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Unfair Home Appraisal? How to Fight Back Against Discrimination

US News & World Report -  Money logo US News & World Report - Money 4/14/2022 Erica Sandberg
Real Estate House Appraisal And Home Check © (Getty Images) Real Estate House Appraisal And Home Check

The home appraisal process aims to be fair and objective. By law, home appraisers should never consider race, national origin, gender or religion when estimating the value of a property. Yet homes in Black and Latino neighborhoods appraise for less than their contract price more often than in white areas, according to a recent analysis from mortgage buyer Freddie Mac.

A plan announced in March by the White House outlines actions to advance equity in home appraisals, such as increasing oversight and accountability of the appraisal industry. Homebuyers can also take steps to fight appraisal bias.

Here's why accurate home appraisals are important, how to identify appraisal bias and what to do if it happens to you.

Why Is a Home Appraisal Important?

A home appraisal is supposed to be an objective estimate of a property's fair market value and is typically part of buying, selling or refinancing a house. The appraisal prevents you from borrowing more than you need for a home and protects the bank from lending more than it can recover if you default on your mortgage.

"An accurate appraisal is important because it directly affects how much money goes in or comes out of your pocket," says Jude Bernard, a New York-based real estate entrepreneur and founder and executive director of The Brooklyn Bank, a nonprofit that teaches financial literacy to people of color. "When you are purchasing, an unfair appraisal can reduce the amount the bank is willing to lend you to purchase."

If you are refinancing and the appraisal is lower than expected, you may have to reduce the amount of cash you can pull from equity, wait to cancel private mortgage insurance or even postpone.

Bernell K. Grier, executive director of IMPACCT Brooklyn, a community development corporation, lives in one of the larger apartments in her cooperative building. When seeking refinancing for a renovation, the appraiser valued her apartment in the high six figures. Several of her neighbors applied for refinancing or sold their apartments and their appraisals came in within the low seven figures.

"They were white and East Indian, and I'm a Black woman," Grier says. "In the course of three months, why were my appraisals so much lower? We know that the real estate industry throughout the years has players that discriminate. So when I started to see the other numbers, I did think it may have been because of my race. It just made me question, was mine valued correctly and theirs overvalued?"

Signs of Appraisal Discrimination

Look for red flags that could indicate racial bias in your home appraisal, says Bernard, who notes that he has been a victim of biased appraisals.

Pay close attention to questions the appraiser asks, he says. "The first thing you should watch for is if the appraiser is trying to figure who you are in the transaction," Bernard says. "It is irrelevant who the person that lets them in is."

The appraiser's observations should only be about the home and not what's in it or who the owner is, Bernard says. "The appraiser is there to inspect the property, not interview you," he says.

If the conversation starts to get personal or the appraiser begins to assess things unrelated to the home's value, such as decorations or family photos, it may be cause for concern.

Try not to automatically accuse, though, says Todd Turner, a Los Angeles-based certified real estate appraiser.

"The problem is usually lack of knowledge in the immediate area or the appraiser's level of expertise, not bias or racial discrimination," Turner says. "Most minorities have that in the back of their mind, and I don't blame them. I'm Black.

"Many homeowners tend to go online and see a house that sold for a million and assume their home is worth a million as well," he continues. "There are many factors to consider, such as location, adverse conditions, living area, bedroom and bath count, lot size, view, and condition. You need an apples-to-apples comparison."

Can You Dispute Your Home Appraisal?  

If you believe your home was unfairly appraised, you can go back to the lender and ask for a reconsideration of value or request another home appraisal. A reconsideration of value is the process that allows a buyer or seller to dispute the appraisal value of a home.

You supply information supporting your reasons that the home should be appraised higher, including three additional comparable sales. If you're still unsatisfied, you may request a second home appraisal.

"There may be some discrepancy for things like a pool, where one appraiser will give it a $20,000 value and another will give it a $30,000 value," Turner says. "There is some subjectivity, but both appraisals should be fairly close in their appraised value."

Be aware, however, that a second appraisal means you will pay a second appraisal fee of at least a few hundred dollars. That can be tough when you're pursuing a refinance because you need the money.

What to Do if You Suspect Appraisal Bias

You can take action if you have experienced discrimination during a home appraisal. What to do:

  • File a complaint against the appraiser. Contact the Appraisal Complaint National Hotline at 877-739-0096, or complete the form online at refermyappraisalcomplaint.asc.gov. The appropriate legal authority will receive your complaint alleging noncompliance with standards of professional practice or appraiser independence requirements. All 50 states expect appraisers to be certified or licensed and familiar with property values in their area.
  • Connect with a fair housing specialist to file a discrimination complaint. You can reach a specialist at 800-669-9777, or contact your regional Office of Fair Housing and Equal Opportunity.
  • Submit complaints about lending discrimination to the Consumer Financial Protection Bureau. Call 855-411-2372 or use the online form to describe what happened. The CFPB forwards each complaint to the appropriate company for a response and shares complaint data with state and federal agencies.

Protections Against Racial Bias in Home Appraisals

You may want to become familiar with some of the discrimination protections already in place.

The real estate appraisal industry's Uniform Standards of Professional Appraisal Practice, adopted by Congress in 1989, establish ethical and performance standards. But this guidance on valuation techniques from the Appraisal Foundation is voluntary.

The federal Fair Housing Act and state laws prohibit racial discrimination in appraisals. Contact your state's attorney general to find out more about home appraisal laws where you live.

Want an Accurate Appraisal? Be Aware and Prepare

You don't have to leave the home appraisal process entirely up to chance or subjectivity. Do everything you can to make your home look its best, Turner says.

Being professional and proactive with the appraiser may also help.

"One of the tricks that I use to avoid getting bad appraisals is to provide the appraiser with a list of comparable homes," Bernard says. "I make sure that they are of similar size and condition and factor up or down for the small differences. Making the appraiser aware that you are informed will make him think twice about giving you an unsubstantiated value based on personal biases."

But if you are among those who have been unfairly assessed by a home appraiser because of your race, don't dismiss your concerns. Speak up. "There's nothing worse than doing nothing," Grier says.

Copyright 2022 U.S. News & World Report

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