Racial bias often creeps into home appraisals. Here's what's happening to change that
Years of homeowner horror stories and a growing body of research has cast a harsh light on how frequently racial bias can skew home appraisals. It's an industry that's dominated by white men whose methods for valuing homes haven't changed much in decades.
Now there's an intensified a push to diversify and to revamp the appraisal process in ways supporters say could limit this discrimination.
The pressure comes from allegations like those of Tenisha Tate-Austin and Paul Austin, who announced a legal settlement last week over what they believe was a racially biased appraisal. The Black couple were shocked in 2020 when a white appraiser valued their home in Marin City, Calif., at only $995,000 — far lower than a previous assessment. Tate-Austin recently told a federal panel how they scheduled a do-over with a white friend posing as the owner.
"Our friend Jan brought over a family photo," she said. "We took down our family photos and replaced artwork so there was no trace of us in our own home, a term often referred to as whitewashing."
That appraisal came in at $1,482,500.
Homeownership is the biggest source of wealth for many families, but a long history of racism in real estate has shut out many Black, Latinx and other families of color. The Biden administration has pledged a wide range of actions to tackle appraisal bias.
Change is also happening within the industry, as appraisers seek ways to replace judgment calls with concrete data, and even reconsider whether an appraiser needs to visit a home at all.
It's a challenge to break into the field, especially for people of color
Appraisers need to have at least an associate's degree and to pass a national exam. But the biggest challenge, especially for people of color, is finding a supervisor who will take them on and provide the required 1,000 hours of field training.
"Oftentimes with appraisers you hear, 'Well, why would I hire somebody just to take my business?' " says Jack Sonceau, an appraiser in Maryland. He's Black and got into the industry through a family connection.
The apprenticeship system is a big reason why there's long been so many fathers training sons. And that helps explain why today, some 90% of U.S. appraisers are white and two-thirds are male. The field is also largely older and shrinking.
Sonceau makes a point of mentoring, and on a recent day he was letting his current trainee, Devin Minnis, take the lead as they went room to room inspecting a Baltimore rowhouse. Minnis says he's lucky to have a supervisor who's Black like him.
"I knew that I was getting into a very underrepresented industry," he says. "But I did appreciate that I was coming into an industry that is supposed to operate from an impartial, unbiased, data-driven aspect."
It's unlawful to discriminate, and it's not clear exactly how much undervaluation is due to appraiser bias. But Sonceau says it can certainly creep into an appraisal report, intended or not, and he's keenly aware of the potentially devastating consequences for Black homeowners.
"It could maybe cost me not to be able to refinance my house," he says. "Well, now I can't refinance my house, I can't send my kid to college."
Ayako Marsh Miranda is a longtime appraiser in the Washington, D.C., area. As a Black woman, she says, "I represent 0.7% of all appraisers across the country."
She's glad that half a dozen states now require bias training, but she and others would like a federal mandate. White appraisers can also learn more about fast-changing Black neighborhoods they might not visit as much, Miranda says, and that's crucial because choosing which nearby home sales, or comps, to include in an appraisal report is key to reducing bias.
"A comp that I wouldn't use even 10 years ago, I may use now," she says. "So you really have to stay up to date on the changing of the neighborhood, and are you holding on to those old biases that you had 10, 15, 20 years ago."
To be sure, no appraiser interviewed for this story thought that a more diverse workforce is a silver bullet that can dramatically change the outcome of appraisals. All of them said that while there are biased individuals, the larger problems are structural. But they agreed the industry's lopsided demographics demand an aggressive push to bring in younger people and those of color.
The industry is trying to diversify through recruitment and virtual training
To that end, a professional association called the Appraisal Institute holds recruiting workshops and has provided scholarships for hundreds who want to get licensed. That includes Rosemary Garcia, who recently left a career in IT to train as an appraiser in Tempe, Ariz.
Garcia grew up with a single mother in rented apartments, and she made it an early goal to own real estate and build wealth. When she discovered there was a dearth of women of color in the appraisal field, "it just empowered me even more," she says. "This is my passion."
The Appraiser Diversity Initiative is helping fund the 75 hours of education Garcia needs, including textbooks and a special calculator. She's also grateful for weekend classes and an adviser.
To help with the challenge of finding a supervisor, later this year the institute will also help launch a way to get training hours virtually.
"It's having a 3D rendering of a property in front of you, which you can walk up to and measure various surfaces and cabinets and floor coverings ... much as you would in the real world," says Craig Steinley, the institute's president.
The experience will include mentors, and Steinley says it could be especially helpful in places where there's a shortage of appraisers.
The Appraisal Institute is also co-sponsoring a new real estate appraisal class at American University. It's a pilot, with plans to expand to Atlanta and its many historically Black colleges.
