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An unconscious bias? Biracial Denver couple says they faced discrimination on home appraisal

First appraisal came back $145,000 below value
Posted at 10:02 PM, Nov 18, 2020

DENVER -- A quick tour of the Mitchell home in Park Hill reveals their growing family is running out of space.

“We’ve got two girls in our bedroom in here,” said Gwen Mitchell. “It’s crowded.”

This past spring, Gwen and her husband, Lorenzo, started talking about remodeling and adding on to their current home.

“I’ve talked him into a mid-century pop,” said Gwen.

Getting a home equity loan seemed like the perfect solution to help with the costs of the home renovations, especially with interest rates so low.

“And I’d also heard about some social justice initiatives that Westerra (Credit Union) was involved in, so I was like, 'Let’s go that way,'” Gwen said.

They scheduled an appraisal and did some research on their own.

“I had already looked at Zillow, Redfin and all of them. We’re appraising the house above $500,000,” Lorenzo said.

Lorenzo was home with the kids when the appraiser came.

“I opened the door for him and basically let him in while I continued to work, because everyone is working from home now,” Lorenzo said.

The appraiser finished up, but then the Mitchell family waited. It took nearly two months for the appraisal to come back.

“My original impression was like, 'Whoa. Why?' There’s something about this that doesn’t look right,” Lorenzo said. “I was shocked when he appraised the house at only $405,000.”

The Mitchell family couldn’t figure out why it was so terribly off the mark, until they realized all the comps were taken from north of MLK Boulevard when their home is south of MLK.

“I don’t know why. Because I am a Black guy, he picked the houses from the Black side of Park Hill?” Lorenzo questioned. “That was my first red flag.”

It seemed a lot like redlining to them, their friends and even other real estate professionals like Chad Nash with Compass Realty.

“As much as I love real estate, it’s probably one of the most covert discriminatory industries out there,” Nash said.

Redlining is defined as a discriminatory practice by which banks, insurance companies, appraisers, etc. limit or refuse loans to people of color.

Then, the Mitchells decided to experiment by calling in a second appraisal company.

“This time we decided to flip it around,” Lorenzo said. “Let’s leave the white person home. If we were both Black and had a white aunt or uncle, we probably would have done the same.”

“We didn’t change the house, we didn’t paint any walls,” Gwen said. “We didn’t do anything different.”

The second appraisal came back just five days later, the comps were all south of MLK and the price: $550,000.

“A $145,000 difference,” Gwen said. “Same house. Same time on the market. $145,000.”

It was a shocking difference, but sadly, Nash said they’re not alone.

“It’s something that I see every day,” Nash said. “You have to realize appraisals are not objective in themselves. There are humans involved in making subject assessments. And so, we talk about issues of, 'How do I show my home? How do I get the most for my house? How do I make it not look like a Black home or brown home?' You have to take the pictures off the walls.”

And for Black home buyers, Nash said even if you get in, you might not get ahead, because sometimes you’re paying more in interest than your white neighbor through predatory lending, higher fees and higher annual percentage rates or APRs.

“You’re automatically behind the eight ball,” Nash said. “So, you’re buying power on the next house is already diminished.”

It’s not just Colorado.

Similar stories have recently popped up in the New York Times and the Chicago Sun Times.

Denver historian Dr. Vern L. Howard said Park Hill in particular has a history of discrimination against Blacks dating back to the 1950s and 1960s when many Blacks were trying to relocate to Park Hill.

“The real estate agents and the banks would get together and jack up prices,” Howard said.

Adding insult to injury for the Mitchells — Westerra Credit Union defended its appraisal.

“They had someone call me to basically tell me, ‘Well, the guy had justified reasons,’” Lorenzo said.

“It’s deeply concerning,” Gwen said.

“There was clearly a bias that my house was picked from the Black neighborhood because I’m Black,” Lorenzo said.

We reached out for comment and Westerra said in a statement, “…there was no racial bias…” and there were fewer “…comparable home sale prices in mid-May…” because fewer homes were on the market. You can read Westerra’s full statement at the end of this article.

But real estate experts like Nash and Lori Abbey with The Abbey Collection say fewer comps should not have impacted the price.

