Do Appraiser and Borrower Race Affect Valuation?
- Authors: Brent W. Ambrose, James N. Conklin, N. Edward Coulson, Moussa Diop, and Luis A. Lopez
- Discussant: Florian Oswald
- Property appraisers are trained to asses property values.
- Large body of evidence going back to the 60s of discriminatory practices in mortgage markets - HMDA.
- Extremely relevant setting: In remortgaging setting, appraiser is the single agent determining the value of property (not market interactions) - Appraiser faces no competition.
- This Paper: Is there racial bias in remortgaging appraisals?
- Use property level data on remortgage appraisals, where owner’s race is observed.
- Infer the appraiser’s race from first and last name.
- Compare appraisal to output of an industry model (Automatic Valuation Model, AVM).
- Assess and interpret differences.
- Novel dataset and insights in a contentious area of debate.
- First paper to be able to assess impact of appraiser’s race.
- Found effect does not disappear with race of appraiser.
- It would be good to know more about this black box model.
- We should know what variables it uses, at which geographic scale.
- How well does it perform?
- Outcome $Y_i$ is difference between appraiser and some estimate we don’t know much about. (We know it’s a moving target.)
- 🤔 Why do lenders send appraisers instead of relying on the model?
$$Y_i = \delta_1 A_i + \delta_2 B_i + \delta_3 H_i + X_i \beta + \xi_i +\lambda_i +\omega_i + \epsilon_i$$
- $X$: property type, investment properties, multi-unit properties, condominiums, and PUDs
- Unobserved House Quality is potentially a big issue here.
- Omitted variable bias could be severe. Notice that the appraiser FE does not deal with this.
- If avg unobserved quality of group $g$ is relatively high, we will underestimate discrimination, and vice versa.
- Here are a few candidates:
Potentially Omitted Variables
- Age of property. It may be that certain groups can afford only buildings of older vintage, which could imply a lower assessment.
- Investments in structure, maintainance and upkeep: Less affluent groups may find it harder to make timely investments (roof, heating, insulation…), which in turn impact the appraisal.
- Investments in home improvement: Less affluent groups may find it harder to install winter garden or swimming pools, with the same effect on valuations.
- A building-level fixed effect. Vladimir Avetian can use one in documenting (overt) discrimination in Moscow’s housing market. Probably hard here - unless you have a bunch of properties in a single unit?
- Get more data on the property to increase $X$? With current data seemingly impossible. What about ZTRAX, which has tons of characteristics (and First and Last name of Buyer and Seller), or something similar?
- More info on borrowers? Controlling for income (wealth better) would be ideal - education?
- Very important topic.
- Exciting database with appraisers race marker.
- Getting better measures of quality and/or borrower characteristics would help.