Posted on March 29, 2022

Biden Administration Wants to Root Out Racial Bias in Home Appraisals — But Research Suggests It’s Endemic

Jacob Passy, Market Watch, March 28, 2022

The Biden administration has laid out a sweeping plan that aims to increase oversight of the real-estate appraisal industry in an effort to reduce the frequency of racially-biased home valuations.

Last week, the White House unveiled a far-reaching, 21-step action plan that it described as “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.” The plan was the culmination of an interagency task force that President Joe Biden announced back in June.


The action plan calls on government agencies, regulators and the appraisal industry to do the following:

  • Evaluate how existing laws including the Fair Housing Act apply to the appraisal sector.
  • Update policies for government loan programs, Fannie Mae FNMA, +0.83% and Freddie Mac FMCC, +2.34% to clarify what nondiscrimination requirements appraisers must follow for the mortgages these entities back.
  • Create guidance on what to do when an initial valuation is lower than expected, and improve consumer education regarding their rights in these situations.
  • Develop legislative proposals regarding creating a more modern governance structure for the appraisal industry.
  • Study the potential for racial bias in algorithms and technology-based valuation tools.
  • Update qualification criteria appraisers must meet in terms of education and experience and require anti-bias training.


The report received the backing and support of major trade groups across the housing industry. Leslie Rouda Smith, President of the National Association of Realtors, noted that her organization met with the task force behind the plan “to propose solutions.”


The Appraisal Institute, an organization that represents real-estate appraisers, said it was prepared to work with the Biden administration and government agencies.


Similarly, Mortgage Bankers Association President and CEO Bob Broeksmit welcomed the report’s release, but cautioned that government agencies should “provide ample notice and comment opportunities for stakeholders during the implementation process.”


The action plan cited recent research exploring the frequency and effects of racially-bias appraisals in laying out these objectives.

An examination of millions of property valuations released in December by the Federal House Finance Agency, the main regulator that oversees Fannie Mae  and Freddie Mac, uncovered “thousands of potential race-related flags” written in free-form text boxes on appraisal forms, among the millions of appraisals submitted annually.

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 FHFA report didn’t indicate whether appraisals that contained potentially biased language had lower appraisal values. {snip}

And 2018 report from the Brookings Institution estimated that bias accounted for a loss of $48,000 per home in majority-Black neighborhoods, adding up to roughly $156 billion in cumulative lost value nationally.


One change the FHFA was investigating was to allow appraisal waivers for certain refinance loans, or hybrid appraisals where a trained individual conducts the home visit and then relays the necessary data to an appraiser working from an office who ascertains the property’s value. {snip}

But industry experts warned that these changes could have negative outcomes, including for people of color.  “It’s mostly white, wealthy people who get a waiver, and minority and the affordable housing sector don’t get waivers,” Joan Trice, CEO of the Collateral Risk Network, an organizer of appraisers and risk manager, told MarketWatch in 2021. She argued that this could create a disparate impact, driving costs higher for minority mortgage applicants if appraisers need to make up for lost business.