Conversations surrounding racial bias in real estate aren’t new, but they have resurfaced as home appraisals gaps based on subjective judgment have slighted minority homeowners looking to capitalize on their accrued equity.
Recent reports have placed a more public light on the adverse effects in minority neighborhoods. However, they also raise questions among industry professionals about addressing the impact of the typically taboo topic.
“If you’re in real estate, you have a strong interest in seeing that people fully benefit from homeownership,” Bryan Greene, vice president of Policy Advocacy at the National Association of REALTORS® (NAR), tells RISMedia.
According to Greene, home appraisal bias is part of a longstanding dialogue among real estate experts and advocates, who say that agents want to see their consumers treated fairly in all aspects of the home-buying and selling process.
“That means you want to see all homes fairly valued by appraisers,” Greene continues. “If you’re an agent and you’re representing a seller, you want to be sure that the seller can obtain the right price for that home, as well. You want to close that deal, so you want to be sure that when there is an offer on the home that the house appraises out.”
‘Disheartening’ Discovery
A study conducted by Freddie Mac essentially confirmed national articles that displayed the impacts that homeowners of color have suffered under appraisal bias, including persisting disparities in homeownership and equity.
The report found that homes in Black neighborhoods are about 70% more likely to appraise lower than the sales price for homes in white areas—12.5% compared to 7.4%. Homes in Latino communities were more than twice as likely to appraise lower, at 15.4%.
The data also showed that as the appraisal valuation gap in markets increased as the concentration of Black or Latino individuals in an area grew.
The findings, which also unpacked potential reasons for the gap, were disconcerting, says Rodman Schley, president of the Appraisal Institute, an international professional association representing the real estate appraisal professions.
“This research serves as yet another reminder that our nation has a long way to go in not only identifying but also pursuing solutions to racial bias around homeownership,” said Schley in a statement responding to Freddie Mac’s report.
“That goes against everything appraisers stand for,” Schely added. “Appraisers take a lot of pride in being an objective source of real estate value information. We look at the numbers and facts and mirror what the market tells us. It’s also important to work with trained, professional appraisers from the beginning.”
The frustration is felt equally among the real estate professionals working with clients struggling with the disparity, says Lutalo McGee, broker/owner at Ani Real Estate in Chicago, Illinois.
“At the end of the day, we have to deal with the disappointment when these transactions don’t go through for our clients,” McGee says.
Tampa-based broker/owner Kendall Bonner of RE/MAX Capital Realty suggests the gap in appraisals, and racial bias noted in the study, partially indicate lagging diversity in the industry.
“I think that is a contributing factor to the problem,” Bonner says. “I think if we had more diversity in our industry, people wouldn’t be able to get away with it quite as much as they do because they would be called out more often.”
The presence of racial bias in appraisals—among other aspects of real estate—won’t do any good to the persisting shortage of homes for sale either, according to Bonner, who indicates that lagging construction isn’t the sole reason.
Fear among homeowners of color that if they list their homes will get undervalued due to the bias could be among the list of contributing factors, Bonner says.
Focused on Solutions
Real estate professionals say they are exploring ways to help their clients get equitable treatment in the transaction process, from national fair housing efforts to hyper-local practices performed at the deal table.
While he says there isn’t a blanket solution to a problem, Schley indicated that a concerted effort between appraisal groups, real estate professionals, banks, government agencies and other stakeholders is a necessary first step forward.
Greene echoed similar sentiments, stating that advocates and stakeholders will need to work together to get to the bottom of what is causing disparities in home appraisals.
“It’s an opportunity for people who are involved every day in the appraisal profession to speak with policymakers and explore the different variables that could potentially affect appraisal price to make sure all of those items are factored into any analysis,” Greene says.
Among his recommended solutions, Schley called for HUD’s interagency task force to include adjoining mortgage processing issues such as lender “reconsideration of value” and appraisal appeal processes, as well as creative approaches to financing underserved markets.
“We also believe instances of potentially sub-par or otherwise problematic appraisals could be mitigated by hiring highly qualified appraisers who also have a market and geographic competency at the outset,” Schley said.
