How Homeowners Can Address Appraisal Discrimination

As interest rates fell and home prices rose last year, Carlette Duffy of Indianapolis applied to refinance her mortgage and got a gut-punch of a surprise when the appraisal came in.

Duffy estimated her home was worth $185,000, but the appraisal ordered by the lender valued her home at $125,000. She purchased a market analysis, which suggested a list price of $187,000, and she challenged the appraisal, but the valuation wasn't changed.

Then she tried with a different lender, but another appraisal valued her home even lower, at $110,000. Again, Duffy challenged the appraisal without success.

A few months later Duffy, who is Black, applied with a new lender, but this time she didn't reveal her race or gender as she had before, and when assigned an appraiser, she interacted only by email. She removed evidence of her racial identity in her home — photos of herself and her family, African American books and artwork — and asked a white friend to pose as her brother to greet the appraiser.

The new appraisal came in at $259,000, more than double the other two valuations. After her mortgage refinance loan closed, Duffy contacted the nonprofit Fair Housing Center of Central Indiana and in May filed complaints with the U.S. Department of Housing and Urban Development, alleging that she had been discriminated against in the appraisal and lending process.

Appraisal bias reports are on the rise

The HUD Office of Fair Housing and Equal Opportunity has received a tenfold increase in appraisal-related discrimination reports since 2019, said Alanna McCargo, HUD's senior advisor for housing finance, in a recent roundtable on appraisal bias hosted by the Consumer Financial Protection Bureau. "These issues span not only the valuation outcomes that are disparate for people of color but also involve specific appraiser practices and methods, automated valuation approaches, lending requirements and the diversity of the appraisal industry itself and the employment practices and requirements," she said.

For many decades, homes in majority-Black neighborhoods have been valued lower than those in white neighborhoods, due in part to the lingering effects of redlining. Although this discriminatory practice was banned more than 50 years ago, a 2018 Brookings Institution study found that similar homes were worth 23% less in majority-Black neighborhoods, compared with areas having few or no Black residents.

But the problem of equitable valuation isn't limited to similar houses in particular areas. A slew of news stories in the last year have highlighted instances like Duffy's in which the exact same property was appraised for more when its Black homeowner hid evidence of their race.

While these reports are new, the notion of "whitewashing" a home to get a fair value has a long and painful history.

"The conventional wisdom in the Black community is if the house is seen as race neutral, it has a better opportunity for selling at a higher price or appraising at a higher price," says Jillian White, head of collateral at Better, an online mortgage lender.

"What's happening now is it's coming to the forefront with Black homeowners speaking about the lengths they're going to in order to get a fair appraised value," adds White, who is among the less than 2% of U.S. appraisers who identify as Black.

What’s being done to bring about change

The media reports about alleged appraisal discrimination have raised concerns across government, the real estate industry and fair housing groups.

"When a home receives an under-appraisal, it has a domino effect on the homeowner and on the surrounding community," CFPB Acting Director Dave Uejio said at the roundtable. "The homeowner will have more difficulty securing favorable mortgage rates for refinancing. The household suffers a significant loss in net worth, and the neighborhood comparables are lower, and on and on."

As part of a broad plan to narrow the racial wealth gap, on June 1, 2021 the Biden administration called on HUD to lead an interagency initiative to address inequity in appraisals.

National appraiser groups have pledged to work together to address unconscious bias in appraisals, and their professional organizations are working on recruiting for greater diversity and providing mentoring and other support. Among real estate appraisers, 78% are men, 71% are age 51 or older, and 85% are white, according to 2019 figures from the Appraisal Institute.

Breaking into the industry is challenging. After finishing the required education, appraisers must complete a certain number of hours under a supervising appraiser to become certified. Finding that supervisor is tough for newcomers who don't know anyone in the field. "That's where most incoming talent gets stuck," White says.

As a lender, Better is tackling the problem by hiring its own appraisers with an emphasis on diversity and providing supervision for new candidates to get their field experience, she says.

Understanding the appraisal process

These national efforts will take time. Meanwhile, homeowners aren't powerless. A first step is to understand the appraisal process.

Appraisers use standard methodologies to give a professional opinion of property value, and it's against the Fair Housing Act of 1968 for home appraisers to discriminate based on someone's race, color, religion, sex, disability, family status or national origin.

"When we see even one story of a consumer who feels they were treated differently because of their race, it’s very concerning because that goes against everything we stand for," Appraisal Institute President Rodman Schley said via email. "Appraisers take a lot of pride in being an objective source of real estate value information. We look at the numbers and facts and mirror what the market tells us."

Unconscious bias can creep into the process because a home appraisal is part art and part science, White says.

"The science aspect of it is the appraiser is going to compare that particular property to other similar properties in the area," she says.

The art involves making choices, such as which comparable sales in a neighborhood to use, and deciding the precise adjustments to the value based on the home's characteristics. Unconscious bias can influence the judgment calls an appraiser has to make, White says: "Every appraiser knows that we have a lot of discretion; we have a lot of choices to make. … All these small choices add up and culminate in a value that could be at the higher end or at the lower end."

» MORE: Ways to strengthen your home's refinance appraisal value

Beware of the emotional costs of 'erasing yourself'

In light of reports of homeowners receiving higher appraisals after hiding the fact that they’re Black, homeowners of color may wonder if they should remove evidence of themselves from their homes before getting appraisals.

