“It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”
James Truslow Adams, “Epic of America” (1931)
(InvestigateTV) — Terry Horton’s American dream echoes that of the early 20th-century writer who popularized the phrase.
“It’s always been a passion of mine to help provide safe, affordable housing to the community,” Horton said.
Horton rents affordable housing units in Cincinnati, Ohio, focusing on providing units to low-income tenants who qualify for Section 8 federal assistance.
In 2022, Horton said he wanted to expand his portfolio of rentals by purchasing a vacant building. He applied to rehabilitate a property in the Port Authority of Cincinnati land bank and planned to fund the project by taking out a loan against his existing multi-unit rental property.
With interest rates low and the local market booming, Horton said the prospects were promising — at first.
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“Initially the lender gave me an estimated value of $500,000,” he said.
The lender required a property appraisal before finalizing the loan, and instead of the $500,000 Horton had expected, the property was valued at just $359,000, resulting in a $141,000 appraisal gap.
Whether it’s a lower value than a lender’s estimate or a figure below what a buyer has offered for a home, appraisal gaps can cause significant problems, such as buyers backing out of a home sale or, as in Horton’s case, banks being reluctant to lend more money than an asset is supposedly worth.
“And that’s what made me take the time to look at the appraisal because I was puzzled with how I could be so far off,” Horton said. “And in doing that, I discovered there were some errors in the rental payments and in the square footage.”
Horton said after finding those and other issues, he decided to get a second opinion.
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He had two additional appraisals done on his property: one determined the property to be worth $450,000, while another valued it at $560,000.
Given the significant gap in the numbers and the errors Horton claims were in the initial appraisal report, Horton said he began to wonder if he had been lowballed because of a factor unrelated to the property itself — his race.
Allegations of racial bias in the appraisal process have made headlines in recent years and drawn the attention of federal officials, including the U.S. Department of Justice.
InvestigateTV uncovered records in multiple states where property owners alleged they were discriminated against.
“Unfortunately, this is a problem that is truly pervasive throughout the nation,” said civil rights attorney Sharon McGowan, who represents Horton.
The appraiser in Horton’s case has denied the allegations race influenced his determination, and some remain skeptical about the scale of intentional racial discrimination.
However, many in the field say bias is practically baked-in, and InvestigateTV’s analysis of federal data found indications of lingering effects from Jim Crow-era discriminatory policies.
“I think it’s learned behavior from previous practices that’s been implemented over time to the point where they don’t even understand that it is bias,” Horton said.
Faded, but not erased
Just three years after James Truslow Adams introduced his dream of equal opportunity, Congress passed legislation that many argue not only encouraged racial segregation — it institutionalized it.
As part of the New Deal, the 1934 creation of the Federal Housing Administration (FHA) was designed to bolster the U.S. housing market in the wake of the Great Depression by reducing risk for those looking to invest in homes.
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To do so, the FHA formalized the process now known as “redlining,” where neighborhoods were graded based on how risky a property loan would be, with maps denoting the areas of highest risk in red.
Determining grades often came down to one thing: the racial and ethnic makeup of the area — having higher proportions of Black residents, immigrants or non-protestant religious groups directly correlated to a tract receiving a low score.
While the federal program that produced the maps ended in the 1940s, many experts say those systemic red lines still linger to this day, including in the appraisal process.
InvestigateTV reviewed data from the Federal Housing Finance Administration (FHFA), which released a de-identified, representative-sample database of appraisals for single-family homes from 2013 to 2021.
When looking at appraisals done in historically redlined census tracts where the appraised value came in below the contract price — the amount of an accepted offer from a buyer — homes with non-white owners consistently had appraisal gaps at higher rates than properties with white owners.
In every year of the data, the percentage of Black-owned properties that received below-contract appraisals was higher than that of white-owned properties, and the percentage across all years for properties with Latino owners was nearly double that of those with white owners.
InvestigateTV also looked at properties in historically redlined tracts where the appraised value came in below what the appraiser noted to be the “low-end” of the sales range for the neighborhood.
While the difference in the percentage of properties with a gap was smaller, white-owned properties still had a lower average rate than any minority group.
