It is not often that you can so easily capture hundreds of years of racial discrimination in the view from one street. But in the city of St. Louis, Missouri, along a line called the Delmar Divide, it barely takes a glance.
On one side lies the neighborhoods where white residents, assisted by city leaders and the real estate industry, successfully drove out every Black homeowner and prevented any new non-white residents for decades using racial covenants, exlusionary zoning and deadly violence. On the other side, Black residents were—and continue to be—pushed into inferior housing opportunities and services.
The disparity in pure numbers is a powerful reminder of how racist policies have continued to define housing markets. In 2014, on the Black side of the divide, the median income was $18,000, and the median home value was $73,000. On the white side, the median income was $73,000, and the median home value was $335,000.
While this history of racism and its legacy in real estate might be obvious, the solutions are not. One area that is receiving increasing attention is the appraised value of homes in these neighborhoods still suffering the effects of segregation. A study by the Brookings Institute in 2018 estimated homes in Black neighborhoods across the country appraise 23% lower than comparable homes in white neighborhoods, something that was essentially confirmed by Freddie Mac in an analysis last year.
As part of the ongoing conversation on how to address this, the University of California at Berkeley’s Terner Center for Housing is hosting a series of panels on valuing Black homes that have sought to look forward rather than backward—acknowledging the ugly, racist history that has brought us here but focusing on how to rectify these inequities and reform the deeply flawed appraisal process. The most recent in this series targeted at the more quantitative elements and structural foundations of how homes are valued and appraised.
“In a rare moment of opportunity we see policymakers at the city, state and federal level; financial institutions, appraisers, appraisal management companies and appraisal industry groups begin to explore solutions,” said Stuart Yasgur, vice president at social entrepreneurship collective Ashoka, who moderated the panel. “This unique moment of opportunity also poses a challenge and asks us to think creatively, to look beyond solutions that we are already aware of, and to keep an eye on creating the kind of structural changes that are required to address appraisal bias.”
With how massively complex, technical and fractured the appraisal landscape is, the possibility of finding a magic bullet to address the effects of hundreds of years of racist policies is essentially zero. Rather, the panel sought to bring together different people with widely varying expertises and approaches to start leveraging the new appetite for change that Yasgur referenced, focused on revamping processes and redressing wrongs in all portions of the valuation process.
“There are multiple issues going on in the Black community,” said Rosalind Williams, an urban planner and co-founder of the housing advocacy organization WITH Action. “Appraisals are the cap that keeps things from improving.”
AVMs and appraisers under fire
For decades, the goal of advocates was simply to get the real estate and housing industry at large to acknowledge that there was a problem. As recently as 2020, the Appraiser Institute—the national professional organization representing the industry—vehemently denied that there was any significant or systemic racism in the appraisal process.
But as research like the Brookings study has provided foundational evidence of bias, and stories shared by Black homeowners of disparate valuations after hiding their race from appraisers garner more media attention, the conversation has shifted to acknowledge what was obvious to many in the Black and Hispanic communities: the appraisal process is not fair.
“Really continuing to push on methodological change is important,” said Charu Singh, managing director at real estate equity fund Emergent Capital Partners. “If you are changing the methodology, you really are changing the entire industry.”
Singh is also the creator of a new automated valuation model (AVM) called Just Value AVM, specifically designed to remove racial bias from the appraisal process. AVMs, also used by iBuyers to drive their home-flipping calculations, process a huge swath of data points to create a more quantitative assessment of value.
AVMs were cited by Freddie Mac as a potential way to decrease bias and inconsistencies in appraisals broadly, but are not immune to spitting out racially biased appraisals either. Just Value AVM is “a new approach to assessing home values particularly in communities of color,” Singh said.
“Some people are very enthusiastic because there are hopes that technology can help remove the role of subjective judgment and the bias that might enter, and others are wary because we know that bias can be written into algorithms,” Yasgur said.
Singh described her approach as focusing on intrinsic characteristics and trying to see the inherent value of a home as shelter and incorporating community amenities in the calculation.
“What the AVM is able to do in a way that humans have a very hard time doing is absorbing a lot of data and also parsing that data so that we can allocate value to the community amenities that a home benefits from or does not benefit from,” she said.
Panelists broadly agreed that racially unequal appraisals stem largely from processes and approaches, rather than from the personal bias of those people assessing home values.
