By: Karen G. Hatcher, CPM®
“Bias in appraisals can make it difficult for people of color to purchase homes, affecting their financial security and well-being.”
In a society striving for equality, appraisal bias remains a hidden barrier in the housing market, particularly for people of color.
In 2019, a couple, Paul and Tenisha Tate-Austin, courageously faced the challenge of appraisal bias in their predominantly African-American neighborhood just a short drive north of San Francisco in Marin City.
Homes in this unique area are rarely put up for sale – typically, a mere two to three houses are listed annually. So when their dream home was listed for $550,000 in 2016, Paul and Tenisha seized the opportunity without hesitation.
After settling into their cozy new abode, they decided to take on major renovations a few years later. They transformed their living space with an additional 1,000 square feet, significantly enlarged the living room area, and added an elegant deck that boasted spectacular views of the San Francisco Bay – perfect for a cup of coffee or an evening glass of wine! Adding square footage is one of the primary ways to add value to a home.
To finance these improvements, the couple decided to refinance their mortgage. The lender assigned their appraiser responsible for inspecting The Tate’s newly-renovated residence and determining its market value. The lender’s valuation was shockingly low compared to their expectations – at a only $995,000.
What’s even more surprising is that less than a year earlier, during a previous mortgage refinance attempt, the house had been appraised at $1,450,000.
The Hidden Inequality
Appraisal bias occurs when a house’s fair market value is lower than it should be because the homeowner’s race or ethnicity influences the appraiser or company. This issue presents major obstacles for people of color aiming to purchase or refinance a home, making it harder to acquire mortgages or loans and sometimes preventing homeownership entirely.
The discrepancies in the appraised value of The Tate’s residence indicate a larger problem of appraisal bias. Appraisal bias is frequently perpetuated by unconscious biases, such as assumptions about the upkeep of the property and the personal characteristics of the homeowner.
These biases can disproportionately hurt ethnic minorities already disadvantaged in the housing market.
A recent National Fair Housing Alliance study revealed homes in majority-Black neighborhoods are appraised at $371,000 less than those in majority-white neighborhoods. The appraisal value gap has grown by 75% since 2013.
What Can Be Done to Combat This?
The Department of Housing and Urban Development (HUD) is the federal agency responsible for enforcing fair housing laws and ensuring equal access to housing for all Americans. Thankfully, HUD is stepping up by implementing programs designed to tackle appraisal bias head-on.:
- The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against borrowers based on race, color, religion, national origin, sex, marital status, age, or because they receive income from a public assistance program.
- The Home Valuation Code of Conduct (HVCC) requires appraisers to follow standards designed to prevent discrimination in the appraisal process.
- The Fair Housing Assistance Program (FHAP) provides funding to fair housing organizations to help them educate the public about their rights under fair housing laws and to investigate and prosecute cases of housing discrimination.
If you believe you have been the victim of appraisal bias, you can file a complaint with HUD. You can also contact your state’s fair housing agency. If you live in Georgia, you can file a complaint with the Georgia Fair Housing Division.
There is also The National Fair Housing Alliance, an organization led by a woman, Lisa Rice, the President and Chief Executive Officer, that works on combating appraisal bias. More information about their work and other team members can be found here.
We must hold appraisers accountable for their biases and ensure everyone has an equal opportunity to buy a home. By working together, we can create a more equitable housing market for everyone.
What can you do to help?
- Educate yourself about appraisal bias and how it can affect people of color.
- Talk to your friends and family about appraisal bias and how we can work together to combat it.
- Support organizations that are working to combat appraisal bias.
- File a complaint with HUD if you believe you have been the victim of appraisal bias.
Understandably shocked by this disappointing new appraisal result, they challenged the lender and expressed their disagreement with the lender regarding the appraisal, as they believed numerous aspects were incorrect or unsuitable. Furthermore, they felt their race influenced the low appraisal value.
The lender ultimately agreed to arrange for a different appraiser. The couple removed personal items from their home to avoid racial bias during an appraisal, including family photos, artwork, books, and hair products. They also had a white friend pose as the homeowner and display her own family photos.
Ultimately, the new appraiser determined that the house was worth $1,482,500—almost half a million dollars more than Miller’s initial estimated value and they won their lawsuit. You can learn more about it by clicking this link or watching the video below.
It’s clear that the housing market can be unpredictable and that an accurate appraisal is crucial to ensure fair pricing.
By bringing more transparency and accountability to the appraisal process, we can work towards a more equitable housing market that benefits everyone. From educating homeowners and buyers on the appraisal process to enforcing strict standards and regulations for appraisers, there are solutions that we can implement to create a more just system.
It’s time to take action and ensure everyone has a fair shot at homeownership.
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