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Racial bias in home appraising prompts changes in the industry

AILSA CHANG, HOST:

A Black couple in California has settled a discrimination case over their home's value. They were shocked in 2020 when a white appraiser put it at just under a million dollars. Tenisha Tate-Austin recently told a federal panel how they scheduled another appraisal, this time with a white friend posing as the owner.

TENISHA TATE-AUSTIN: Our friend Jan brought over a family photo. We took down our family photos and replaced artwork so there was no trace of us in our own home, a term often referred to as whitewashing.

CHANG: That second assessment - nearly half a million dollars higher. Now, this is an extreme example, but research finds that homes in Black and Latino areas are more likely to be undervalued, and that is fueling a push to revamp the appraisal process to limit racial bias. NPR's Jennifer Ludden explains.

JENNIFER LUDDEN, BYLINE: You may think pinning down the square footage of your home is pretty straightforward for the pros, but not really, says John Liss, who started selling homes in high school.

JOHN LISS: I was taking customers from apartment A to apartment B, and then the offer sheet would say they're both 2,000 square feet. And you'd be shaking your head leaving and saying, there's no way these things are the same size.

LUDDEN: When it comes to an appraisal, there can be a lot of variation in assessing a home's condition or the value of, say, marble countertops. And if an appraisal comes in low, it can mean a big loss for people who need a bank loan. Liss became obsessed with getting more precise, objective data. Two years ago, he created a company called True Footage that he runs out of his home in Austin.

LISS: So I'm going to show you kind of two pictures.

LUDDEN: He shares his Zoom screen to explain software he's developed. The goal is to pick the most appropriate recent sales, or comps, that show how much nearby homes are worth. Fair housing groups say this is a key element where bias about a certain neighborhood can show up. Liss' program analyzes the number of homes for sale. How many days on market? Did sellers pick up closing costs?

LISS: Hey. Here's how fast or here's how slow the market's moving at this given moment, and here's what you should do for your time adjustments.

LUDDEN: That means adjusting older sale prices to match the current market. Liss says it's not perfect. In Black neighborhoods, even if you pick the right comps, home prices are still lower even today because of the legacy of redlining, when banks refused loans to families of color. He's experimenting with artificial intelligence to try and counter that. Now, back to that square footage problem and how it is surprisingly difficult to calculate - some companies are also changing how they measure it.

TIM STAUDENMAIER: So we just slip the phone in where the camera is.

LUDDEN: Tim Staudenmaier is with Class Valuation, a large appraisal company based in Michigan. He uses his own home to demonstrate 3D scanning. He places an iPhone with laser imaging in a little gadget on top of a tripod.

STAUDENMAIER: I'm doing the interior. I'm going to select the living room.

(SOUNDBITE OF SMARTPHONE CAMERA SNAPPING)

LUDDEN: The gadget spins in a circle while the phone snaps 180 photos.

(SOUNDBITE OF BEEP)

LUDDEN: It's the same technology that creates those virtual tours you see on listings. Scot Rose, Class Valuation's chief innovation officer, says it also produces data that is precise, transparent and consistent.

SCOT ROSE: You can send five different people out to the property with very little training at all, and you're going to get the same five results from each of those visits.

LUDDEN: Did you catch that - little training needed? So a technician can measure homes. That is more efficient, and there's another benefit when the appraiser doesn't have to go out and meet the homeowner.

ROSE: Why not just remove the appraiser completely from that interaction, avoiding for any potential bias that may come through?

LUDDEN: John Liss also prefers his appraisers not make home visits. Trainees take the photos and blur any that might reveal the homeowner's race. Lenders don't always allow this kind of appraisal, but the mortgage giants Fannie Mae and Freddie Mac have been testing them, and many expect approval. All this change may not end discrimination, but the hope is that it's more fair and builds trust in what home appraisers do. Jennifer Ludden, NPR News.

(SOUNDBITE OF LEIKELI47 SONG, "MONEY") Transcript provided by NPR, Copyright NPR.

Jennifer Ludden helps edit energy and environment stories for NPR's National Desk, working with NPR staffers and a team of public radio reporters across the country. They track the shift to clean energy, state and federal policy moves, and how people and communities are coping with the mounting impacts of climate change.