Last month on our blog, we talked about the dangers of whitewashing history. This month, we’re discussing the unfortunate reality of Black homeowners who have resorted to whitewashing their homes in order to receive a fair appraisal estimate, as we shed light on bias in the real estate appraisal industry.
What is appraisal discrimination?
For much of U.S. history, homeownership has been the primary way that Americans have built wealth. However, due to America’s history of discriminatory and racist housing policies, as well as more insidious forms of discrimination that continue today, people of color have not had equal access to this wealth-building opportunity. Dating back to the times of redlining, the appraisal system has historically undervalued homes in communities of color, placing the highest value on White, homogenous communities. Still today, appraisal discrimination continues to be a problem, contributing to the widening racial wealth gap.
Home appraisal discrimination often happens when a home is undervalued because of the owners’ race, ethnicity, religion, or another protected class. This type of discrimination is much more likely to occur in Black and Latino communities than in White neighborhoods. In fact, a 2018 Brookings Institution study found that homes in majority Black neighborhoods had values that were 23 percent lower than properties in mostly White neighborhoods, even after controlling for home features and neighborhood amenities. While most appraisal discrimination involves the undervaluation of properties in communities of color, there have also been cases of harmful and abusive overvaluation of properties. In these instances, people of color have been targeted for predatory loans, and communities of color have been stripped of their wealth. According to the National Fair Housing Alliance, the overvaluation of appraisals “serves to lock borrowers in unfair and often unsustainable loans, prohibits the ability of consumers to refinance into safer and more affordable products, limits people’s ability to sell their homes, and often leads to other predatory practices.”
Despite its prevalence, appraisal discrimination is illegal. Federal and state civil rights laws prohibit home appraisal discrimination on the basis of race, color, religion, national origin, sex, disability, familial status, and other protected classes. The Fair Housing Act makes it unlawful for “any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction or in the terms or conditions of such transaction” on the basis of any protected class under the statute. The term “residential real estate-related transaction” is defined in the statute to include “the appraising of residential real property.” In conjunction with the Fair Housing Act, the Civil Rights Act of 1866 has also been used in the courts to challenge appraisal discrimination.
Additionally, a discriminatory appraisal that results in the denial of home financing may also violate the Equal Credit Opportunity Act of 1974. This law prohibits creditors from discriminating on the basis of race, color, religion, national origin, sex, marital status, age, and source of income.
“I don’t want to see my children have to deal with this.”
Black families across America have experienced appraisal discrimination first-hand. Take, for example, the Parker family from Loveland, Ohio. The Parkers received an appraisal that undervalued their home by almost $100,000 because of their race. They initially believed the appraiser just made a mistake, but upon further inspection, the family knew something was wrong and suspected discrimination. To test if their suspicions were true, Erica Parker scheduled a second appraisal — this time, replacing the photos in her home with family photos borrowed from her White neighbor. The second appraisal came in $92,000 higher than the initial appraisal.
This type of discrimination is not isolated to one part of the country, either. Over 2,000 miles away in Northern California, Paul Austin and his wife, Tenisha Tate-Austin, received a shockingly low appraisal of their home. Just like the Parkers, Paul Austin and his wife “whitewashed” their home, stripping it of any evidence that a Black family lived there. Their new appraisal came in at $1.48 million — nearly a half-million more than the previous estimate. Austin told a panel on state reparations, “I do want to see a change because I don’t want to see my children have to deal with this.”
While these are just two examples, appraisal discrimination is a widespread problem affecting Black families across the country. These individual stories of discrimination are supported by larger research, too. Studies conducted by both Fannie Mae and Freddie Mac show appraisal disparities for communities and borrowers of color. In their study, researchers at Freddie Mac analyzed millions of appraisals submitted for purchase transactions and found unexplained racial disparities in the percentage of properties that received an appraisal value lower than the contract price. This study also found that appraisal bias is widespread and present across appraisers. In other words, this issue is not just limited to “a few bad apples,” but rather, the majority of appraisers reviewed were more likely to undervalue properties in Black or Latino census tracts than in White census tracts.
What is being done to address appraisal discrimination?
The appraisal system has a lot of work to do in order to make the appraisal process equitable. Among other issues within the system, the Appraisal Standards are largely unclear, misleading, and vague when it comes to fair housing and discrimination. The National Fair Housing Alliance has issued recommendations for the Appraisal Standards Board and Appraisal Foundation to increase equity in their policies and practices.
The good news is, people are starting to pay attention to — and call out — instances of appraisal discrimination. Recently, reports about appraisal discrimination have caught the attention of the Consumer Financial Protection Bureau and the Department of Justice. The CFPB has created options that will strengthen oversight of potentially racist automated valuation models. The DOJ Civil Rights Division also issued a statement stating that “combating housing discrimination, including bias in appraisals, is a high priority across the federal government.”
While this is encouraging news, you don’t have to work for the CFPB or the DOJ to make a difference. If you or someone you know suspects that you have experienced discrimination in the home appraisal process, reach out to a local fair housing agency in your area. By filing a complaint or sharing your story, you can exercise your right to fair housing, while helping to bring much-needed attention to this issue of appraisal bias.