Racial Bias in Valuation of Residential Homes

We previously wrote an article in the New York Law Journal, “Diversity is Needed to End Racial Bias in Home Appraisals,” NYLJ December 27, 2022.

We stated, the answer to appraisal bias on racial grounds is to expand opportunities for Black real estate professionals.  In a statement issued on September 20, 2020, the Appraisal Institute, the largest professional association of real estate appraisers reiterated its efforts to expand opportunities for aspiring appraisers to help combat bias in valuation.

Less than 2 percent of appraisers identify as Black.  The appraisal industry has kept a very guarded gate for entrants.  This is largely based on an apprenticeship model that requires anywhere from 1,000 to 3,000 hours of work under a supervising appraiser to become certified.

The appraisal industry is one of the last remaining fields that relies on the apprenticeship model.  Racially based appraisal bias is a well-documented and pervasive issue that has long contributed to the widening wealth gap for Black families, and much of it has been driven by “historical racialized appraisals that influence contemporary values and appraisers’ racialized assumptions about neighborhoods to drive appraisal method,” according to a study published in the journal Social Problems.

Recently, NPR reported on a case where a Black couple settled a lawsuit claiming that their home appraisal was lowballed due to bias.  (Written by Vanessa Romo, March 9, 2023.)

The property in question was located in Marin City, California.  The house was purchased in 2016 for $550,000.  In the years that followed, a series of major upgrades were made to the home.  To help pay for the work, they decided to refinance their mortgage.

The lender hired an appraiser who valued the market value of the house as $995,000.  The owners were shocked.  The property was appraised less than a year earlier for $1,450,000.

The lender agreed to send a different appraiser.  This time the couple decided to “white wash” the house.  They removed family photos and art work, books, hair products and anything else that might indicate that a Black family lived there.  They also asked a white friend to be present at the house and greet the appraiser as if she were the homeowner and to display some of her family photos in the house.  The true owners were not home during the appraisal.

The new appraiser concluded that the house was worth $1,482,500 – nearly half a million dollars higher than the first appraiser’s estimated value.

The lawsuit alleged that “[r]ace was a motivating factor in the appraiser’s unreasonably low valuation of the (owners) house.”

The owners commenced a federal lawsuit alleging housing discrimination.

The suit was settled for a undisclosed amount of money and a requirement that the appraiser “agrees not to discriminate in the future.”  The appraiser must also attend a training session on the history of segregation and real estate related discrimination.

While the Appraisal Institute has several existing programs to expand opportunities for aspiring appraisers and to help combat bias in valuation, it needs to do more.  The Appraisal Institute and the Appraisal Foundation need to sponsor appraisal education programs at Black schools and universities with minority scholarships.  There should be active recruitment of qualified Black real estate professionals.

As the Urban Institute stated, “appraiser bias has likely played a role in homeownership and housing wealth outcomes, and increasing diversity in the field can diminish this bias in the long-term.”

Posted in Racial Bias, Valuation
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