• Wed. Sep 21st, 2022

Joe Biden wants tougher standards for real estate appraisers to help black and Latinx homeowners


Former Vice President Joe Biden will work to create national standards for home ratings if elected, as part of an effort to eliminate racial discrimination in the real estate industry.

Biden is the latest Democratic presidential candidate to release a comprehensive plan to address housing affordability and homelessness issues. Among its many proposals, there is one that could reshape the real estate appraisal industry.

Biden’s campaign said he would “set a national standard for home appraisals” to ensure appraisers are properly trained, understand the neighborhoods in which they work and “do not have any implicit biases” that influence their work.

“An objective national standard for valuations will also make it more difficult for financial institutions to pressure valuers to their advantage,” the campaign said in its plan this week.

Other candidates, including Senator Bernie Sanders, an independent from Vermont, and Elizabeth Warren of Massachusetts, former New York Mayor Mike Bloomberg, have also called for fighting discrimination in the real estate industry. However, the Biden campaign is the only one to date to suggest regulation of the evaluation industry.

The evaluators, for their part, said the proposal was not necessary. “National appraisal standards and ethical requirements already require appraisers to conduct their work impartially, objectively and independently, without bias,” said Jefferson Sherman, president of the Appraisal Institute, the largest professional association in real estate appraisers in the United States.

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Home values ​​tend to be lower in African American neighborhoods

Research has shown that homes located in neighborhoods with predominantly black households tend to be less expensive than similar homes in predominantly white communities. A 2018 study from the Brookings Institution, a Washington, DC-based nonprofit, found that homes of similar quality and with similar amenities were rated 23% lower in predominantly Black neighborhoods than in predominantly Black neighborhoods. neighborhoods with few black residents.

“Majority black neighborhoods have characteristics associated with lower real estate values, including higher crime rates, longer commute times, and reduced access to top-rated schools and top-rated restaurants,” wrote the researchers. “Yet these factors only explain about half of the housing underpricing in black neighborhoods.”

As a result, owner-occupied homes in predominantly black neighborhoods are undervalued by $ 48,000 per home on average, to the tune of $ 156 billion in loss in value nationwide. This so-called “segregation tax” in black neighborhoods contributes to the lingering racial wealth gap. Other studies have also shown that this can make it more difficult to obtain a loan, as low appraisal values ​​increase the likelihood that a mortgage application will be rejected.

Owner-occupied homes in predominantly black neighborhoods are undervalued by $ 48,000 per home on average.

As people of color across the United States face depressed family values ​​compared to their white neighbors, reviewers argue their industry is not to blame for these discrepancies.

“There shouldn’t be a price disparity between African-American neighborhoods and predominantly white neighborhoods when all other factors are equal,” said Ernie Durbin, director of valuation at Clarocity, a technology company. ‘real estate valuation, who added that instead the disparity is the result of “much more systemic issues within our culture.”

“This data may be influenced by a greater cultural bias, but this is beyond the control of the assessor,” he said.

Additionally, Durbin noted that the study itself was based on Zillow Z’s ratings,
+ 2.52%,
and not human evaluators.

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The assessment process is already aimed at eliminating prejudices

Currently, standards in the appraisal industry are set by the Appraisal Foundation, an organization created in the 1980s by Congress, but the foundation does not directly regulate appraisers. Instead, assessors are regulated by state agencies, which in turn are regulated by the Federal Council’s Assessment Subcommittee on Reviews of Financial Institutions, a body that coordinates with banking regulators.

The ethical standards and guidelines set forth by the Appraisal Foundation prohibit allowing prejudice against a racial or ethnic group to influence the valuation of a property. When performing an appraisal, appraisers are encouraged to base their determinations on the features of the home and multiple sale prices from comparable listings in the same neighborhood.

“There shouldn’t be a price disparity between African American neighborhoods and predominantly white neighborhoods when all other factors are equal.”


– —Ernie Durbin, Director of Evaluation at Clarocity

This approach could help drive down property values ​​in black and Latinx neighborhoods relative to white neighborhoods, as it may perpetuate historical issues such as redlining that have kept home values ​​lower in some parts of the country. . But using compositions from other neighborhoods for the purpose of increasing a home’s value in a Black or Hispanic neighborhood would reduce the appraisal’s ability to accurately reflect a home’s value. This, in turn, could lead mortgage lenders to offer riskier loans.

“Appraisers don’t make the deal,” Sherman said. “Instead, they reflect the behavior of buyers and sellers in real estate.”

However, some players in the real estate industry see some value in a more federal approach to assessment licensing and regulation.

“Having a federal license would make the process easier and give a federal agency a bit more control,” Durbin said. “It would be great for assessors if we only had one place to deal with and if there was more consistency between states and how they interpret regulations.”

Beyond creating more rigorous national standards for assessments, Biden’s housing plan also calls for the creation of new tax credits for new owners and tenants, the establishment of a national bill of rights of owners and expanding regulations on mortgage lenders and insurers, among other initiatives.

The proposals set out in Biden’s housing plan would be achieved through a mix of laws and executive action, the campaign said. However, analysts have previously expressed skepticism about the likelihood that housing reform laws will wipe out Congress due to a partisan standoff.


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