A new blog post from the American Enterprise Institute (AEI), which is a public policy think tank dedicated to defending human dignity, expanding human potential, and building a freer and safer world, explores alternative explanations for under-valued appraisals through a critique on Federal Housing Finance Agency (FHFA), the Brookings Institute, and Freddie Mac reports on racial bias.
According to AEI, newly-released Uniform Appraisal Data (UAD) Aggregate Statistics Data File and Dashboards, which are derived from more than 47 million appraisals conducted between January 1, 2013, and June 30, 2022, provide the number and share of homes appraised below the contract price at the census tract level. These new data reports were the impetus for a blog post by the Federal Housing Finance Agency (FHFA) and a report by Brookings seemingly connecting the greater prevalence of under-valuations in home purchase appraisals to appraiser racial bias.
However, their methodology suffers from the same pitfalls as previous Freddie Mac research (here and here) which even reached the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), which used the data to justify far-reaching policy actions regarding the appraisal process and the bias that goes with it.
However, all of these reports arrive at the same “premature and potentially flawed” conclusion that suggests appraiser racial bias as the sole explanation for differences in the share of under-valuations across census tracts.
AEI points out that their critique of these reports found multiple shortcomings; notably, they focus on entire neighborhoods instead of the actions of individual appraisers.
The reports also use the share of under-valuations as evidence of racial bias, when they could also be explained by first-time home buyers who tend to overbid on a property, which is subsequently then undervalued by appraisers.
“Using the Aggregate Statistics Data File and Dashboards, our analysis indicates they are relatively small, averaging about $1,100 to $1,900,” AEI wrote. “These levels are too high if they are in fact due to racial bias. However, our analysis finds multiple other plausible explanations for under valuations of this magnitude such as the greater presence of first-time homebuyers or seller concessions. We also note that under valuations of this magnitude of are unlikely to depress entire neighborhoods and, they may in fact provide a disproportionate consumer benefit to minority homebuyers.”
The blog post concluded by calling upon Fannie Mae and Freddie Mac, along with the FHFA, to conduct further studies by mass screening individual appraisers for racial bias and possibly inaccuracies.
Click here to view their research in its entirety.