“Certainly the rules have changed over time, thankfully in a way that suggests progress, but now we’re talking about people of color are able to buy homes … but now they’re not benefitting,” said Michael Neal, principal research associate and equity scholar with the Urban Institute, a research firm focused on urban issues and racial equity.
When InvestigateTV looked at three-bedroom, minority-owned homes in historically redlined areas where the data indicated an appraisal gap, the difference between the appraised value and the contract price was often more than $10,000, with some gaps of up to $60,000.
Neal said those differences are not only a financial hit for property owners at the time but can affect generational wealth.
“We’re talking about what does that mean for our kids one or two generations down the line, in terms of opportunities that they’re going to have,” Neal said.
Complaint
With McGowan’s help, Horton filed a complaint with the U.S. Department of Housing and Urban Development (HUD), alleging the initial appraiser and the lending company violated the Fair Housing Act when evaluating his property.
In an interview with InvestigateTV, McGowan said the complaint alleges certain aspects of the initial appraisal were “objectively wrong,” such as the square footage and the rental income, and that the sales comparisons used were improperly selected.
“We saw the appraiser ignore sales that had happened on the same block as Mr. Horton’s property and go to a Blacker part of town to find properties that he was going to treat as sort of the comparables. We saw him say that Mr. Horton’s property was in good shape, but then kind of didn’t really value that property and actually devalued the property in some ways,” McGowan, the civil rights attorney, said.
The lending company did not respond to InvestigateTV’s requests for comment, but the initial appraiser defended his valuation of the property.
In an emailed statement, he said the discrepancies between his report and what Horton may have expected to see come primarily from Horton’s property being multi-family rather than single-family and how appraisals categorize property features.
“The subject property owned by Mr. Horton was appraised $55,000 higher than the average multifamily in the market,” the appraiser said. “Hypothetically, if Mr. Horton had sold his property at the appraised value in February 2022, it would have been the second highest priced sale in the market over the previous 12 months.”
He added that in his 30-year career, he has always adhered to the Uniform Standards of Appraisal Practice and has never been the subject of a conduct complaint.
[Read the appraiser’s full statement below]
McGowan said HUD has begun investigating Horton’s complaint of appraisal bias, adding she and her client are eager to move forward.
According to the agency’s guidance on the process, investigations consist of HUD gathering information and generating a report. Then, depending on the findings, the agency will work to facilitate a solution between parties or take legal action to enforce the law — violations of which can result in fines or other consequences.
McGowan said she hopes the complaint will not only get a resolution for Horton but also draw attention to the effects of systemic racism within the housing industry.
“I think what we see is all of these ways in which conscious and unconscious bias plays out in engaging in this process of deciding what is the value of a Black homeowner worth,” McGowan said.
“Whitewashing”
Whether conscious or unconscious, McGowan said the kind of bias Horton claims he experienced has been alleged by property owners coast to coast.
In late 2023, a Black couple in California settled with an appraiser and her company after suing over a valuation that was $487,500 lower than a subsequent appraisal they had done.
The difference between the two appraisals — the couple removed their African American art and replaced their family photos with those of a white family.
In a similar, still-pending case out of Maryland that has attracted the attention of the U.S. Department of Justice, a Black family received an appraisal that was $278,000 higher after enlisting their white friend to facilitate the appraiser’s visit.
“Some people have done what’s called like the ‘whitewashing’ of their home. They have to take down the pictures in their house and maybe change the books in their library and do all of these things to try and sort of take race out of the equation here,” McGowan said, noting that as he’s a landlord, Horton wouldn’t be able to make such changes.
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However, not all cases of alleged appraisal bias result in high-profile litigation.
InvestigateTV contacted and filed public records requests with state appraisal regulators across the country, asking for reports, complaints or enforcement actions regarding appraisal bias, and found numerous allegations that resulted in disciplinary action.
An appraiser in Kentucky surrendered her license in July 2023 after multiple grievances were filed with the Kentucky Real Estate Appraiser Board after loan examiners with both Frannie Mae and Freddie Mac identified discriminatory language in appraisal reports. This language included a line from one report where the appraiser noted the surrounding town had a “Black race population above state average.”
Massachusetts reported two cases in 2021 where appraisers were fined and required to go through state-mandated training after investigations into racial bias allegations found they were not in compliance with the Uniform Standards of Appraisal Practice.
