The appraiser plays a major role in the home buying process. A lender balances the appraisal of a property against the potential buyer’s mortgage needs and the market value of the house to determine the bank’s risk. Housing activists have expressed concern that appraisers who are not familiar with inner-city neighborhoods may inadvertently undervalue urban properties. As a result, lenders may determine that mortgage approval is too risky and deny the application. Undervaluation can also impact the overall neighborhood because the low appraisal report may be used as a comparable value for nearby homeowners who are seeking to sell their homes or to obtain home equity loans.

In conducting the test project, the task group selected a well-kept, newly renovated, single-family home in the Hough area of Cleveland’s East Side. Appraisers were not given a target housing value; however, they were informed that they were participating in a study.

The task group reported that the appraisals varied from $36,000 (originally $28,000 until a lender, in a phone conversation with the appraiser, expressed surprise at the low amount) to $83,500. The task group also found that the appraisers’ turnaround time was longer than average and, in one instance, the fee was considerably higher than the customary rate for nonurban appraisals. In response to the task group’s findings, an appraiser subcommittee, led by Rick Edlund, developed an industrywide continuing education program. "It’s important that appraisers be knowledgeable about the specific markets they are analyzing," said Edlund. "The test project helped reinforce the reality that the urban markets are constantly changing. We need to update our neighborhood data continuously to understand the values within that submarket."

The Greater Cleveland Residential Housing and Mortgage Credit Project—Full text of essay
Planning Committee
Cleveland Project Sponsors
Test Project: Appraising an Urban Home
Task Group Accomplishments
Task Group Members

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