Housing Appraisals: Tackling Appraisal Bias for Fairer Home Assessments

Aug 16th, 2023


Homeownership, a cornerstone of the American dream, involves several crucial steps, including obtaining a mortgage. 


One key component of this process is the housing appraisal, a pivotal assessment that determines the value of a property. 


In this article, we will delve into what a housing appraisal entails, how it's determined, and shed light on the concerning issue of appraisal bias, particularly its impact on majority-Black neighborhoods. 


Let's dive into it!



Understanding Housing Appraisals

A housing appraisal is an expert evaluation of a property's value. It serves as a crucial piece of information for mortgage lenders, homebuyers, and sellers alike. 


Appraisals are conducted by certified professionals who inspect the property, consider its condition, location, and recent comparable sales in the area, and then arrive at an estimate of its market value. 


This value guides lenders in determining how much they are willing to lend to a buyer for the property. Therefore, an accurate appraisal is vital for both the buyer and the lender to ensure fair and well-informed transactions.



Factors Influencing Housing Appraisals

When it comes to determining the value of a property, appraisers take a holistic approach, considering a range of factors that can impact its market worth. Understanding these factors is essential for both homebuyers and sellers, as they provide insight into how appraisers arrive at their assessments. Let's explore the key elements that influence housing appraisals:


1. Property Size and Condition

The size and condition of a property play a pivotal role in its appraisal value. Larger properties typically command higher values due to the increased living space they offer. Appraisers evaluate the property's square footage, layout, and the number of bedrooms and bathrooms. Additionally, the overall condition of the property is crucial. Well-maintained homes with updated features and modern amenities are likely to receive higher appraisals compared to properties in need of repair or renovation.


2. Location, Location, Location

The age-old real estate adage holds true: location is a major determinant of a property's value. Proximity to essential amenities like schools, parks, shopping centers, and public transportation can significantly influence an appraisal. Properties in desirable neighborhoods with low crime rates and good school districts tend to receive higher valuations. On the other hand, homes located near noisy highways, industrial areas, or in neighborhoods with declining property values might face lower appraisals.


3. Comparable Sales (Comps)

Appraisers rely heavily on comparable sales, often referred to as "comps," to determine a property's value. Comps are recent sales of similar properties in the same or nearby neighborhoods. These sales provide a benchmark for understanding the local market and assessing how the property being appraised compares to others in the area. Appraisers consider factors like the size, condition, age, and features of the comps to arrive at a fair valuation for the subject property.


4. Unique Features and Upgrades

Distinctive features and upgrades can significantly impact an appraisal. Appraisers take note of any unique elements that set the property apart, such as custom-built additions, high-end finishes, or energy-efficient upgrades. These features can add value by making the property more appealing to potential buyers. However, it's important to note that not all upgrades guarantee a one-to-one increase in appraisal value, as appraisers carefully assess the overall impact of these features on the property's marketability.


5. Current Market Trends

The real estate market is dynamic and influenced by various economic factors, including supply and demand, interest rates, and local economic conditions. Appraisers consider these trends when evaluating a property's value. If the market is experiencing high demand and limited inventory, property values might be driven up. Conversely, during a buyer's market with increased supply and lower demand, property values might be more subdued.


6. External Factors

External factors beyond the property's control can also impact its appraisal value. These factors might include zoning restrictions, neighborhood developments, and even macroeconomic conditions. For example, if a new highway or commercial development is planned nearby, it could affect the property's value due to changes in accessibility and noise levels.



Unveiling the Appraisal Bias

While housing appraisals are intended to be objective assessments of a property's value, research has uncovered a troubling reality: appraisal bias. This bias has far-reaching implications, particularly for majority-Black neighborhoods. As we strive for equity in the housing market, it's imperative to shed light on these disparities and their detrimental effects.


