Thousands of Home Appraisals May Contain Racially Biased Language, Federal Regulator Finds

FHFA found home appraisers making references to the neighborhood’s racial demographics in their assessments of a home’s value.

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Despite policies meant to bar race-related bias in assessing property values, many home appraisers continue to make references to the neighborhood’s racial demographics in their assessments of a home’s value.

That’s the takeaway from an examination of millions of property valuations conducted by the Federal House Finance Agency, the main regulator that oversees Fannie Mae and Freddie Mac. It’s the latest indication of how widespread racial bias in home appraisals may be. The FHFA is part of an interagency taskforce reviewing the role that such bias may play in housing inequity. A recent study from Freddie Mac found that 12.5% of homes in Black neighborhoods were valued below the contract price, compared with just 7.4% of homes in white neighborhoods.

The FHFA’s review of appraisals focused particularly on what appraisers wrote on appraisal forms in free-form fields related to neighborhood descriptions and other attributes.

“From millions of appraisals submitted annually, a keyword search resulted in thousands of potential race-related flags,” FHFA senior examination specialist Chandra Broadnax and FHFA associate director James Wylie wrote in a blog post Tuesday.

Many of these references did end up being false positives, they noted, but they published a series of examples of language that appraisers used that made clear reference to race, ethnicity or other protected classes. For instance, multiple appraisers cited the demographic profiles of neighborhoods, including the area’s racial make-up or the percentage of the local population composed of immigrants.

One appraiser noted that a nearby shopping plaza featured ‘storefronts supplying Jewish Households,’ while another referred to an area with a growing immigrant population as ‘one spicy neighborhood.’

One wrote that an area was “originally founded as a whites-only city or sundown town” but had become “fairly diverse” with a “diverse school system.” Other appraisers noted how a neighborhood’s population had changed over time, citing gentrification.

Other examples the FHFA highlighted included an appraiser who noted that a nearby shopping plaza featured “storefronts supplying Jewish Households,” while another referred to an area with a growing immigrant population as “one spicy neighborhood.”

The report didn’t indicate whether appraisals that contained potentially biased language had lower appraisal values.

Broadnax and Wylie wrote in their blog post that the appraisal industry could combat this avenue for bias by providing more guidance on how appraisers should use the free-form text fields on appraisal forms.

“By updating industry norms on the type of neighborhood information that is appropriate to include and moving neighborhood descriptions away from the examples we shared above, we can begin to establish more equitable assessments that ensure fair and unbiased property valuation for all,” they wrote.

The interagency task force on appraisal bias is set to provide recommendations to the White House early next year, with information on the causes and consequences of property misevaluation throughout the country.

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