A Federal
Housing
Finance
Agency (FHFA)
analysis
has
shown
racial
disparities
in
appraisers’
use
of
time
adjustments,
potentially
harming
borrowers
of
minority
groups.

The
FHFA
based
its
analysis
on
single-family
housing
data
from
the
Uniform
Appraisal
Dataset
(UAD),
collected
by Fannie
Mae and Freddie
Mac.
A
5%
sample
of
the
UAD
data
was
used,
including
the
period
between
the
third
quarter
of
2018
and
the
fourth
quarter
of
2021.  

An appraiser can adjust
for
price
changes
since
a
comparable
property
sale,
a
process
known
as
time
adjustment.
It
makes
more
sense
when
home
prices
are
surging
because
similar
property
sales
can
become
outdated
quickly.
Fannie
Mae,
Freddie
Mac,
and
FHA
appraisal
guidelines
require
such
adjustments
whenever
market
conditions
change. 

However,
time
adjustments
happened
to
only
18.5%
of
all
purchased
properties
in
the
period
analyzed
between
2018
and
2021,
despite
national
house
prices
growing
rapidly. 

According
to
the
FHFA,
potential
reasons
for
underutilization
are
that
these
adjustments
are
some
of
the
more
analytically
complex
calculations
appraisers
might
perform.
In
addition,
market
information
about
comparable
sales
data
can
be
sparse,
outdated
or
costly. 

The
analysis
showed
that
time
adjustments
are
even
scarcer
for
homes
in

majority-Black
tracts
(13.4%)
compared
to
homes
in
majority-white
tracts
(18.4%).  

Underappraisals 

According
to
the
analysis,
when
the
appraiser
came
in
at
below
contract
price,
called
underappraisal,
appraisers
made
time
adjustments
in
64%
of
the
properties.

But
racial
disparities
remained:
time
adjustments
were
used
at
a
45%
rate
in
homes
in
majority-Black
tracts,
53%
in
Hispanic
tracts
and
67%
in
white
tracts. 

Racial
disparities
remained
even
after
the
time
adjustment
process:
it
brought
52%
of
white
tract
appraisals
below
the
contract
price
to
above
the
contract
price.
To
illustrate,
the
rate
was
35%
in

Hispanic
tracts
and
30%
in
Black
tracts. 
 

According
to
the
FHFA
blog
post,
home
purchases
can
be
complicated
by
an
appraisal
below
the
buyer’s
contract
price
offer.
The
buyer
“typically
must
renegotiate
the
purchase
price,
put
more
cash
down,
or
accept
costlier
loan
terms.” 

Regarding

refinancing,
low
appraisals
can
lead
to
less
attractive
loan
terms,
limiting
borrowing
amounts,
or
resulting
in
canceled
transactions.

For

Black
and
Hispanic
borrowers,
“time
adjustments
could
make
the
difference
between
an
appraisal
that
allows
a
home
purchase
to
move
forward
and
one
that
does
not,”
the
blog
post
says. 

The

Appraisal
Institute,
the
nation’s
largest
professional
association
of
real estate appraisers,
did
not
respond
to
a
request
for
comment,
nor
did
the

Appraisal
Foundation,
a
private
group
that
is
the de
facto
appraisal
regulator.

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