He also suggested improving lender appraisal management by engaging qualified appraisal review staff.
According to Jackie Seawright, an agent with Kelly Higgins & Associates of Coldwell Banker Realty in Connecticut, improving communication between agents and appraisers is critical to getting a fair valuation of a home.
“We stay connected to the specific location niche of our properties and analyze shifts in activity for the areas we service,” she says.
Seawright indicates that she and her colleagues make themselves available and present for appraisers so they can answer questions and share firsthand market information about their listings.
“We communicate with the appraiser insight that is not provided through multiple listing services but is impacting the sale based on our personal experience of physically visiting comps used versus only seeing posted photos,” Seawright adds.
Rather than ignoring the elephant in the room, Bonner notes that real estate professionals have to acknowledge their customers’ fears and concerns about potential bias hindering their home appraisals.
“I think that’s a mistake when real estate professionals come into someone’s home, and someone comments that they are afraid of this,” Bonner says. “We need to honor that, respect that and commit to them that we are going to do everything in our power to help protect them from that.”
McGee echoed similar thoughts, suggesting that agents and brokers learn more about the appraisal process and how they can engage with appraisers so they can dispute reports that seem unfair or biased.
“Agents have to be very intentional about two things,” McGee says. “One is going to those appraisals with their clients to make sure those appraisals have been done well.”
In cases where agents have to navigate clients through contesting an appraisal, McGee says raising awareness is the second thing agents need to do.
“One of the biggest challenges that we’ve had in the last year is getting people to report actual incidents,” McGee adds. “We hear a lot informally in side conversations, and we’ve seen the research from different corners of the country, but in terms of having examples, we need more of those examples so that we can see the picture in full.”
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news to jgrice@rismedia.com.
Am I missing something here? Most appraisals are ordered AFTER the sale price is agreed upon, and appraisers use the same comparable sales that real estate agents use, so how are they to blame for lower sale prices in certain areas? The same holds true for CMA’s. If an agent is preparing to list a home, they would simply look up the comps in the area and adjust for the differences in the properties. The disparities that exist in appraised values and sale prices in specific areas vary for a wide variety of reasons, so trying to simplify this as “appraisal bias” or “racial bias” is irresponsible and utterly ridiculous. I would like to see the relevant crime statistics, availability of services, school data, etc., for the areas in question. THOSE statistics would surely be telling!
This article states the obvious in a world where overt racism has fallen out of favor and totally ignores the depth of the racial animus that exists, namely, even when a white appraiser looks at a home in a “white” neighborhood that apparently is lived in by a Black family OR owned by a mixed race marriage where one of those spouses is non-white, the valuation is lower than when the household is 100% white. That’s not accidental or due to lack of bias training any more than it is when homes are set aside or labeled “pending” in order to be available solely for white buyers. Nor is it just “a few bad apples” playing the games. There’s plenty of training to teach realtors and others how to ride the line of fair housing and fair lending laws because it’s no longer acceptable in many places to display overt bias.
The anecdotal evidence of racial steering are your examples of how widespread the problem is. Go back a year, 5 years, 20 years, whatever period you want in order to see the gymnastic twists made to support the bias that it’s easy for whites to buy land wherever they want but the same privilege isn’t given to non-whites except on paper. And the “market” will do what people in power positions want it to do. Hence, record-low interest rates don’t translate into more minority homeownership because purchase prices rise to allow banks to gain, not lose, money; appraisals are set to allow certain people to buy out homes for pennies from minorities who owned the home for only 1 generation and then rehab those buildings in ways that not only don’t aesthetically complement the neighborhood but also “justify” a resale price exponentially higher than the neighborhood ever dictated and out of the price range of nonwhites; and, governments have no problem seizing lands from minority homeowners for paltry tax delinquencies in order to transfer those properties to developers who pay cash at those tax sales and easily qualify for bank loans or even grant monies purportedly designated to promote minority homeownership!!