The instructor, Ericka Simmons, one of very few Black female appraisers in commercial real estate, says having more diversity can help educate those already in the business, even on seemingly small things. For example, a white colleague recently asked her to review his appraisal report. It used the term "inner city," which she suggested changing to "downtown."
"Just being around someone, you have different conversations you wouldn't have, right?" Simmons says. "Maybe you shouldn't use that word. This is what the connotation might be communicating to the reader."
Trying analytics and AI to overcome "a huge problem with data"
An even more effective check on possible bias might be updating the technology appraisers use to gather data. That's because even something as simple as calculating square footage is not as straightforward as you'd think.
"I was taking customers from apartment A to apartment B, and the offer sheet would say they're both 2000 square feet," says John Liss, who runs an appraisal company called True Footage and began working as a real estate agent in high school. "You'd be shaking your head leaving and saying, 'There's no way these things are the same size.' "
When it comes to an appraisal, he says there's a lot of room for variation, depending on how someone rates things like a home's condition, the value of an asset like marble countertops, or how much nearby homes are worth. If an appraisal comes in lower than a contract price, it can mean a big financial loss for people counting on that bank loan.
Liss says he's long believed the real estate industry has "a huge problem with data." He created his company two years ago and runs it out of his home in South Austin, Texas. A key goal is providing more precise, objective information — standardizing data where possible so there's less subjectivity in the numbers.
The company has developed two software programs designed to help pick the most appropriate recent sales for comparison. Fair housing groups say bias toward a certain neighborhood can show up in these comps, something that was at the heart of the lawsuit by Tenisha Tate-Austin and her husband in California.
Over a Zoom interview, Liss shares his screen to show how one program analyzes a local market. It lists things like the share of homes for sale, how many days they spent on the market and whether sellers paid for any closing costs.
"Hey, here's how fast or here's how slow the market's moving at this given moment, and here's what you should do for your time adjustments," he says.
Time adjustment means calculating older sales prices to match current market prices.
Still, Liss says the detailed analysis is not perfect.
The legacy of redlining — when banks refused loans to families of color — means that even today home prices in Black neighborhoods are lower overall. And Liss says current guidelines encourage appraisers to pick nearby comps from within those redlined areas, essentially baking in the racism. By contrast, research finds that in white neighborhoods appraisers tend to use comps from farther away.
To counter redlining's impact, Liss is experimenting with artificial intelligence to see if it can choose more appropriate comps. As he sees it, sticking to one neighborhood is outdated because most buyers scout homes in several places. By including multiple neighborhoods, he says, "you can remove a portion of redlining and provide a more credible valuation."
Taking the appraiser out of the home
Another source of bias is that "appraisers historically have been in complete control of how they present the subject property," says Scot Rose, chief innovation officer of Class Valuation, a large appraisal company based in Michigan.
Imagine there's a gas station right across the street from a house that's being appraised, he says. In the old days before Google maps and such, an appraiser who wanted to boost that property's value could simply choose not to take a photo of the gas station.
These days, Class Valuation is taking a number of steps to remove appraisers' control of information, starting with calculating square footage. Chief Digital Officer Tim Staudenmaier says it's surprisingly difficult to do and can vary from person to person. "Do they round to the nearest foot, to the nearest six inches? Is the tape measure sagging, or are they using laser measurement?" he says.
To get around that, the company uses 3D scanning. Staudenmaier demonstrates at his home, sliding an iPhone with laser imaging into a rotor gadget, which spins in a circle atop a tripod. "In every room of the house, we capture a 360-degree image," he says. "It's capturing about 180 still images, which get stitched together."
It's the same technology that creates virtual tours on some real estate listings. Rose says it also produces data that's precise, transparent and consistent.
"You can send five different people out to the property with very little training at all, and you're going to get the same five results from each of those visits," he says.
In fact, since little training is needed, the company actually sends a technician to measure homes and then share that data with the appraiser. That's more efficient, as appraisers can produce reports more quickly — a major help during the pandemic homebuying frenzy.
And Rose says there's another benefit when the appraiser doesn't have to go out and meet the homeowner. "Why not just remove the appraiser completely from that interaction, avoiding for any potential bias that may come through," he says.
Liss of True Footage also prefers that his appraisers not make home visits. Trainees take the photos, and any images that might reveal the homeowner's race are blurred before the appraiser sees them.
Lenders don't always allow this kind of appraisal. But the mortgage giants Fannie Mae and Freddie Mac have been testing them on a trial basis.
It's not clear how much difference all these changes might have, and plenty of other factors can contribute to the undervaluation of Black and Latinx homes. But many appraisers hope that by modernizing the field they can produce a process that's more fair and builds more trust in what they do.
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