Appraisal bias has become one of the core fair housing issues of the day. President Biden created an interagency task force on Property Appraisal and Valuation Equity (PAVE), which released its report in March. The report devoted several pages to the importance of federal agencies doing a more effective job of sharing appraisal information with each other. But when it came to urging the release of much more data to the public, it came up short, endorsing small measures while flagging this as a possible path to pursue in the future.
Whether or not appraisal data should be made publicly available should not be a question that requires further debate. Much of what appears in an appraisal is already accessible in many jurisdictions through Open Data portals. Precisely what to release and how to protect privacy ought to be open to discussion, but not the fact that there should be much more transparency at every stage of the process. The Federal Home Mortgage Disclosure Act (HMDA) can serve as a role model.
HMDA provides individual loan application data on mortgages; this has fostered a more comprehensive and data-based understanding of the mortgage lending industry. Among other things, these have served as the underpinning of reforms that have led to dramatic increases in lending to traditionally underserved areas. HMDA data, along with other information, led to the famous Boston Federal Reserve Bank study that caused even Alan Greenspan to acknowledge discrimination in the nation’s mortgage market. Advocacy groups, regulators, academics, journalists and many others including the industry itself have used HMDA to identify profitable loans previously missed and negotiate many multi-million dollar community benefits agreements.
A national database on appraisals would have a similar impact on that industry.
A recent Freddie Mac study showed that the share of appraisals that are well below contract prices is much greater in Black and Hispanic neighborhoods than in white communities and among Black and Hispanic borrowers compared to white home purchasers. This is most instructive and belies the claim that appraisal bias is just the outcome of a few bad apples.
Reports based on individual appraisals, appraisal firms and appraisal management companies should be made available as that would allow the public to compare appraisers on a number of metrics including the share of appraisals a firm conducts in low-income and minority census tracts; the share of appraisals that have been challenged and for which ROVs (Reconsideration of Value) are requested and the outcome of those requests; the share of appraisals that are below the contract sale price and how that ratio varies by race and racial composition of neighborhoods and more.
Related to this, such data could be considered by any entity utilizing appraisal services. So cities, universities, hospitals, nonprofits of any kind, lenders or any private entity could create lists of preferred appraisers. Many jurisdictions already have preferred lists of contractors and vendors in efforts to steer more of their business to minority-owned, female-owned and veteran-owned firms.
Using the metrics noted above, preferred lists of appraisers could be developed. Much the way communities have MWBE and similar preferences, jurisdictions could also require firms receiving economic development subsidies who buy and sell property and utilize appraisal services to select from the preferred list. These approaches are also similar to “move your money” campaigns in which nonprofits use financial service firms that have good community reinvestment records.
Currently, the federal government requires lenders providing FHA loans to select appraisers from an approved list. These criteria could be added to what is currently required to be on that list.
There is no silver bullet that will solve the appraisal bias problem. But as Justice Louis Brandeis noted, “sunlight is said to be the best of disinfectants.” These related policy changes will provide incentives to the industry and help current appraisers who are serving traditionally underserved markets.
Squires is a research professor and professor emeritus in sociology at George Washington University. Goldstein is president of the Policy Solutions Group at Reinvestment Fund.