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FOS Blog

18 Mar

Appraisal Bias

Appraisal Bias

An African American couple purchased a home and worked hard to fix it up.  They sought to refinance, and the bank ordered an appraisal.  Normal process, right?  Then comes the kicker.  A Caucasian appraiser valued the home at $995,000.  The couple thought the property was grossly undervalued.  They asked for a new appraisal, but this time they asked a Caucasian friend to show it and “white-washed” the home by removing any African American photos or artwork.  This time, it was valued at $1,482,500 – nearly $500,000 more.  The couple sought the help of the nonprofit “Fair Housing Advocates of Northern California” and filed suit against the first appraiser.

This is not an isolated case.  In a report from the Bookings Institute, they cite:

“Through the prism of the real estate market and homeownership in Black neighborhoods, this report attempts to address the question: What is the cost of racial bias? This report seeks to understand how much money majority-Black communities are losing in the housing market stemming from racial bias, finding that owner-occupied homes in Black neighborhoods are undervalued by $48,000 per home on average, amounting to $156 billion in cumulative losses.”

The DOJ and HUD filed a “Statement of Interest” in the case first mentioned, mainly because the defendant is saying that FHA does not apply to appraisers. The FHA clearly prohibits housing discrimination based on race, color, religion, sex, familial status, disability, and national origin.  Furthermore, it is unlawful to “discriminate against any person in making available [residential real estate-related transactions], or in the terms or conditions of such a transaction, because of race,” including “[t]he selling, brokering, or appraising of residential real property,” id. § 3605(a), (b)(2).

Then, in February 2022, the CFPB posted a blog attacking TAF (The Appraisal Foundation) who sets standards for appraisers, because appraisers may be unaware of federal discrimination bans.  They are holding TAF responsible for highlighting these important laws in appraiser training.

So, how is a bank to deal with all this?

Knowledge is power!  Educate yourself on the heart of appraisal discrimination.

In a report from FHFA – “Reducing Valuation Bias by Addressing Appraiser and Property Valuation” – they begin to address the issue.  They point to Fannie & Freddie resources that address studies and results and best practices.  It also highlights some appraisal phrases, that on the surface appear benign, but which can be discriminatory.

Review another report from the FFIEC Appraisal Subcommittee, just released in January 2022, entitled “Identifying Bias and Barriers, Promoting Equity.”  This one speaks more to USPAP Standards and Appraiser Qualifications.

Finally, include “appraisal bias” in your engagement letters and appraisal reviews to ensure your bank is not a participant in these practices.

Home ownership is every American’s dream!  It is the most valued asset, no matter your origins or ethic history, and is often the avenue to other venues of wealth. Shouldn’t we each have access to fairness and equality in that process?

For additional information contact the author at