Race-based lending practices have been outlawed for decades under federal fair housing laws. Not so for the home appraisal industry, though it’s been pretty much an open secret for years that homes in Black communities or other communities of color are consistently undervalued compared with similar homes in white neighborhoods or with white owners.
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A mere hint that a home is owned by a person of color can be enough to cause it to be undervalued. There’s the widely-reported story of the Black couple in Marin County, California — one of the priciest communities in the country — who saw their home’s appraised value jump by almost $500,000 when they removed personal photos and Afrocentric art and had a white couple stand in for them for a second appraisal.
They sued the appraisal company, just as any smart home owner with half a million dollars at stake undoubtedly would.
But filing lawsuits is not a fix for a proven systemic problem.
Consider the September 2021 study by federal mortgage lender Freddie Mac, which found that only 7.4% of appraisals in majority-white census tracts came in below a property’s contract price, compared with 12.5% of appraisals in majority-Black areas and 15.4% in Latino census tracts. Homes in minority areas were already more than twice as likely to be undervalued compared to homes in white areas.
And a February 2022 analysis from Fannie Mae found that, when compared to automated home valuation models, or AVMs, Black borrowers who were refinancing their homes were more likely to receive lower appraisal values, while homes owned by white borrowers were more frequently overvalued.
A low appraisal means a bank won’t lend as much to a would-be buyer — so unless a buyer is willing or able to make up the difference, the homeowner is stuck selling a home for less.
The next step will be to implement the plan developed by the Biden administration’s Property Appraisal and Valuation Equity task force. Among its recommendations are more federal oversight of the appraisal industry; quality control standards on AVMs, to prevent the use of data that could reinforce existing bias; improved training of appraisers; and more consumer education on steps to take if they receive a lower-than-expected appraisal.
When a homeowner decides to sell, a home’s value depends on any number of factors.
A homeowner’s race should not be one of them.
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