Black homeowners have long known that the home appraisal industry has a deep history of racial discrimination. A prominent example of this arrives via a widely-circulated Facebook post published by Abena Horton on July 2, 2020. There, Ms. Horton, who sought to take advantage of low home-refinance rates brought on by Covid-19, describes an initial appraisal wherein her and her husband’s ranch-style home in Jacksonville, FL was valued at $330,000— despite neighboring houses with fewer bathrooms, fewer bedrooms, and significantly lower square footage being appraised for significantly higher values. Sniffing foul play, Ms. Horton— who is black—ordered a second appraisal, and prepared by taking down family pictures containing black relatives, replacing Toni Morrison with Shakespeare on bookshelves, and leaving her white, male husband to meet the appraiser alone. Their second appraisal came in $135,000 higher than the first.
Ms. Horton’s story is not the exception, but—sadly—the norm. Carlette Duffy, who, four years ago bought a tidy, three-bedroom home in a historic black neighborhood of Indianapolis for $100,000 relates a similar account. Like Ms. Horton, she sought to refinance her home this past year and began by seeking an appraisal. An independent market analysis estimated her home’s value at $187,000, so she was surprised when it was first appraised for $125,000. Surprise turned to shock when a second appraisal came in $15,000 lower than the first, and shock then turned into dismay when a third appraisal valued her home at $259,000 after a friend’s white husband agreed to show her place.
A Response from the Biden Administration
Acknowledging the decades-old problem of racial discrimination in home appraisals, President Biden has announced the creation of a Department of Housing and Urban Development (HUD)-led task force to review the home appraisal process and recommend regulatory and legislative steps to reduce racial disparities. Industry experts have applauded this initiative, but caution that sustained action is needed if real, systemic change is to occur.
A study co-authored by sociologist Junia Howell saw that homes in white neighborhoods have risen an average of $225,000 in real dollars from 1980 through 2015, while homes in communities of color have risen by only an average of $31,000 in that same period. If this trend is to change, appraisers cannot simply depend on government intervention and legislative change but must, themselves, take action.
How Can Home Appraisers, Mortgage Lenders, and Credit Unions Do Better?
Racial discrimination occurs in home appraisals because of subjective bias. Accordingly, industry professionals must institute mechanisms that remove subjective elements in their practice. Automated tools go far in achieving this outcome, and many are already available. Standardized measurements, which take the number of bedrooms and bathrooms into account, for instance, are a good start.
Automated appraisal methods present their own risks, however, and often this is the result of bad or flawed data. The Home Mortgage Disclosure Act places a legal obligation on mortgage lenders to report and publicly disclose information about home loans, and a similar database would go far in excising discrimination from the home appraisal industry, as well.
A further step would involve designing an alternative to the comparison-based model used in many appraisal situations. Such an innovation would drive greater wealth-creation opportunities in black and other minority neighborhoods, thereby striking at the heart of the issue.
To learn more about what dedicated agencies, such as Appraisals Unlimited, are doing to rectify the profound injustice of racial discrimination in the home appraisal industry or to request a commercial or residential real estate appraisal right now, fill out the brief form below or order an appraisal online. We are the most trusted appraisal company in New England and New Jersey and, above all, are dedicated to justice in performing the more than 10,000 appraisals we conduct each year.