Discrimination Against Black Landlords in the Appraisal Process: How to Recognize It and What to Do About It

Discrimination Against Black Landlords in the Appraisal Process: How to Recognize It and What to Do About It

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  • Homes in majority-black neighborhoods are undervalued by an average of $48,000, a study finds.
  • Unfair use of competition, basing ratings on protected factors, and lack of reviewer diversity can lead to biased results.
  • Home sellers can dispute an appraisal if they believe it was made using inaccurate or prohibited information.

Claryssa McEnany, a Delaware-based realtor, was helping a client sell a home earlier this year when she witnessed a glaring example of valuation bias.

The client, a black woman, had her home appraised shortly before listing it on the market. According to the appraisal, his house was worth $400,000.

When McEnany listed the house, they received an offer of $467,500. The buyer included a $30,000 valuation difference guarantee in his offer in the event the valuation was undervalued. But the extra coverage was unnecessary, because this time around the new valuation was $467,500.

“The difference between her house when she had it appraised on her own and when I listed her house was that I asked her to remove all of her family photos,” McEnany said. “I asked him to remove all of his ethnic artwork.”

It’s illegal for appraisers to consider a homeowner’s race or the racial makeup of a neighborhood when appraising a home, but skewed results still occur, robbing homeowners of dozens or even hundreds of thousands of dollars of wealth.

How Review Bias Affects Black Homeowners

Testing by fair housing groups has shown that McEnany’s experience is not uncommon, and the impacts of valuation bias can be costly.

The National Community Reinvestment Coalition recently conducted a survey of anti-Black discrimination in reviews which found that white testers received reviews nearly $7,000 more on average than their black partners. Black testers also reported unprofessional treatment from reviewers, while white testers did not.

A 2018 report from the Brookings Institution found an even bigger gap, estimating that homes in majority black neighborhoods are undervalued by an average of $48,000 compared to homes in majority white neighborhoods, even though houses and neighborhoods they examined were similar in quality and types of amenities.

For homeowners, the equity in their home is an extremely valuable tool that can be used to fund other financial goals or to grow their wealth over the years. When an appraiser undervalues ​​a home, they deprive that owner of their wealth.

How does evaluation bias occur?

Appraisers are trained to base their appraisals on the facts of the property and the neighborhood it is in – things like square footage, number of bedrooms and whether you are in a rural, urban or suburban area. . But creating an appraisal report is not an exact science.

Appraisers rely heavily on comps to determine the market value of a home. Comps, also known as comparable or comparable homes, are recently sold homes that are similar to the property being appraised.

As part of the appraisal process, appraisers will find at least three homes of similar quality, features and components that are located in the same neighborhood as the one they are appraising. They will use the sale prices of these houses to help them form an opinion on the value.

But appraisers have some flexibility in which homes they choose for their comps, and where in the price range they place the home they’re appraising. This leaves room for conscious or unconscious biases to impact the outcome of the assessment.

Appraisal forms also have space for appraisers to comment on the property or the neighborhood it is in. A 2021 review of appraisal reports conducted by the Federal Housing Finance Agency found numerous instances in which appraisers included race or other protected class information in their reports.

The lack of diversity in the assessment industry can also contribute to perpetuating the problem of racial bias. According to the Appraisal Institute, more than 85% of appraisers are white, while less than 2% are black.

The lingering effects of past discriminatory policies such as redlining also lead to uneven outcomes. According to a 2020 report from Redfin, the typical owner of a formerly red-lined area earned $212,023 less over the past 40 years than owners of green-lined areas.

What to do if you think you have been discriminated against in assessment

If you believe you have been discriminated against in the assessment process, your first step should be to review the assessment report.

“If your review is short, skim through it, look at the details, look at the comparables,” McEnany says.

Make sure that all information in the report is accurate and that the appraiser used only objective and factual information to complete the report. References to the desirability of an area, for example, are a red flag.

Working with a real estate agent familiar with the local market can help you understand if the comparisons used in your report were fair. Compositions must be located close to the property in question and physically similar to it.

If you think you received an unfair appraisal, you can work with your real estate agent to dispute it.

“A good agent knows how to challenge an assessment if it’s not correct,” McEnany says.

You can also report your experience to the Department of Housing and Urban Development or your state’s Fair Housing Office. The National Appraisal Complaints Hotline can provide you with a list of state and federal agencies that can help you with your complaint.

Steps are being taken to address discrimination in the assessment process at the federal level. In 2021, the Biden administration announced a new interagency task force to address bias in ratings. Part of the task force’s plan includes strengthening protections against discrimination and increasing accountability in the rating industry.

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