Appraisal Discrimination: Today’s Redlining

Appraisal Discrimination: Has Discrimination in Appraisals Become Today’s Version of Redlining?

Blog, May 2021

A number of studies have found that Black-owned homes are undervalued when compared to similar homes owned by white homeowners with similar area amenities.  This is especially true in historically Black neighborhoods here appraisal discrimination has now been acknowledged as an issue by industry leaders.  In fact, homes in neighborhoods where 50 percent of the population is Black are valued at half the price as similar homes in neighborhoods with no Black residents, (Perry, 2).  This is no coincidence.  Strong statistical data points to the correlation between race and the market value of owner-occupied homes—specifically homes owned by Blacks or located in black communities.  “Across ALL majority Black neighborhoods, owner-occupied homes are undervalued by $48,000 per home on average, amounting to $156 billion in cumulative losses, (Perry, 3).

Differences in the size, quality, and features of a home and in neighborhood amenities do not fully explain why homes in Black neighborhoods or Black-owned homes are devalued compared to their white counterparts.  It is our belief that this devaluation occurs when bias—implicit or explicit—influences the actions of appraisers.    These implicit “associations cause us to have feelings and attitudes about other people based on characteristics such as race, ethnicity, age, and appearance,” (Kirwan).  Implicit biases, explicit biases, and structural constructs like public policy, institutional practices, and cultural norms and representations, are often mutually reinforcing and perpetuate racial inequity.  Housing is not immune.

The racial inequities that exist today in housing are a direct result of racist policies like redlining, deed restrictions, and zoning, to name a few.  While government redlining ‘officially’ ended with the Fair Housing Act of 1968, the impact lingers on, visible in neighborhood disinvestment, poor infrastructure, employment opportunities, education, and lower quality housing stock.  Has discrimination in appraisals become today’s policy of redlining?  We think so.  Brookings Institute has found that there is a “widespread presence of anti-Black bias and even outright discrimination and racism” in the devaluation of black assets in the housing market, (Perry, 19).   And panelists at a recent summit held by the National Association of Realtors agreed that home valuation processes could be exacerbating racial inequality and that more fair and equitable valuation systems would help increase Black homeownership rates and close racial wealth gap, (NAR).

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 binds appraisers to a standard of unbiased ethics and performance. But the process itself is flawed.  The major culprit for this widening gap in value is the actual formula for pricing homes—the sales comparison approach, (Mock).  This formula determines a home’s value upon recent sales prices of similar homes in the same neighborhood.  In a country with a history of redlining and deed restrictions that have segregated black and white neighborhoods, the results are undervalued and depreciated homes in Black neighborhoods while homes in white communities have enjoyed decades of appreciation.  “The appraisers’ current valuation processes have not only been exacerbating the racial appraisal gap, but also the racial wealth gap, given that homeownership is one of the primary ways that U.S. families accumulate wealth, (Mock).  But with little regulation and oversight, Appraisers’ opinions of value are often all that stands between the accumulation of home equity and the destruction of it for Black Americans, (Kamin).  And often the value of assets is directly linked to the appraiser’s perception of Black people and neighborhoods, even if it’s involuntarily.

The social implications are grave.  Black homeowners realize little opportunity to build generational wealth and grow upward mobility.  It’s harder to start a business, pay for college, or make improvements to a home through a home equity loan.  Access to good schools and area amenities is restricted.  Commute times are longer, (Perry,13). “Furthermore, the structural racism that enables and sustains segregation facilitates structural racism in other forms, including mass incarceration and police violence and the unjust distribution of high-quality health care,” (Bailey).

“‘White appraisers carry the same attitudes and beliefs of white America — the same attitudes that compelled Derek Chauvin to kneel casually on the neck of George Floyd are shared by professionals in other fields. How does that choking out of America look in the appraisal industry? Through very low appraisals,’” Perry Said, (Kamin).  Whether racism is found at the individual level, system-wide, or both, the differences in appraisals could mean that Black homeowners have missed out on millions if not billions of dollars in wealth over the decades due to the undervaluing of their properties.

Bibliography:

Kamin, Debra. “Black Homeowners Face Discrimination in Appraisals.” The New York Times. The New York Times, August 25, 2020. https://www.nytimes.com/2020/08/25/realestate/blacks-minorities-appraisals-discrimination.html.

Mock, Brentin. “What It Will Take to Close the Race Gap in Home Appraisals.” Bloomberg.com. Bloomberg, March 3, 2021. https://www.bloomberg.com/news/articles/2021-03-03/appraisers-acknowledge-bias-in-home-valuations#:~:text=That%20kind%20of%20individual%20bias%20is%20just%20one,the%20wealth%20gap%20between%20Black%20and%20white%20families.

“NAR’s Virtual Appraisal Summit Examines Intersection of Fair Housing, Appraisal Industry.” www.nar.realtor. National Association of Realtors, August 6, 2020. https://www.nar.realtor/newsroom/nar-s-virtual-appraisal-summit-examines-intersection-of-fair-housing-appraisal-industry.

Perry, Andre M., Jonathan Rothwell, and David Harshbarger. “The Devaluation of Assets in Black Neighborhoods.” Brookings. Brookings, February 17, 2021. https://www.brookings.edu/research/devaluation-of-assets-in-black-neighborhoods/.

Sheridan, Jill. “More Black Americans Call Out Housing Appraisal Process As Discriminatory.” NPR. NPR, Morning Edition, May 19, 2021. https://www.npr.org/2021/05/19/998137158/more-black-americans-call-out-housing-appraisal-process-as-discriminatory.

The Kirwan Institute. “Understanding Implicit Bias.” Understanding Implicit Bias | Kirwan Institute for the Study of Race and Ethnicity. The Kirwan Institute, May 29, 2012. https://kirwaninstitute.osu.edu/article/understanding-implicit-bias.

Bailey, Sc.D., M.S.P.H, Zinzi D., Justin M Feldman, Sc.D., and Mary T Bassett, M.D., M.P.H. “How Structural Racism Works – Racist Policies as a Root Cause of U.S. Racial Health Inequities: NEJM.” New England Journal of Medicine. New England Journal of Medicine, April 21, 2021. https://www.nejm.org/doi/10.1056/NEJMms2025396.