Appraisal Showdown In The Lone Star State

A report from 2022 titled “Appraised: The Persistent Evaluation of White Neighborhoods as More Valuable Than Communities of Color,” leveraged data from the Uniform Appraisal Dataset (UAD) sourced from Fannie Mae and Freddie Mac. The study, conducted by sociologists Junia Howell and Elizabeth Korver-Glenn, analyzed appraised home values to identify racial disparities in various neighborhoods across the United States. 

But when evaluating several Texan metros data for 2021 – Austin, Dallas, El Paso, and Houston – the sociologists’ findings revealed that the pandemic exacerbated an alarming spike in appraisal bias, especially against Asians. Howell and Korver Glenn’s hypothesis is congruent with all-over data in the state: Dallas saw Latino, Black, and South and East Asian mean appraisal values stay low over time as white values uptick. And Austin’s mean appraised value was $543,716 for white homes but just $257,049 for minority homes. 

Kahane alleges that not a single appraisal bias case – never mind an appraisal bias for an Asian home – has ever been adjudicated in a court setting. “There’s an assumption that it exists,” he said. “Based on my interpretation of the anecdotal evidence about whitewashing homes, the same things happen to everyone who complains about first low appraisals. The bigger issue is that there’s too much variance in appraiser opinions and values. There’s no exact value for a home. It’s a market opinion. On any given day, depending on how a house is marketed, it can sell for more or less.”

Historically, the blame for appraisal bias has been deferred to the legacy of segregation and historic redlining practices in the nation overall. But Howell alleges that this systemic issue – which seems to be widening in the Asian community – is still prevalent, specifically in Texas. 

But it goes beyond homeownership and appraisals. According to a 2023 STAAUS (Social Tracking of Asian Americans in the U.S.) Index, half of Asian Americans report feeling unsafe in the U.S. due to their race/ethnicity. Only 22% of Asian Americans said they felt a sense of belonging and acceptance in the U.S., which is drastic in comparison to 57% of white respondents.

Appraisal Wrongdoings?

Howell and AREAA’s concerns dovetail with the looming issue of appraisal bias and inaccuracies. Simply stated, an appraisal is an evaluation of a home’s property market value. Howell says in the report that appraisers are encouraged to evaluate multiple “neighborhood factors,” including education, household income, development, and public services. But Howell and Korver-Glenn both argue that appraisers are taking those outside factors and others, such as the racial makeup of a neighborhood, into consideration and as justification for their reports. 

Formerly a Texas resident, Howell said she’s been researching appraisal bias for a decade, particularly in the state. “I noticed a habitual pattern of appraisal bias,” she said. “Homes in black and brown neighborhoods would have multiple offers, and then the appraisal would come back lower than expected, which changes the course of the offers. And that wasn’t happening in white neighborhoods. In fact, homes were also over-appraised in white neighborhoods.” 

Howell acknowledges that her and Korver-Glenn’s multiple reports about racial inequality in appraisals have criticisms and gaps. “Some [appraisal value] inequality can be explained by the house’s characteristics, but at large, most inequalities were clearly driven by the racial composition of the neighborhood,” she said. “So me and [Korver-Glenn] expanded our research to look across the nation’s large metro areas, and we found a similar pattern of bias.”

But in the duo’s 2022 report, a new angle emerged: Asians facing xenophobia during the pandemic, particularly when it came to their appraisals. 

Objective vs. Subjective

Kahane also had several reasons for not trusting the study’s data. “The authors made no distinction between value price and valuation. [They] misunderstood racial composition, which appraisers are instructed not to do,” he said. “They also arranged the neighborhoods by census tract. Appraisers do not do that.”

Kahane pointed toward a different study conducted by Freddie Mac in 2019 and again in 2022 about racial and ethnic valuation gaps in home purchase appraisals. “The 2019 [study] said that they hadn’t determined the cause of the appraisal gap and statistical anomaly, and it was not attributed to race,” he explained. Kahane said that the updated Freddie Mac study used “minority tracts” and found “that properties in Black and Latino tracts are more likely to receive ‘appraisal value lower than contract price’ than those in White tracts.”

Kahane says that there’s always the possibility of bad actors being in the appraisal space, just like there is in any professional space. “There are no excuses for bad appraisal practice, carelessness, or ignorance. Poor appraisers are just poor appraisers; it’s not deliberately race-based,” he asserted. “I’ve done second appraisals because the first was contested, and I saw things much differently than the first appraiser. It’s not subjective; it’s just experience. But those cases didn’t make the news because race wasn’t involved.”

Kahane also says that even if an appraiser wanted to take race into consideration, it’s time-consuming. “One thing that’s overlooked in the appraisal process is that when we get an order, we only see a name on the page,” he said. “We research comparable sales in the neighborhood, and we don’t know if it’s a neighborhood that’s minority or not. We don’t even know who the seller is; sometimes [the property] is vacant or non-descript. People who research this stuff don’t understand that there’s not a whole lot of margin to come into the appraisal process.”

So, what are an appraiser’s exact duties? Doug Foster, director of regulatory affairs at Polunsky, Beitel, and Green, says that appraisers also have to adhere to the Texas Appraiser Licensing Certification Board (TALCB), which he says is a subsection of the Texas Real Estate Commission. Kahane says that appraisers also follow the Uniform Standards of Professional Appraisal Practice (USPAP), which basically tells appraisers how to be unbiased in all of their analyses. Kahane says that USPAP is being rewritten to put a greater emphasis on racial bias. Appraisers also have to follow certain standards set by Fannie Mae and Freddie Mac, but Kahane says that smaller and individual lenders have their own standards, too. 

Agenda At Large

At the moment, Texas is in a bad light due to a proposed bill called SB 147 that would prohibit the sale of Texas land to citizens and businesses with connections to China, Iran, North Korea, and Russia. After protests and outbursts, the bill has been modified to allow home purchases but still prevents them from buying agricultural land, oil and gas land, timberland, or mining land in the state. The bill does not apply to legal residents from those countries, such as green card holders and people with dual citizenship. 

The bill has been criticized as being “xenophobic and racist,” and Howell says that pandemic biases pushed this bill forward. Now, Howell and others, such as the Asian Real Estate Association of America (AREAA), are concerned that SB 147 will bleed into the attitudes of those helping homebuyers. 

Foster says that the bill – even with the modifications – is problematic. “Even though SB 147 was limited, it still poses potential issues for financial institutions, as well as fair housing and equal credit opportunity concerns,” he said. “It’s hard to say what the motive is. It’s not geographic limitations.” 

Light at the End of the Tunnel 

Foster says there is a separate, proposed bill to address the slew of concerns about the appraisal community. The bill, called SB 1222, is being adjusted to account for proper licensure and customer complaints, including those about bias, Foster said. According to the bill’s analysis, the TALCB “has identified several barriers to licensees entering the appraisal industry, including confusion over experience requirements, frustration with submitting a sworn affidavit, and a lack of clarity over whether their experience needs to be in compliance with the USPAP.” The bill also includes TALCB establishing a proper investigative committee with the sole purpose of reviewing and resolving appraisal complaints.  According to a TALCB spokesperson, the board is “still working toward understanding the impact and commit to thorough and impartial investigations of these complaints with the Texas Workforce Commission Civil Rights Division (TWCCRD).” The spokesperson added that the TALCB and TWCCRD established a partnership in October to specifically address bias in appraisals.