But erasing your racial identity is time-consuming and can have long-term emotional costs. "The woundings associated with it don't go away — even after the exercise is done," White says. She recalls how her family took down all potential racial identifiers when her parents prepared to sell their home years ago.

"One of the pictures I had to take down was my baby brother's kindergarten graduation photo," she recalls. "When I think about that photo to this day, I get a lump in my throat. Because it was OK for me to erase myself, but erasing him ... God forbid if he asked a question, 'Why are my photos coming down?' What do you say to that?"

"Erasing yourself is not a long-term solution for Black America in order to get fair appraisals," she adds. "That can't be the answer."

Carlette Duffy obscured her race as a last resort only after getting what she thought were unfair appraisals. Duffy rejoiced when she got the higher appraisal on her third try, but her heart sank at the implications.

"It just shatters you," she says. "Not only do you not have value, but everything that you are associated with is immediately devalued because you are associated with it."

Shop for a fair lender

The lender hires the appraiser when you apply for a mortgage, so keep that in mind when shopping for lenders. Ask friends and family for recommendations. What were their experiences like through the lending process, including the appraisal?

Schley recommends asking the lender for the qualifications and professional designations of the appraisers it works with.

"The best way to combat potential problems with appraisals is to ensure the appraiser hired by your lender is highly qualified and competent," Schley said. "You have every right to demand the use of a highly qualified appraiser, someone with field experience in your market and knowledge and experience to handle the assignment properly."

Appraisal too low? Submit a Reconsideration of Value

The mortgage lender is required to send you a free copy of the appraisal report at least three days before the loan closes. The report details what the appraiser considered when valuing the property. If you think the valuation is wrong, you have the right to submit a Reconsideration of Value, or ROV.

The process to dispute an appraisal varies by mortgage lender, but generally you'll submit written information to the lender with evidence to support your case. The lender will ask the appraiser to address the concerns, and this could result in a revised appraisal.

Most ROVs don't lead to an adjustment of value, and of those that are adjusted, the changes in value are usually small, White says.

But it's still important to pursue an ROV if you think the appraiser got it wrong. Here are some tips for approaching it:

• Scour the report and look for errors, missing information and judgments that may be contestable.

• Check the comparables used — values of similar, nearby properties used for comparison. You may suggest other comparables, but make sure they can compete with those listed in the report. Generally the comparables should be similar in size and style to your home, within one mile (although the definition of proximity varies depending on the market) and preferably sold within the last six months, White says.

• Focus on big issues that are likeliest to move the needle, such as the condition and quality rating of the home. Often in ROVs, homeowners zero in on small things they think are important, but aren't of significant appraisal value. For example, a homeowner might argue for a higher value because a room in the basement should count as another bedroom. "They don't realize we can't count bedrooms in the basement the same way we count above-grade bedrooms," White says.

Suspect discrimination? File a complaint

You can file a complaint with a state or federal agency if you think you've been discriminated against in an appraisal.

Here are some places to turn:

Consumer Financial Protection Bureau

If you think a lender discriminated against you, including by relying on an unfair appraisal, you can submit a complaint to the CFPB.

"Undervaluation of homes based on race helps drive the racial wealth divide," Patrice Alexander Ficklin, the bureau's fair lending director, wrote in a July blog post. "At the same time, overvaluation of homes can also put family wealth at risk and lead to higher rates of foreclosure. Ensuring that the appraisals used to make lending decisions are accurate and free from bias is essential if families of all races and income levels are to prosper and pursue successfully the American dream of homeownership."

Appraisal Complaint National Hotline

The Uniform Standards of Professional Appraisal Practice establishes minimum standards for appraisers; and then the states, which license appraisers, enforce the requirements. If you think an appraiser discriminated against you, you can file a complaint with the state agency that regulates appraisers.

To find out which agency to notify, contact the Appraisal Complaint National Hotline operated by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. The hotline doesn't handle the complaints but will refer you to the appropriate authority. You can fill out a form on the website or call 877-739-0096.

Fair housing center or HUD

You can file a fair housing complaint directly with HUD's Office of Fair Housing and Equal Opportunity, or hire an attorney to file a complaint and represent you.

You can also get help through your local fair housing center. These organizations receive funding through HUD's Fair Housing Initiatives Program, conduct preliminary investigations and help people navigate the complaint process. The services are free.

"We help determine if there's evidence to support their claim so when they move forward into enforcement action, they're moving with that evidence already packaged and put together, whether for an attorney or for that administrative process," says Amy Nelson, executive director of the Fair Housing Center of Central Indiana, which assisted Duffy with her claim.

It's important to act promptly. You have a maximum of one year from the last date of the alleged discrimination to file a fair housing complaint with HUD.

Duffy's complaint is under investigation. If the parties can't resolve the complaint through a voluntary agreement, HUD will determine whether there's reasonable cause to believe discrimination occurred, Nelson explains. If HUD issues a charge of discrimination, the case may go before a HUD administrative law judge or to a U.S. District Court.

The reason Duffy applied to refinance her home last year was to take some cash out of her home equity to apply toward purchasing her late grandmother's home. She wanted to keep the property in the family. The memory of her grandmother, who kept up with the mortgage as a single working mom after a divorce, inspired Duffy throughout the long process.