The National Community Reinvestment Coalition (NCRC) recently filed two complaints against appraisers with the Department of Housing and Urban Development asserting different treatment based on race in violation of the Fair Housing Act. One complaint asserts different service levels based on race, and the other asserts different home valuations based on race, with White individuals receiving better service or home valuations than Black individuals.

The related report is entitled Faulty Foundations: Mystery-Shopper Testing in Home Appraisals Exposed Racial Bias Undermining Black Wealth.  As the title would suggest, the report addresses tests involving mystery-shopping regarding appraisals conducted by the NCRC.  The tests were conducted in the Baltimore, MD metropolitan area in 2021 and 2022 and included four interracial couples—one spouse was Black, and one spouse was White.  Two or more appraisals were conducted of each of their homes, and in some cases only the Black spouse was present for the appraisal and all indications that a White individual lived in the home were removed, and in other cases only the White spouse was present for the appraisal and all indications that a Black individual lived in the home were removed.  The report addresses the results of the testing that formed the bases of the two complaints that the NCRC filed with HUD, and the results of other testing. 

In the complaint regarding different service, the NCRC asserts that an appraisal of a home presented as being owned by a Black individual was performed on April 14, 2022. The NCRC also asserts that (1) on April 26, 2022, the NCRC employee who ordered the appraisal called the appraiser and left a message inquiring when the appraisal report would be received and the call was not returned, (2) the appraiser never contacted the homeowner regarding the status of the appraisal report, and (3) the appraisal report was provided on June 28, 2022.   The NCRC also asserts that (1) the same appraiser was engaged to perform an appraisal of a home presented as being owned by a White individual on June 14, 2022, (2) the appraiser emailed the homeowner on June 23, 2022, to advise that the appraisal report should be ready by the beginning of the next week, and (3) the appraisal report was provided on July 1, 2022.  (With the home presented as being owned by a Black individual, the appraiser actually provided a valuation that was $5,000 higher than the valuation provided by another appraiser with the home being presented as being owned by a White individual.)

In the complaint regarding different valuations, the NCRC asserts that in November 2021 it ordered two appraisals of the same home from different appraisers. The NCRC also asserts that (1) with one appraisal, conducted by the appraiser that is the subject of the complaint, the home was presented as being owned by a Black individual and the appraised value was $310,000, and (2) with the other appraisal the home was presented as being owned by a White individual and the appraised value was $350,000. The NCRC adds that in June 2022 it had two additional appraisals of the home performed, with appraised values of $370,000 and $380,000.  In August 2022 the NCRC engaged the appraiser that is the subject of the complaint and another appraiser to perform appraisals on another home. The NCRC asserts that (1) with the appraisal performed by the appraiser that is the subject of the complaint, the home was presented as being owned by a While individual and the appraised value was $553,000, and (2) for the other appraisal the home was presented as being owned by a Black individual and the appraised value was $507,000.  The NCRC adds that four additional appraisals of the same home were performed, and that range in the five valuations performed by other appraisers was $460,000 to $510,000, with the $553,000 valuation by the appraiser that is the subject of the complaint being the last and highest of the appraisals. The NCRC asserts that the appraiser that is the subject of the complaint rendered higher valuations if a home was presented as being owned by a White individual.  (The NCRC does not indicate with the other four appraisals if the home was presented as owned by a Black or White individual.)

In the report, the NCRC advises that seven tests were conducted in which full appraisals of the same home were performed with the home being presented as owned by a Black individual and being presented as owned by a White individual. The total valuations of the homes when presented as being owned by a Black individual was $2,377,000, and the total valuations of the homes when presented as being owned by a White individual was $2,418,000. The total valuation difference of $41,000 reflects an average difference of about $6,833. However, the report reflects that with three of the tests, the valuation was higher when the home was presented as being owned by a Black individual, and with another test the valuation was $500,000 when the home was presented as being owned by a Black individual and $510,000 when the home was presented as being owned by a White individual.

In the report, the NCRC addresses the service provided by another appraiser (not the appraiser who is the subject of a complaint) who was engaged to appraise two homes, one presented as being owned by a Black individual and one presented as being owned by a White individual.  With regard to the home presented as being owned by a Black individual, the NCRC advises that when contacted after visiting the home, the appraiser said that an appraisal report had been sent by email, although no report was received at the time, and in the end the appraiser would not respond to contact attempts and never provided an appraisal report. With regard to the home presented as being owned by a White individual, the NCRC advises that the appraiser provided an appraisal report and did not engage in unprofessional conduct. 

The NCRC makes the following recommendations in the report to address appraisal bias, several of which are similar to recommendations made by federal government agencies in the Property Appraisal and Valuation Equity action plan issued earlier this year:

  • Conduct more testing of appraisers.  In particular, the NCRC notes that the tests it conducted were limited to comparing appraisals with Black and White homeowners, and that tests can be expanded to include Latino and Asian homeowners. 
  • Create incentives for the appraisal industry to recruit a more diverse appraisal pool.  The NCRC cites the Bureau of Labor Statistics in noting that 97.7% of real estate appraisers are White, and that 69.6% are men.
  • Require appraisers to report on the demographics of their clients and the values they assign to their clients’ homes.
  • Create a more meaningful process for the reconsideration of appraisals.
  • Require fair lending training in the licensing process for appraisers.
  • Increase funding for enforcement resources.
  • Issue industry standards for fair appraisals. 

We recently reported on the Federal Fair Housing Agency addressing appraisal bias as reflected in the Uniform Appraisal Dataset (UAD) Aggregate Statistics Data File and Dashboard.