“No,” Abbey said. “That’s not how it works. Appraisals go back six months. It’s not a quick snapshot of what’s going on over a couple week period or one-month period. Not ever. If I did that, I’d be fired.”

“A good appraiser would know how to rectify and find the best comps out there,” Nash said.

“The reality is, the comps from north of MLK were wrong,” Abbey said. “That’s just not right.”

Nash said – at best – it was incompetence, at worst – racial bias.

The Mitchells didn’t seek out Denver7. One of their friends called us.

“We’re not excited about being on the news with this story,” Gwen said. “We didn’t want to overreact. We just wanted equality.”

“This is not about us,” Lorenzo said. "It’s about what’s happening to minorities.”

The Mitchells have now moved on and are using a different lender for their home improvement project.

“We don’t have the energy to be the ones investigating,” Gwen said. “But we want to illuminate, we want to shine light on this inequity.”

“If you’re not even willing to empathize or at least see where I’m coming from, I will just move on,” Lorenzo said. “Because it’s not my responsibility to change you.”

“It was just a matter of who answered the door,” Gwen said.

Below is the full statement from Westerra Credit Union:

“Thank you for reaching out to us regarding Mr. Mitchell’s inquiry to obtain our statement. Westerra is an equal opportunity lender. We do not discriminate and we take any questions on this topic very seriously. Westerra follows all federal and state regulations in mortgage lending, including ensuring appraisals are an independent and impartial analysis of property. They are conducted independently by an outside third party as mandated by federal appraisal independence requirements (air) implemented in 2010.

After the 2008 financial crisis, federal regulation was put in place to help prevent lenders and other interested parties from influencing appraisers to provide a specific value in exchange for a promised amount of business. Westerra Credit Union, and all mortgage lenders, are required to follow specific regulation for appraiser selection and communication with appraisers. for this reason, Westerra outsources to appraisal management company for their expertise in managing an appraiser panel, appraisal assignment, quality reviews, licensing and evaluation of value disputes such as Mr. Mitchell’s.

When Mr. Mitchell raised his initial concern about the May 18, 2020 appraisal, we brought it to the attention of the president of the appraisal management company who reviewed all the data, interviewed the appraiser, and interviewed other third party appraisers who have good knowledge of the Denver market and the neighborhood. After this investigation, his opinion was that there was no racial bias in the appraisal. We provided that report to Mr. Mitchell. We also offered to coordinate another appraisal, at no charge to him, but he declined our offer.

When Mr. Mitchell provided us the second appraisal performed on July 29, 2020, we again shared it with the president of the appraisal management company. While it is not uncommon for two different appraisers to arrive at different values, we agreed that $145,000 is a significant difference and warranted another review. The president of the appraisal management company explained in his response that there are legitimate factors that appear to have caused the significant variation in the two value opinions and he still concluded there was no bias in the valuation.

He stated that there were three primary factors impacting the difference in values – timing, condition rating, and eclectic nature of the market area—with timing being the most significant difference. He explained in detail how these factors impacted the difference in value and still concluded there was no bias in the valuation. That report was provided to Mr. Mitchell.

It is important to note that much has changed in the real estate market in recent months. When COVID first came to Colorado, statistics show home sales decreased significantly. Realtors could not have open houses and many sellers did not want people to come into their homes, which had an effect on comparable home sale prices in mid-May compared to late-July. Comparable home sales in the neighborhood are an important component in appraisals. An appraisal is a snapshot of the date the appraisal was conducted. Higher comparable sales in the neighborhood at a later date impact appraisals being higher at that later date.

Colorado home sale statistics, as documented in REColorado, the largest multiple listing service (MLS) in Colorado, show there were significantly more homes on the market with higher average home prices in July compared to May. As noted above, we did offer to coordinate a second appraisal and Mr. Mitchell declined. An appraisal at a later date would have reflected the increase in the market. Here is an overview of the difference in market conditions at the time of both appraisals:

May data - [] - Closed homes experienced a 44% decrease on the year-over-year closed homes data due to COVID restrictions.

July data - [] - Fast forward to the time of the second appraisal and there was a 21% year-over-year increase of closed homes, sales and new listings.

We did offer to coordinate a second appraisal, which would have reflected the increase in the market in July, but Mr. Mitchell declined. We hope this information is helpful to you in evaluating Mr. Mitchell’s inquiry to you.”