Home Appraisal Discrimination

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July 3, 2024 Story by: Editor

For most homeowners, their house is their most valuable asset , and it tends to provide a good return. For instance, the median sales price for homes in the U.S. was $327,100 at the end of 2019, according to data from the Census Bureau and the Department of Housing and Urban Development. By the end of 2023, this price rose to $423,200, meaning the median homeowner gained nearly $100,000 in value during that time.

However, bias and discrimination in the appraisal process can lead to homes in marginalized communities being undervalued, depriving these communities of the same wealth that their white counterparts receive. Here’s what homeowners and buyers should know about appraisal bias.

What is Home Appraisal Discrimination?

Home appraisal discrimination, also known as appraisal bias, involves assigning a lower value to a home based on the race of the person who lives there. This can occur consciously or unconsciously and may also result from historical discrimination linking race to property values.

Historical Context of Appraisal Discrimination

Appraisal bias dates back nearly a century to when neighborhoods, particularly those with minority populations, were redlined on mortgage lending maps. These redlined neighborhoods faced tougher underwriting criteria, making it harder for residents to buy homes, leading to declining real estate in these areas and further racial segregation.

Today, it is a violation of fair housing laws to discriminate in the appraisal process based on protected factors, including race, color, national origin, religion, sex, gender identity, sexual orientation, familial status, or disability. Yet, biased outcomes still occur regularly. According to a 2021 study by Freddie Mac , 15.4% of homes in majority-Latino census tracts appraise for less than the contract price, and 12.5% of homes in majority-Black census tracts appraise for less than the contract price, compared to only 7.4% in majority-white census tracts. The study also found that this phenomenon persists even when accounting for neighborhood differences.

"Our preliminary modeling results suggest that even when taking structural and neighborhood characteristics into consideration, a property is more likely to receive an appraisal lower than the contract price if it is in a minority tract," the study stated.

Similarly, a 2018 report from the Brookings Institution found that "neighborhood quality" can only partially account for the difference in valuations of homes in majority-white neighborhoods compared to majority-Black neighborhoods. Researchers estimated that homes in Black neighborhoods are undervalued by $48,000 on average.

When a home is undervalued due to discrimination, it not only hurts the homeowner but also impacts the entire neighborhood. Since appraisers rely on comparable sales to value homes, one undervalued home can lead to other homes in the neighborhood being undervalued.

How to Identify Appraisal Discrimination

If an appraisal comes in lower than expected, start by reviewing the appraisal report. Buyers or those refinancing will receive a copy of this report, which includes all the data the appraiser gathered on the property, their comments, and the comparable sales they used.

Common signs of appraisal bias include:

Incorrect property details: Ensure the square footage, number of rooms, and other vital information are accurate.

Red flags in comments: Watch for language referencing the racial or ethnic makeup of an area.

Questionable comparable sales: The comps used should generally be within a mile, in similar condition, and close in age, square footage, and number of rooms. If the comps don’t fit this criteria and better comps are available, you may have grounds to dispute the report.

If you decide to dispute the appraisal, work with your real estate agent to ask for a reconsideration of value, supported by evidence that the initial appraisal used incorrect or incomplete information.

Impact of Appraisal Discrimination on Homeowners

Financial consequences:

Appraisal bias limits wealth-building opportunities for affected homeowners, whose homes don’t appreciate as much as those in other neighborhoods. According to a 2022 Brookings study, homes in Black neighborhoods are valued up to 23% below what they would be in non-Black neighborhoods, amounting to a total financial loss of about $162 billion across U.S. cities with at least one Black neighborhood.

Emotional and psychological effects:

Discrimination can lead to emotional and psychological distress, lower self-esteem, and mental health struggles, such as anxiety and depression, according to the American Psychological Association.

Legal Protections Against Appraisal Bias

Fair Housing Act:

Passed by Congress in 1968, the Fair Housing Act prohibits discrimination based on race, religion, nationality, or sex in housing-related transactions. It has been amended to include gender identity, sexual orientation, disability, and familial status as protected classes.

Legal recourse and reporting mechanisms:

File a complaint with the Department of Housing and Urban Development (HUD) online, via email, over the phone, or by mail.

Contact the Appraisal Complaint National Hotline to receive a list of state and federal agencies that may assist you.

Report housing discrimination to your state, usually through the attorney general’s office or your state’s civil rights division.

Consult local fair housing organizations for guidance and support.

Steps to Combat Home Appraisal Discrimination

Educating homebuyers and appraisers:

Awareness of appraisal bias helps homebuyers take action when it occurs. Appraiser education in fair housing, bias, and discrimination is also crucial.

Working with fair housing organizations:

Collaborate with local fair housing organizations and departments to address and prevent discrimination in the home-buying process.

Advocating for policy changes:

Support initiatives by organizations like the National Fair Housing Alliance to urge Congress to prioritize fair housing in its budgeting process and HUD funding.

Conclusion

Despite existing legal protections, appraisal bias continues to affect marginalized communities. By educating themselves and others, working with fair housing organizations, and advocating for policy changes, homeowners and buyers can help combat this persistent issue and promote equity in housing. Source: Business Insider housing. Source: Business Insider