The majority of appraisals on home purchases in the United States can now be conducted without an appraiser ever stepping foot into the home, a move that some lawmakers and real estate professionals say could address pervasive racism against Black homeowners in the appraisal industry.
Studies have shown that when the homeowner is black or Latino, the home's value is often overstated by hundreds of thousands of dollars. The remote desktop appraisal could be a solution to the problem of an appraiser never meeting a homeowner or having an opportunity to see family portraits on the wall. The move went into effect on Saturday.
Ken Wingert, head of federal government relations for Zillow Group, said that they issued an advisory document to the Federal Housing Finance Agency on this topic last year. According to the data from the Appraisal Institute, more than 85% of the people who are an ollie are white.
Fannie Mae and Freddie Mac, two of the world's largest financial institutions, say they are implementing the change on most loans because of a shortage of appraisers.
Freddie Mac and Fannie Mae said that the option for desktop appraisals could alleviate a logjam that has delayed closings in the white-hot housing market in many states.
The two government-sponsored entities, which buy loans from lenders and package them into investments, had already allowed the option temporarily during the pandemic to keep the mortgage industry functioning.
Evaluating a home without a physical inspection is possible with desktop appraisals. The process still requires multiple steps and the input of a trained appraiser that bases home valuations on data such as tax records and comparable homes rather than on an on-site inspection. Unlike automated valuation models, which are the computer-driven price estimates that potential home buyers see while browsing sites, desktop appraisals require a number of data points including floor plans, public records on the home, and resources like Google Maps and 3-D scans.
The option does not exist for all loans, they must be purchase transactions on homes that are a single-unit primary residence, and the mortgage in question can't account for more than 90 percent of the home's actual price. The floor plans have to be available for the appraisal.
Both Fannie Mae and Freddie Mac, which own more than 60 percent of American home loans, have said that the process is as accurate as traditional appraisal methods.
Both companies launched their own research into systemic racism in the appraisal industry after widespread reports of discrimination in appraisals, including through amateur sting operations that Black homeowners have set up themselves.
The traditional appraisal process relies heavily on human observations that can be subject to conscious or unconscious bias, while modern appraisal methodology involves significant reliance on data, according to a statement from Fannie Mae.
The federal government has taken a number of actions to stem appraisal bias. President Biden put the secretary of Housing and Urban Development in charge of a task force to eradicate discrimination in appraisals.
Over the past year, far too many stories recount the serious and all too frequent problem of racial bias in home buying and homeownership have made major headlines.
The Interagency Task Force on Property Appraisal and Valuation Equity requires the help of partners across the housing landscape.
The Appraisal Foundation did not respond to a request for comment. Jody Bishop, president of the Appraisal Institute, said in a statement that desktop appraisals are likely to be most useful in markets where many homes are similar and easily compared, and he anticipates hiccup with the technology in more nuanced situations.
Many orders will need to be upgraded to a full interior and exterior inspection assignment because of the lack of quality and confidence in the data.
Abena Horton, a Black homeowner who saw her home's appraised value jump by 40 percent in 2020 when she removed evidence of her race from her house, said the move made her optimistic that the industry was making real strides to address a history of racism.
There has to be a solution to this, she said about persistent allegations of minority homeowners receiving lowballed appraisals. It is very encouraging.
Despite the issue of racial bias, Phil Crawford, a Cincinnati-based appraiser who has spoken about desktop appraisals on his podcast, Voice of Appraisal, said a widespread shift to desktop valuations could pose a risk to financial markets. There is no requirement for appraisers to undergo ongoing fair housing training after earning their credentials in many states.
He said that watering down the traditional appraisal process puts Fannie Mae into a dangerous position.
We are living in a world of black swans right now, and with all the uncertainty, it is a bad time to implement a new product.
Mr. Wingert disagreed.
He said that you are entering just as many data points as you would in an in-person appraisal. Maybe not. It's definitely another tool in the fight against racism.
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