So, let’s just stop the tiptoe dance around the fact that people’s lives are harmed in being denied housing because this harm is far more disastrous than the tears over reputation damage to the interwoven homeownership industry. Let’s also stop calling today’s racial animus simply a “resurfacing” as if it had died or was legitimately minor at some undetermined past period. I haven’t heard of any of these professionals returning stolen lands to minorities in Nashville, Rosewood, or Tulsa, as notable examples, and I don’t hear any of these professionals pushing for enforcement of the return of excess tax sales proceeds to the original, largely minority, owners either.
And the various industry professionals need to stop spewing the tired unsupported claims that the industries really want to resolve the bias problem. Since no sincere meaningful action is evident to “get to the bottom” of the problem after so many years, it’s a safe bet to believe that the industries don’t want to rid themselves of the racial animus and bias problems which are the foundational problems. Consequently, change won’t occur until enough of the biased and silent enablers get out of these professions.
As a professional who has been in real estate for more than 30 years as a builder, investor, instructor, appraiser and Realtor (licensed in 2 states) and who communicates with appraisers all over the country on a daily basis, I can honestly say that appraisers do not wake up in the morning determined to lowball an appraisal because they don’t like the borrower’s ethnicity, sexual orientation, nationality, etc. Of course like anything in life there are exceptions, but appraisers are among the highest educated in the business and go through a lot of complex training for at least 2 years to obtain their license/certification. They are not going to jeopardize that by putting any personal opinions into the process. What needs to happen is to weed out any appraisers or Realtors who do not stay objective. This is just another “cause du jour” by people who try to benefit from it.
Mr. Grice;
I am a 30 year real estate appraiser and read with interest this article. The study commissioned by Freddie Mac has good data. The conclusions however are faulty.
The appraisers rarely (if ever) knows the race of the home buyer. The appraiser almost never meets or speaks with the buyer in a sale transaction, and the buyers agent is forbidden by law from sharing any information regarding race, religion or sexual preference with anyone, especially any person involved in the sale transaction.
There are many reasons why the average home value can be lower in non-white neighborhoods than in white-owned neighborhoods, and many of these reasons are rooted in systemic racism.
Non-white neighborhoods were often subject to restrictive zoning laws and banking policies, and often recieved a much lower level of support for schools and public service agencies. The restrictive home ownership policies resulted in a higher ratio of renter to owners in these poorer neighborhoods (with landlords who provided minimal maintenance and upkeep.) This also resulted in a much smaller pool of money for home building and public infrastructure which resulted in a lower overall home quality and neighborhood appeal in these non-white neighborhoods.
Enter the appraiser. The methods used by appraisers are controlled by Federal law, not the appraiser. Appraisers use “sale comps” from the neighborhood in order to estimate the value of a home in that neighborhood. In poorly supported neighborhood, overall home value will be lower than in white neighborhoods. The appraiser has no control over this.
A comparison of appraisals will obviously show lower appraised values in non-white poorer neighborhoods than in white affluent neighborhoods, but this has nothing to do with appraisal bias and everything to do with government and banking policies that created those “non-white” neighborhoods over the last 100 years.
The solution to this is not to “educate the appraiser” or to “make sure the appraisers are qualified” or “have geographic competency.” Changing appraisal policy will no change the disparity in home value between affluent and poor neighborhoods.
The solution is to change federal housing and lending policies. If the Feds want to fund “human infrastructure” a good place to start are in the poorest neighborhoods.
I am curious why the Feds are pushing this narrative of appraisal bias so hard? (google this topic you will see the Freddie Mac study quoted in dozens of recent articles that push the
“appraisal racial bias” narrative.)
I wonder the Feds are trying to distract from decades of racist policies that caused this satiation in the first place?
So tell me: crime stats are not important? Theft, burglary, murder rates, sex abuse rates? Are auto rates biased?
As an appraiser for over 30 years, I tell people, I don’t appraise your house, your neighbors do.
What constitutes s credible disclosure / statement in an appraisal report USPAP standards regarding racial or any other protected class bias?