In Tennessee, four cases of alleged bias resulted in “minimal” violations found and were dismissed on the condition the appraiser completed certain continuing education. Two others were closed with written instruction and warning letters to the appraisers involved.
A 2021 annual review by FHFA of commentary included in appraisal reports identified even more examples of potentially biased valuations.
Their findings included:
- “[references to] ethnic groups that have immigrated to a neighborhood over the course of many years, and [the report] noted it was “one spicy neighborhood;’”
- “[commentary] noting an area’s ‘decline in population, which transitioned from being predominately Eastern European to having a substantial amount of Black and Hispanic people;’”
- and, “[reports] describing that the number of foreign-born persons was ‘considered high compared to the city as a whole.’”
Commentary with an often discriminatory focus on the racial and ethnic backgrounds of those living in a given neighborhood during the assessment of property values is nothing new.
During the redlining era, federal assessors frequently referenced the presence of minority groups as “threats” to the stability of property values.
“The racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family’s home,” the FHFA’s website post on its modern-day findings reads.
“Our observation of appraisals suggests that racial and ethnic compositions of a neighborhood are still sometimes included in commentary, clearly indicating the writer thought it was important to establishing value.”
Skeptics point to ‘bad apples’
Not everyone is convinced the problem of appraisal bias is as systemic as it might seem.
Tobias Peter, co-director of the housing center at the American Enterprise Institute (AEI) — a conservative Washington D.C. think tank that also analyzed the appraisal-level data released by the FHFA in 2023 — said he and others believe there are other factors at play.
“So what we found was that while minority census tracks experience a higher share of undervaluations, we think that there are plenty of other explanations like locational differences, marketing conditions, quality of home upkeep that may explain some of these differences. So market conditions really matter,” Peter said.
AEI published a rebuttal to FHFA and other interpretations of the data, arguing that where appraisal gaps exist, they can be attributed more to geography and factors such as a higher number of first-time buyers, who they contend are more likely to overbid on a property.
Researchers at the Brookings Institute found that when accounting for market conditions, the data “strongly suggests that appraisers introduce systemic bias that favors white neighborhoods at the expense of Black, Latino or Hispanic and Asian American neighborhoods.”
Peter said he and those at AEI think the Brookings analysis was flawed.
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He acknowledged that the anecdotal cases that have made headlines or resulted in discipline mean racial bias does exist, but argued more data is needed to identify specific individuals at risk of discriminatory behavior, and that the focus should be directed there.
“I think that’s a huge problem. I think what would help is if we were to provide data, and, data that would show that the problem is not systemic, but that there are bad apples,” Peter said.
When countering the FHFA and Brookings findings, AEI points to how trends in the appraisal-level dataset are relatively in line with some automated valuation models — algorithmic tools that use existing data to tabulate what a property is worth — which AEI argues shows the bias of individual appraisers doesn’t have a significant effect.
Neal, with the Urban Institute, said automated valuation models (AVMs) do remove some of the elements of human error and can be a tool to reduce bias — to a point.
“I think it’s a question of ensuring that you have the right metrics and the right inputs and the right data to test those models, to make sure that they’re producing equitable results for all communities,” Neal said.
Algorithms are only as unbiased as those who build them and the data they draw from, he said, and both often have societal bias baked in.
Taskforce
“This is a complicated problem that requires an all-of-government approach, and we’re taking measures and considering options to stamp out appraisal bias,” said Zixta Martinez, deputy director at the Consumer Financial Protection Bureau (CFPB).
CFPB is one of the 13 agencies, including HUD and FHFA, participating in an interagency task force charged with addressing appraisal bias.
“Where you live is a sense of security and a sense of who you are, and systematic undervaluation of neighborhoods and communities communicates detrimental messaging to the people who live there…and has a real toll on people,” Martinez said.
The Property Appraisal and Valuation Equity taskforce (PAVE), was commissioned by President Joe Biden in 2021, and the federal agencies have been working alongside appraisal industry leaders to come up with a firm solution.
The task force released an action plan in March 2022 that outlined a list of policy initiatives such as the release of the FHFA appraisal-level data and addressing gaps in the rules and standards in the appraisal process.
