Real estate pricing research provides evidence that properties potentially exposed to perceived or actual risks may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges faced by scholars and practitioners studying detrimental conditions and their impacts on property values.
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In recent times, there has been an increasing focus on the issue of racial discrimination within the appraisal industry. In response to this concern, Ambrose et al. [1] conducted a distinctive study in which they employed an automated valuation model (AVM) to investigate the potential effects of racial bias on mortgage refinancing appraisals. Notably, their research was specifically centered on the refinance market, rather than the new home loan market. The rationale behind this choice was the higher likelihood of face-to-face interactions between homeowners and appraisers in the refinance market, making it a context that could reveal more insights into racial bias.
To conduct their analysis, the researchers used mortgage refinance data obtained from the New Century Financial Corporation, comprising a substantial sample of approximately 138,487 appraisal observations from first-lien residential mortgage applications spanning from 2000 to 2007. They employed AVM techniques to estimate property values and compared these estimated values for homes owned by individuals of different racial backgrounds, particularly black and white homeowners, against the actual appraised values. While the race of the homeowners was known, the race of the appraisers was approximated using technology.
Remarkably, the study's findings indicated that there was no significant evidence of racial bias affecting appraised values when comparing black-owned homes to white-owned homes. Based on their thorough analysis, the authors concluded that racial bias did not seem to play a significant role in influencing appraised values in this specific refinance market.
[1] Ambrose, Brent W. and Conklin, James and Coulson, N. Edward and Diop, Moussa and Lopez, Luis A., Does Appraiser and Borrower Race Affect Valuation? (October 27, 2021).