendations to meaningfully address them, including:

• Examining the governance of the appraisal industry and including civil rights and consumer advocates on the Board of Trustees of the Appraisal Foundation, which promulgates appraisal standards.
• Specifically prohibiting discrimination in appraisal standards and incorporating quality, comprehensive fair housing training for appraiser licensure.
• Addressing barriers to entry in the appraiser industry to promote a more diverse pool of appraisers.
• Developing uniform standards for borrowers seeking to challenge appraisal values.

NHFA’s comprehensive examination of bias in the appraisal industry included an explanation of the historical policies that resulted in undervaluing of houses in neighborhoods predominately occupied by communities of color. The report described how appraisal guides and texts as late as the 1970s included explicitly discriminatory guidance associating risk in home valuations with race. The vestiges of these policies and practices continue to this day as exemplified by documented stories involving Black homeowners who received significantly higher house appraisals only after they removed evidence that they were Black from their homes, and had white friends or family meet with the appraiser. In addition to indications that the race of the current homeowner may impact appraisers’ valuations of houses, NHFA’s research also showed that discretion in the use of the sales comparison approach, in which appraisers use information from nearby properties with similar characteristics to inform a valuation, can involve the use of undervalued comparable sales from nearby neighborhoods of color resulting in lower home appraisals for the subject property.

On March 23, 2022, the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), formed by President Biden to address inequity in home appraisals, issued an “Action Plan to Advance Property Appraisal and Valuation Equity.” This report also documented evidence of appraisal bias in the United States housing market citing studies that show significant discrepancies in the home values in majority-Black neighborhoods when compared with neighborhoods with few or no Black residents—discrepancies that are not explained by other neighborhood characteristics and amenities. HUD Secretary Marcia L. Fudge, in describing her own experience with such inconsistencies, stated, “I live in an all-Black community. My lot and house are bigger, yet my home is valuated at $25,000 less than the house two doors from me, which is an all-white community.”

In recognition of the need to take direct aim at dismantling racial bias in the appraisal process and the role of creating generational wealth through homeownership, PAVE’s Action Plan outlines a set of commitments designed to address the mis-valuing of homes. These commitments include:

• Strengthening protections against unlawful discrimination at all stages of residential valuation through issuing guidance, updating appraisal-specific policies, improving the valuation reconsideration process, improving data collection, and other steps to improve transparency;
• Enhancing fair housing/fair lending enforcement by improving interagency collaboration to detect discrimination and enforce compliance;
• Building a well-trained and diverse appraisal workforce by examining the qualifications for entry in the field and requiring training on anti-bias and the application of the Fair Housing Act and fair lending laws for aspiring and licensed or certified appraisers;
• Empowering consumers to take action by making information about rights and options to make complaints or seek reconsiderations of valuations more accessible, as well as incorporating information about appraisal bias in homeownership counseling;
• Improving data for researchers to study and monitor valuation data.

To read the full NHFA report, please click here.

To read the full PAVE Action Plan, please click here.