“Having used appraisers quite a lot in my career, I really think they have been made a scapegoat for what really is a systemic problem,” Singh said. “That really stems from the founding of our country and the development of our real estate industry—that the appraisal industry was designed to be exclusionary,”
Singh pointed out that appraisers are “hamstrung” by their relationships with brokers and lenders who put pressure on getting the right price. They are also limited by guidelines in how they can choose or adjust comps, she pointed out, and also have to conform to certain AVM baselines.
Williams lives and works in St. Louis and has targeted the Delmar Divide directly. She said her team has been talking to banks who are motivated to get involved in these undervalued Black neighborhoods, possibly doing so independent of Fannie and Freddie. They have also sought appraisers who are willing to perform so-called “restorative appraisals”—attempting to transcend the continued segregation of American neighborhoods by using comps from neighborhoods that are predominantly a different race.
“We’re saying there is a comparable neighborhood of my housing style, the value of a house, in a white neighborhood,” she said.
John Liss, a former real estate industry who started a tech-based home valuation company called True Footage, pointed out that appraisals meet contract prices in white-majority neighborhoods much more often than in Hispanic and Black-majority neighborhoods. He said a lack of comps and “confirmation bias” in the system makes it hard to combat this.
“Appraisers are under immense pressure to hit contract prices, otherwise they get blacklisted,” he said. “That is where you see a lot of the appraisal gap that has been identified by Freddie in the purchase process.”
Getting appraisers on-board with some of the major changes that people like Williams and Singh have proposed will be extremely important, Liss said, adding that appraisers feel “under fire” based on how the media has portrayed the issue.
Almost 97% of appraisers are white, and 70% are men, according to Yasgur, and panelists agreed that needed to change and could definitely help create more equity in the industry. But Singh said she was encouraged by how white insiders were “trying to learn and think about solutions and really interested in partnership.”
Williams said she was invited by “the REALTOR® community” and the Appraiser Institute to talk about her work, something that would not have happened in the recent past. Singh called it “a moment of real change.
“It is a tremendous opportunity for academics and researchers and the private sector and the nonprofit world to work together to find really creative solutions,” she said.
Data upload
Collecting quality data is one of the biggest challenges, but also a tantalizing possibility for reforming the process, according to Liss.
“I started this company because, as a real estate agent and someone who has a background in real estate investing, I saw that data quality was a major problem throughout the mortgage process,” he said. “In particular getting access to interior data that was accurate. And by allowing for that data to be more accurate, there will be a more objective process.”
Some advocates pushed AVMs as a way to mostly eliminate subjectivity and bias in home valuations, with more advanced algorithms and wider availability of data eventually smoothing out bias of all kinds. But according to Singh, it is “a fallacy” to hope for a perfect AVM.
“There is no single value to any good that we have, it is within range that is derived from the market, derived from the characteristics of the market, but also our broader financial system,” she said. “And so an AVM like Just Value is really just part of a toolbox that we need that includes the finance industries, municipalities, municipal financing, working with the appraise industry—I really think it is a suite of solutions that have to be brought to bear together.”
Liss said that traditional appraisals conducted by human beings have an important and optimistic future. Reforming how appraisers are trained, hired and recruited is also important, he added.
“What we think needs to happen is kind of reimagining the entire space and leveraging technology, but still keeping a human in the loop,” Liss said. “We think technology unfettered has severe limitations—you saw Zillow fall dramatically when they relied too much on technology.”
One question Yasgur posed is how an increase in data access might immediately affect equity and fairness in home valuations. Liss countered that accuracy in data is an equally important focus, pointing out that between 750 MLSs and brokers, governments and homeowners all tracking data differently, many highly motivated to round up or down for certain metrics.
“You have a lot of issues with the kind of integrity of the data,” he said.
Even so, getting access to what Singh called the “holy grail”—national databases of mortgage valuations held by Fannie and Freddie—could make AVMs incredibly more powerful and accurate, Liss said—and more equitable as well.
Singh said that right now most researchers and those who are trying to understand, predict or envision home values on a large scale have to use proxies because the data is closely guarded and regulated. “More willingness” from Fannie and Freddie to share this data, as well as share actual appraisals to some degree would be “the way to understand how the sales comp approach does create bias,” according to Singh.
“On the policy side, that is really one of the biggest areas of change that I would like to see,” she said.
Though concerns about liability and privacy have so far prevented this on any large scale, Singh argued that a lack of data has really hampered new innovations and partnerships, and some level of access to it could really push the industry forward in a myriad of ways.
“Anybody from Freddie Mac listening…call me,” she quipped.
