Appraisal Bias And Digital Redlining: No One-Step Solution Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: On This Page
Noel Hendrickson/Getty Images May 09, 2022 Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Nonwhite homeowners today tend to hold property valued lower than that of their white counterparts. Across the country, majority-minority neighborhoods are cheaper to buy into, but that also means the residents there build less intergenerational wealth over time, which is just one factor that compounds existing racial inequities. As new technology plays a greater and greater role in home appraisals, and as a huge proportion of current appraisers reach retirement age, stakeholders across the industry have to take steps to make sure the ongoing legacy of racism doesn’t stay baked in for another generation.
What is digital redlining
There are a few ways to describe digital redlining, but understanding the history of physical is a crucial first step. In short: Through the early and mid-20th century, official government policy made it more difficult — often impossible — for nonwhites to buy homes or secure mortgages because the Federal Housing Administration deemed property in majority-minority neighborhoods too risky for loan underwriting. The term “redlining” comes from color-coded maps the FHA used to classify the lending risk in neighborhoods, but now is used colloquially to describe all kinds of systemic discriminiation against nonwhites. Many real estate developments, especially in the decades following World War II, also nonwhites who could afford a home from buying one. “It’s very significant. The history of various policies, not just redlining but numerous government policies, has a big impact on where housing is today,” says Kenon Chen, executive vice president of corporate strategy at Clear Capital, a real estate valuation technology firm. Today, digital redlining can mean not just the ways technology perpetuates low in historically redlined neighborhoods, but also other ways that all kinds of tech can be subtly or overtly discriminatory. “Redlining, historically, created a disparity in valuation in majority-Black neighborhoods,” says Mark Alston, public affairs chairman of the National Association of Real Estate Brokers (NAREB). “If you have a perfect appraisal in a majority-Black neighborhood today with perfect comps and no bias on the part of the appraiser,” it’s likely still going to be valued lower compared to a similar property in a majority-white neighborhood because of that historical bias.
Can technology help
Desktop appraisals, which allow appraisers to estimate a home’s value without visiting the property — a practice that gained much more traction during the pandemic — and automated valuation models (AVMs) are becoming more common. Earlier this spring, Fannie Mae made desktop appraisals a permanent option for appraisers valuing single-family primary residences. These methods could potentially help take some bias out of the equation — and help fill the gap as more appraisers retire — but technology alone is not the answer, and has limitations. “In some of the underserved communities in this country, you have some prosperous areas,” Alston says. “What’s the algorithm’s sensitivity to that area? The lack of transparency is really a problem.” AVM accuracy also varies widely based on how many are available at the time the appraisal is run. “The number of property sales in the local market area can affect how much the AVM provider knows about current property values in that market,” according to . “Generally, the more property sales, data and information available about properties in an area, the more accurate the AVM estimate is likely to be.” Beyond the amount of available comps, if those recent sales are in a historically redlined area, AVMs often contribute to the problem rather than curb it.
What else can be done
Making appraisals fairer for everyone will depend as much on adopting new technology as the ranks of appraisers themselves, Alston says. According to Bureau of Labor Statistics data, nearly 98 percent of active appraisers are white, and only about 30 percent are women. The Biden administration this spring released a proposal, the Plan to Advance Property Appraisal and Valuation Equity (), which suggests a number of appraisal reforms, including: Creating an appeals process when an appraisal comes in lower than expected Bolstering the comps data used for appraisals Addressing bias in AVMs Also, in the fall, the U.S. Department of Justice announced an initiative to combat redlining, which includes stepped-up oversight of lending institutions that discriminate against minority borrowers. Those broad steps are easier said than done, however, Alston says. “I don’t know what the salves are other than diversifying the appraisal field,” Alston says. “I think you have to do that first, and then we have to talk about redress. If I cement in that lower valuation, I cement in the disparity and the redlining has its intended effect forever.” There’s no easy fix that can level the real estate playing field overnight, but experts say work can be done to start addressing some of the existing disparities. “This is actually an incredible opportunity. The quote ‘Never let a good crisis go to waste’: We’re finally looking at some of these long-standing issues right in the face,” Chen says. “As we look at both the challenge of decreasing bias and increasing diversity in the profession, both of these problems can be worked on with the same solutions.” Bottom line
Lower property values make it harder for nonwhite and especially Black homeowners to build , so finding ways to address the disparity is crucial to helping nonwhites achieve greater economic stability. If industry stakeholders don’t take active steps towards making appraisals fairer, existing biases will never be addressed and could be further perpetuated by new technology. As the appraisal process adopts more automation, it’s critical to ensure those new practices are implemented in an equitable way. SHARE: Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Related Articles