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Fannie Mae Appraises The Appraisal

David Krechevsky
Jan 21, 2022
Fannie Mae HQ

Research finds Black borrowers refinancing their homes on average received slightly lower appraisal values vs. automated valuation models than white borrowers.

Black borrowers refinancing their homes on average received slightly lower appraisal values relative to automated valuation models, while white borrowers on average received slightly higher values, according to a new report from Fannie Mae.

The report, “Appraising the Appraisal,” analyzed 1.8 million appraisals conducted as part of refinancing applications in 2019 and 2020.

Also among its key findings:

  • Homes owned by white borrowers were more frequently overvalued than homes owned by Black borrowers.
  • Six states — including Georgia, Louisiana, South Carolina, North Carolina, Mississippi, and Alabama — accounted for nearly half of the overvalued homes of white owners in majority-Black neighborhoods.

“Accurate and unbiased appraisals can help remedy the legacy of racial inequities in the housing market,” Fannie Mae states in a release about the report, which was authored by Jake Williamson, senior vice president of single-family collateral risk management, and Mark Palim, deputy chief economist and vice president. “Modernizing the appraisal process, as well as fostering diversity in the appraisal workforce, are two ways the housing industry can help minimize the chance of racial bias in home valuation.”

The authors, however, did note that the frequency of undervaluation did not have “a notable racial pattern.”

The report states, “Undervaluation of Black-owned homes occurred at the same rate as white-owned homes in majority-white neighborhoods. In majority-Black neighborhoods, the frequency of undervaluation for Black and white homeowners is within a percentage point of each other.”

The report defines “undervalued” as equal to an appraised value at least 10% lower than automated valuation models (AVMs).

The report notes that while most studies have focused their research at the neighborhood or census tract level, Fannie Mae targeted its appraisal research to isolate valuation differences at the property and borrower level, along with further analyses that focused on the racial composition of neighborhoods.

The report continued, “This research is not an attempt to measure value accuracy, per se. Instead, it uses the AVMs as benchmarks to compare appraisal opinions against. Then, the frequency and degree of difference between the AVMs and appraised values can be analyzed by the race of the homeowner as well as the racial demographics of the neighborhood where the home is situated.”

You can read the full report here.

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