Racial Bias by Appraisers Is Uncommon & Not Systemic
Intentional and unintentional racial bias by appraisers on refinance loans is uncommon and not systemic…
On January 4, 2021, the American Enterprise Institute (AEI) published a study titled “How Common Is Appraiser Racial Bias? An Analysis Using Big Data to Determine Whether It Is Common or Uncommon that an Appraiser’s Knowledge of an Applicant’s Race Results in Valuation Bias“. They concluded allegation that knowing the race of the applicant results in racial bias by appraisers on refinance loans is uncommon and not systemic. This same analysis supports the conclusion that unintentional bias based on race is also uncommon and not systemic.
- Recent examples in media (NYT, Denver News Channel 7, or Chicago Sun) show cases of appraisal 1 coming in an average of about $126,000 or 25% lower than appraisal 2.
- These claims of bias were all based on an allegation that a human appraiser was aware of the applicant(s)’ race either from a meeting or photos or other items in the home which indicated race and as a result, the appraiser underestimated the property’s value.
- The implications of these three stories are that intentional and perhaps unintentional appraisal bias is commonplace and the valuation gaps are large.
- We use the following data:
- Collateral Risk Network’s (CRN) survey of Appraisal Management Companies and Lenders,
- Home Mortgage Disclosure Act (HMDA) data on denial rates, and
- National Housing Market Database consisting of:
- Public records data, Automated Valuation Models, National Mortgage Risk Index using agency loan data, including use of appraisal waivers, and HMDA data.
- Here we examine the gap within the each group between the Refi human appraisal and the Waiver.
- Whites with a human appraisal get 0.8% lower value than Whites with a refi waiver and this result is highly statistically significant (at 1% level).
- Whites serve as the control group because their appraisals should not be biased and the Waiver is in theory color blind.
- Blacks with a Refi human appraisal get 1.4% lower value than Blacks with a refi waiver appraiser. However, this result is not statistically significant at the 5% level, with a confidence range of +0.3% to -3.2%.
- The difference between the White and Black groups is 0.6%, basically the same as for the AVM and the Pair approaches.
- This result further supports our conclusion that intentional and unintentional racial bias by appraisers on refinance loans is uncommon and not systemic.
Needless to say, we agree with their conclusion!
- Eroding Consumer Protection - March 29, 2023
- Dear Representative, FNMA Has Gone Rogue! - March 27, 2023
- AQB Initial Fair Housing Course - March 23, 2023
My sincerest thanks for being a light that shines down on me. Can’t wait to see the other side try to refute the findings. I for one am going to keep this with me at all times.
Stop watching network news and reading biased newspapers, they lie. Have done since the Vietnam war. I will not take any courses on racial bias, to do so admits there is bias in appraisal. I would also be very offended if someone called me a racist, and would have to make them prove it in court.
We all have our approaches.. Having been accused of possible doing that disgusting issue, I cannot see spending so much money to take them to court. (wish I could) With all the frivolous lawsuits that will be presented to appraisers nationwide, I am saving my money for defense if needed. I feel confidant I will be cleared by my Board, that alone will tick them off enough to possible attack me in civil court. In which case the information presented in this article will come in most handy. We keep our heads up and move forward……..
Considering being white in the state of California means your a minority, does this mean the racial/skin color sword cuts both ways? As they are the minority, can a white person claim racial bias it they think their appraisal is low? Serious question, is it a minority thing, a skin color thing, or do you have to meet both requirements to claim injustice? Asking for a friend.
Seek the truth!!!!!!
The racist boogie man, again? Somebody turn the channel, this programming stinks! Agreed, pass on the class. Not only is the mechanism for forcing such a mock quasi CE class much more complex than the talking heads may realize, we will still have the option to pay a fine instead. Up next for appraisal industry ‘reform’; color coded regulations.
Did you hear the one about “Condos and Townhouses – You’re comparing apples to oranges”, if you didn’t, you soon will?
Seek the truth.