Comp Selection is at the Heart of Appraisal Bias, Advocacy Groups Claim
Source: American Banker
When it comes to home valuation it's all about the comps — sales of comparable properties used by appraisers to establish a fair market price.
The valuation process is meant to be technical and objective, but news reports of Black homeowners needing to use white stand-ins to obtain fair market valuations on their homes have called that objectivity into question. A study conducted by the National Community Reinvestment Coalition this summer found that racial disparities in home valuations exist and that biases in selecting comps are a big factor.
NCRC recruited several interracial couples — in which one spouse is Black and the other is white — in the Baltimore area to participate in a "mystery shopper" trial. The couples would have their homes appraised twice, once while only the white spouse was home and with no indications that anyone Black lived in the home and then again under the opposite circumstances, with the Black spouse home and no sign of white occupancy.
In most cases, the homes were appraised differently for the two spouses. Sometimes the white spouse received the higher valuation, sometimes the Black spouse did, but on average, appraisals given to white spouses were nearly $7,000 more than those given to their Black partners.
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