Home appraisers are bound by the Fair Housing Act of 1968 to not discriminate based on race, religion, national origin or gender. However, more than 15% of U.S. consumers have personally experienced housing discrimination as they attempted to rent or purchase a property, according to a new Homes.com survey of 2,000 adults, and 3% said that discrimination was encountered during the home appraisal process.
While positive steps have been made over the past 50 years to eliminate discriminatory practices of residential real estate appraisals, there are still instances of this occurring. Allowing an owner’s race to lower the valuation of an appraisal will directly contribute to lower levels of the legacy wealth that homeownership creates.
A 2018 study by the Brookings Institute confirmed this issue with its findings; according to the report, valuation of houses because they are located in majority-Black neighborhoods is penalizing homeowners by an average of $48,000 per home. And while segregation has negatively affected neighborhood conditions – fewer quality schools, in particular – and reduced the quality of homes, the differences in home and neighborhood quality do not fully explain the lower prices.
The History of Racially-Biased Appraisals
When looking at the history of racially-biased home buying and selling, lending and appraising, redlining was a factor that played a significant role in creating more impoverished neighborhoods based on race. Redlining is the practice of refusing to approve mortgages or imposing difficult terms on any loans made because of the neighborhood’s predominant race. Though redlining is illegal today, biased lending practices can include “reverse redlining” which targets communities based on income, race, or ethnicity to identify borrowers with poor credit in order to offer them credit on unfair terms.
Knowing your rights as a borrower is crucial which is why Homes.com encourages consumers to find out more information; the Better Business Bureau and the Consumer Financial Protection Bureau can walk you through the process of ensuring fair and legal regulations are being met.
According to the same Homes.com survey, sixty-two percent of respondents said federal housing policies should actively encourage diverse communities. Some of those policies and encouragement exist through the passing of the National Affordable Housing Act and the federally-funded HOPE Program. But, before these policies, and before the Fair Housing Act of 1968, the process of redlining was rampant and appraisers labeled every Black neighborhood, no matter what its income level, as “hazardous” areas for housing loans. These neighborhoods were colored red on maps used by appraisers. Redlining “created a snowball effect that compounded over generations,” said Nathan Connolly, a Johns Hopkins historian.
The Expanding Gap Between Black and White Home Valuations
A new study by two sociologists, Junia Howell.at the University of Pittsburgh and Elizabeth Korver-Glenn at the University of New Mexico, found that the racial gap in home appraisals has doubled since 1980. Instead of decreasing over time, the number of non-white homebuyers grew and fueled a market demand for homes in increasingly diverse neighborhoods.
In predominantly Black and Latinx populations, the study also found that between 1980 and 2015, average appraised values fell by $22,000, while the average appraised home value in increasingly white neighborhoods at the same rate rose by $73,000. The difference in average home appraisals between majority-white neighborhoods and those that are predominantly Black and Latinx was $164,000 in 2015, up from about $86,000 in 1980.
According to a recent Homes.com survey, 60% of respondents stated they do not know how to report Fair Housing law violations or concerns. If you feel you’ve been a victim of racially-biased appraisal practices, you can file a complaint through HUD, the U.S. Department of Housing and Urban Development.
How Appraisers are Responding to Combat the Discriminatory Practices
Some appraisers are now working to address the issues raised by the Brookings study. Douglas Krieser, president of the American Society of Appraisers, believes the most direct way to solve the problem of grandfathered valuations in White and Black neighborhoods is to encourage the broader use of two valuation approaches: the cost approach, which bases a property’s value on the cost of replacing it, and the income approach, which uses the rental rate for a property based on the current rental market.
Additional steps are being taken by four appraisal organizations, including ASA and AI, to address racially-biased appraisals by working together to develop training programs for appraisers covering unconscious bias issues in valuation. Each organization will also take steps to enhance and enforce their respective code of ethics to wipe out racial bias.
No Easy Alternate Approach
New training programs and changes in codes of ethics may be the simpler part of the solution. Unless a way can be found to account for historic devaluation mathematically, substituting an alternative or alternatives to the sales comparison method will be more difficult. Appraisers and lenders will have to change their business practices.
A re-valuation of homes in Black communities might result in more accurate appraisals, more tax revenue for community schools and an increase in the equity owned by thousands of families and entire communities. This new-found wealth will be a small step towards atoning for generations of home values devalued by sins of the past.
How Homes.com Can Assist You
The growing need for active support within, and for, diverse communities in the U.S. has been a driving factor in Homes.com providing appropriate resources. Support for these efforts come from the senior leadership down, as stated by our president, David Mele, “Homes.com is passionate about, and committed to, providing education and resources that champion equal access to housing for all.”
In the coming weeks, Homes.com will launch a dedicated resource page to provide consumers with the latest news in Fair Housing, guidance on how to submit Fair Housing concerns, information on existing programs to assist renters and buyers, and more. You can also visit Homes.com’s blog for additional resources that relate to providing fair housing to minority groups, such as handicap accessibility, how to combat racial biases in real estate, and more.