|> The Appraiser Coach|
HUD Grants Millions to Test for “Racist” Appraisers
by Isaac Peck, Publisher
Appraisers following the “appraisal discrimination” issue may recall the mystery shopper experiment that the National Community Reinvestment Coalition (NCRC) conducted in Baltimore, MD in the Summer of 2022. (Read Appraisal Bias? The Inconvenient Truth of a Flawed Report.)
The experiment went like this: unsuspecting appraisers were hired to appraise properties that had been “whitewashed” or “blackwashed” (as the NCRC puts it), and then the appraisals were compared. The NCRC’s report conclusively reported that appraisers are “racially biased” and “undermine Black wealth” because in their total sample size of 12 appraisals, a 1.7 percent variance was noted between the “whitewashed” and “blackwashed” homes. NCRC then filed a series of HUD discrimination complaints against several of the offending appraisers.
The problem? The two most glaring examples of discriminatory appraisals performed in the experiment were performed by the same appraiser and that appraiser is Black. (We’ll have to see how the HUD discrimination complaint turns out!)
Furthermore, removing this one appraiser as a data point actually flips the data the other way and suggests that appraisers (on average) favor Black homeowners and assign their homes higher values.
Now, appraisers can expect to see more of this high-quality, selective testing.
In March 2023, the U.S. Department of Housing and Urban Development (HUD) issued $54 million in grants to 182 non-profit organizations to fight housing discrimination. Over $40 million of the total grants is dedicated to what it calls its Private Enforcement Initiative (PEI). The PEI provides dedicated funds to “non-profit fair housing organizations to “conduct intake, provide testing, and investigate and litigate fair housing complaints.”
One might assume these grants are focused on discriminatory housing practices more generally, but HUD’s press release makes clear that appraisal bias is a key focus of the $40 million in PEI funds. The sub-header underneath the announcement reads: “Ahead of [the] anniversary of PAVE Action Plan, some grants empower organizations to test for appraisal bias and educate local communities.”
HUD’s release applauds the PAVE Action plan as the most wide-ranging set of commitments ever announced to advance equity in the home appraisal process and specifies that “Eligible activities for the funding awarded today included testing for appraisal bias.”
For its part, the NCRC received $425,000 in funds specifically dedicated to its “Private Enforcement Initiative.”
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Working RE reached out to NCRC for a comment. We asked whether NCRC knew that the appraiser who performed the most glaring “anti-Black” appraisals (in their view) was, in fact, a Black appraiser and asked what they thought about the fact that if this appraiser’s data point was removed, their study actually showed that appraisers (on average) assign higher values to Black homeowners.
NCRC did not reply to Working RE.
Nevertheless, it is clear that NCRC considered its first experiment a glowing success.
In an online webinar, the Director of Fair Housing at NCRC, Tracy McCracken, argued that testing appraisers is an important goal going forward. “We that work in Fair Housing and Fair Lending know that testing will be essential to root out appraisers that discriminate,” McCracken said.
In the same webinar, both McCracken and Jake Lilien, NCRC’s Counsel for Fair Housing Enforcement, urged other Fair Housing organizations to run tests on appraisers and specifically recommended additional testing in Alabama, Georgia, Louisiana, Mississippi, North Carolina, and South Carolina.
“There are certain things I don’t want to say publicly about how we did the testing because who is to say we’re done testing appraisers? I have a feeling other groups may try to use our same practices and we don’t want appraisers to know what these practices are. So, I can’t necessarily share with you specific details about how we contacted appraisers, what excuses we gave, etc. But if you work for a Fair Housing organization, reach out to me and I’d love to talk to you,” Lilien urged.
Their methodology is so good, that they’re eager to share it.
And now HUD has put up $40 million to help make that happen. Be careful out there, appraisers.
About the Author
Isaac Peck is the Publisher of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at email@example.com or (888) 347-5273. CA License #4116465.
OREP Insurance Services, LLC. Calif. License #0K99465