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The task force is also looking at ways to increase the use of technologies like AMVs while also addressing the inherent biases that exist within the programs.
One member agency, the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (ASC) has also held multiple public hearings on the issue and the task force’s progress, the most recent occurring on Feb. 13.
“I think we will continue to bring in witnesses and experts to help us better understand what is really a complicated market, a complicated ecosystem,” Martinez said.
With the increased national attention on appraisal bias, some states have begun their own efforts to address the issue, such as New Jersey Attorney General Matt Platkin’s commitment to aggressively pursue action against discriminatory appraisals. The state will now also require anti-bias training as part of the appraisal licensing process, following in the footsteps of New York, California, Minnesota and Virginia, which have similar requirements.
Both Illinois and Maryland have launched their own taskforces aimed at combatting appraisal bias, as have some individual cities, such as Philadelphia.
In Texas, the state appraiser licensing board and the workforce civil rights division have partnered to approach complaint investigations into appraisal bias from multiple angles.
However, when asking for information and documents, InvestigateTV found many other states don’t track bias-related appraisal complaints, and even those that do don’t always make details about complaints or disciplinary actions public, citing the need to keep information confidential because it may be investigated by the U.S. Department of Justice.
Looking to the future
Included in the PAVE action plan is a commitment to build a “well-trained, accessible, and diverse appraiser workforce,” — a workforce that according to the Bureau of Labor Statistics is currently almost 95% white.
“There’s a lack of minority appraisers that would really help this situation,” said Atlanta appraiser Thaddaus Dawson.
Dawson founded 10K Black Appraisers, an appraisal management company, and the 10K Minority Appraisers Foundation, which works to ensure that people of color are represented in the industry by offering training programs, paid internships and other opportunities to young people.
Dawson said he believes that diversifying the appraisal industry and adding different perspectives will help the industry move past much of its intrinsic bias and reduce undervaluations as a whole.
“When you look at diversity, it just opens it up for everybody and it gives everybody a fair shake,” he said. “Unfortunately, due to the bias and discrimination, people of color have lost a tremendous amount of equity that they will never, ever be able to recover.”
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Back in Cincinnati, Horton’s American dream is currently on hold.
At the time of his first appraisal, the average 30-year fixed rate mortgage in the United States was 3.55%, but by the time he finally got the approval to refinance, average rates had risen to 5.30%.
As of publication, the national average sits at more than 7.3%.
Horton said he determined refinancing his mortgage on such terms would be too expensive, and he couldn’t justify the cost — even at the expense of his goals.
“It didn’t make financial sense,” he said. “So, it made me lose an opportunity to create more affordable housing.”
Horton says he isn’t giving up his mission to help others, however, and in the meantime, he’s anxiously awaiting the results of HUD’s investigation into his case.
“It won’t stop me. It was my goal, and I’ll continue to strive for that,” he said, “but I also want to make sure this doesn’t happen to anyone else, so we all can have the opportunity to pursue those goals.”
Brandon Wissbaum and Jamie Grey contributed to this report.
Full statement from the initial appraiser of Terry Horton’s property:
The subject property was physically measured and the gross building area reported from the site visit. The result can differ from public sources.
The rental income was derived and reported from lease agreements Mr. Horton submitted during the loan process to verify the income from the property.
Bedroom discrepancies are most likely a result of what appraisal standards consider bedrooms. All bedrooms must have closets and can not be “pass through” rooms.
The 2 sales referred to as being overlooked during the market research for the subject property are single family homes. These were not considered due to the difference in high and best use, overall higher values for single family homes in the market, and different appeal and interest from market participants. As an example, appraisers would not use multi family properties to value single families and vice versa.
The subject property owned by Mr. Horton was appraised $55,000 higher than the average multi family in the market. Hypothetically, if Mr. Horton had sold his property at the appraised value in February 2022 it would have been the second highest priced sale in the market over the previous 12 months.
I have almost 30 years of appraisal experience in the market area where Mr. Horton’s property is located. During my career I have worked with countless investors and have also been an investor in real estate. I have had no conduct complaints during this period and have conducted myself and my business as a professional. Adherence to the Uniform Standards of Appraisal Practice is at the core of any good appraisal practice and this is reflected in my long career.
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