A 2022 research by Brookings Metro reveals some disturbing facts:

  • Black neighborhoods are valued approximately 21% to 23% lower than their non-Black counterparts. This stark difference in valuations raises concerns about the underlying biases that contribute to such disparities.
  • Homes in majority-Black neighborhoods are 1.9 times more likely to be appraised under the contract price compared to homes in majority-white neighborhoods. This suggests a systematic pattern of undervaluation that negatively impacts Black homeowners.
  • The median appraisal value further highlights the severity of the bias. In majority-Black neighborhoods, the median appraisal is a startling 15% lower compared to homes in neighborhoods where less than 1% of the population is Black. Such a significant gap in appraisal values highlights the presence of systemic racial bias that cannot be ignored.


Related: NID Housing President: Profit Maximizing and Algorithms May Cause Racial Bias in Home Warranty Claims



How to Tackle Housing Appraisal Bias

Addressing housing appraisal bias is a critical step towards creating a fair and equitable housing market for all individuals and communities. As we've explored the disturbing statistics and systemic impacts of bias, it's important to take action. Here, we outline strategies that can help combat appraisal bias and promote fair property valuations:


1. Education and Awareness

Empowerment begins with knowledge. Educating homebuyers, sellers, and real estate professionals about the existence and consequences of appraisal bias is paramount. By understanding how bias can manifest and its impact on property valuations, individuals can make informed decisions, challenge unfair practices, and advocate for unbiased appraisals.


2. Diversification of Appraisers

Promoting diversity within the appraisal profession is crucial for addressing bias. Encouraging individuals from diverse backgrounds, including underrepresented communities, to become certified appraisers can bring new perspectives to the industry. Diverse appraisers are more likely to recognize and mitigate biases that might be overlooked by others.


3. Transparent Appraisal Methods

Implementing transparent appraisal methods can help mitigate bias. Appraisers should clearly communicate the factors considered in their valuations and provide data-driven explanations for their conclusions. This transparency not only builds trust but also allows for better scrutiny of appraisals, reducing the likelihood of unconscious bias affecting the process.


4. Regular Training and Continued Education

Appraisers should undergo regular training that addresses bias awareness and prevention. This training should cover both conscious and unconscious biases and provide strategies for minimizing their impact on valuations. Continued housing education ensures that appraisers stay up-to-date with best practices and are equipped to navigate potential biases in an evolving market.


5. Data-Driven Comparables

To counteract bias, appraisers should rely on data-driven comparables. Leveraging advanced analytics and technology can help identify accurate comparable properties without the influence of subjective biases. Data-driven methods can provide a more objective and unbiased approach to assessing property values.


6. Community Engagement

Engaging with communities that have historically been impacted by appraisal bias is essential. By listening to the experiences of homeowners and residents, appraisers can gain valuable insights into the unique qualities and attributes of neighborhoods. This engagement can lead to more accurate valuations that reflect the true worth of properties.


7. Policy Changes and Accountability

Advocacy for policy changes within the appraisal industry is vital. Organizations and regulatory bodies should enforce anti-bias guidelines and hold appraisers accountable for adhering to fair practices. Implementing consequences for appraisers found guilty of bias can act as a deterrent and promote equitable valuations.


8. Collaboration and Partnerships

Collaboration among real estate professionals, housing counseling agencies, community organizations, and policymakers is key to tackling appraisal bias holistically. By working together, these stakeholders can share insights, resources, and strategies to create lasting change within the industry.



Conclusion

Tackling housing appraisal bias requires a collective effort that spans across various levels of the housing market. As we commit to these strategies, we move closer to an equitable housing landscape where every property, regardless of its location or community, is valued fairly.


As the largest African-American HUD-approved National Intermediary of Housing Counseling and Education in the country, NID Housing Counseling Agency is at the forefront of advocating for fair housing practices. Our commitment to combating appraisal bias and promoting equitable home assessments is unwavering. Through our HUD-approved housing counseling services, including homebuyer education programs, post-purchase counseling, and foreclosure prevention, we empower individuals and communities to navigate the housing market knowledgeably and confidently.


If you're interested in learning more about our efforts to combat appraisal bias and promote equitable housing, don't hesitate to reach out to us at (510) 268-9792 or send an email to [email protected]. Together, we can make a meaningful impact and create positive change within the housing industry.

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