Race Discrimination in Housing Appraisals by Shelby Sumlin

Race Discrimination in Housing Appraisals

by Shelby Sumlin

Race and housing policy in the United States share a complicated and inseparable history. From segregated housing projects and redlining to public housing and urban renewal, Americans of color have been subjected to housing discrimination for decades. Such housing policies contribute to racial disparities in our country by limiting minority homeowners’ ability to build equity and further perpetuating wealth inequality. Despite the 1968 Fair Housing Act outlawing race-based housing discrimination, many Black and Latino homeowners maintain that their homes are appraised at significantly lower values compared to white-owned homes.

Earlier this month, a Black couple in Maryland made headlines after filing a discrimination suit against loanDepot, a California-based mortgage provider, as well as 20/20 Valuations, a Maryland appraisal company, and Shane Lanham, the owner of 20/20 Valuations. Believing their home to be worth more than the $450,000 they paid for it in 2017, Dr. Nathan Connolly and his wife, Shani Mott, sought to benefit from historically low-interest rates by refinancing their mortgage. Despite nationally rising home prices, 20/20 Valuations appraised the value of the couple’s home at $472,000, and subsequently, loanDepot denied the couple a refinance loan. Months later, the couple applied for another refinance loan, removed family photos, and had a white male colleague stand in as the homeowner for a second appraisal. The result was a near $300,000 increase in the appraised value of their home.

Unfortunately, the discrimination Dr. Connolly and Shani Mott experienced is not atypical for Black and brown homeowners. In 2021, mortgage finance agency Freddie Mac found that majority-Black and majority-Latino neighborhoods were about twice as likely to have their home appraised at a value below the actual contract price compared to appraisals in predominantly white neighborhoods. Similarly, a recent study conducted by the Brookings Institution reported that homes in Black neighborhoods are appraised at lower values than similar homes in white neighborhoods by 23% on average. Further, a Fannie Mae study analyzing refinance transactions found that Black borrowers’ homes are more likely to
receive lower appraisal value relative to algorithmic predictions. In contrast, home values for White borrowers are frequently overvalued.

Racial bias and discrimination in housing policy directly impact the country’s wealth gap. Research using 1980–2015 Census data demonstrates that racial inequities in housing appraisals are increasing, not decreasing, and that these disparities have contributed to the widening wealth gap between Black and Latino families and white ones. Further, researchers from the Institute on Assets and Social Policy (“IASP”) found that eliminating disparities in homeownership rates and returns would reduce the racial wealth gap between Black and white households by 16% and between Latino and white households by 41%.

In an effort to advance equity in the home appraisal process, the Biden-Harris administration announced plans earlier this year to target real estate appraisers perpetuating property inequalities by assigning lower home value estimates to Black and Latino homeowners. The Property Appraisal and Valuation Equity (“PAVE”) action plan lays out the following commitments and actions for member agencies:

• Make the appraisal industry more accountable;
• Empower consumers with information and assistance;
• Prevent algorithmic bias in home valuation Cultivate an appraiser profession that is well-trained and looks like the communities it serves; and,
• Leverage federal data and expertise to inform policy, practice, and research on appraisal bias.

Homeownership is the primary contributor to generational wealth building for Black and brown families. Systemic appraisal discrimination restricts households of color from enjoying the financial returns associated with homeownership. While the PAVE action plan will not eradicate the sprawling racial wealth gap, its comprehensive plan to root out racial and ethnic bias in home valuations is a significant step in achieving wealth equality.