Just Taxes Blog by ITEP

Racial Discrimination in Home Appraisals Is a Problem That’s Now Getting Federal Attention

Racial Discrimination in Home Appraisals Is a Problem That’s Now Getting Federal Attention

March 31, 2022

Brakeyshia Samms
Brakeyshia Samms
State Policy Analyst

Throughout the pandemic home values have skyrocketed, but Black homeowners are less likely to benefit from this trend and in some cases have seen their home values stagnate relative to the broader real estate market. The reasons for this are multifaceted, but racial bias in home appraisals is a key contributor. The Biden administration has recognized this challenge and last week announced the creation of a task force to explore this issue.

A recent Washington Post article examined real estate prices in Prince George’s County, Maryland, a wealthy majority-Black suburb of Washington, D.C. The article featured one couple whose home appraised for half a million dollars less than what they were expecting and $300,000 less than what they paid for it in 2015, causing them to seek more expensive forms of financing to invest in a business venture. The undervaluing of Black homes by appraisers is not an uncommon story.

As Jonathan Rothwell and Andre M. Perry wrote last year, “Homes in Black and Latino or Hispanic neighborhoods are likely depressed twice over: The market price is held down because of bias against the neighborhood, and values can be depressed still further through discrimination in lending markets and appraisals.”

Unrealistically low appraisals strip wealth from historically marginalized communities in a few different ways. In the Prince George’s County example, the homeowners had no choice but to seek out more expensive lines of credit. More often, a low appraisal during the selling process forces a downward renegotiation of a home’s sales price, which in turn sends a signal to owners and potential buyers of similar, nearby properties that homes in that area are less valuable.

Economists at Freddie Mac recently found that 12.5 percent of homes in majority Black areas and 15.5 percent in majority Hispanic areas are appraised below the price agreed upon by the buyer and seller compared to just 7.4 percent of homes in majority-white areas.

Recent actions by the Biden Administration and Rep. Maxine Waters toward redressing the racial bias in home appraisals would rectify a system plagued by flawed practices, personal bias, and overt racism on the part of some assessors. The White House’s action plan is promising and made it clear that: federal agencies must improve their enforcement of fair housing laws for the home appraisal industry; the appraiser field workforce should be well-trained and diversified; appraisers must develop better evaluation methods to reducing bias; and the public must be educated about how to get their appraisals reconsidered. Though less concrete, Rep. Waters’ has said she intends to hold hearings and eventually introduce legislation in Congress.

While it’s certainly welcome news that the flaws with home appraisals are being discussed at the highest levels of the federal government, this issue has dire implications for local communities and deserves the attention of policymakers at all levels of government.

The injustices in home valuations doesn’t stop at appraisals at the time of refinance or sale. Research has revealed many Black-owned homes are overvalued for property tax assessments, meaning these families are paying more in taxes than their white counterparts in similar housing. In short, people of color are being stripped of wealth by a housing valuation system (home ownership is how most households regardless of race build wealth) that systematically misvalues their homes and minimizes the wealth they should be able to attain from them. The result is a widening racial wealth gap.

For local leaders, racially inequitable property tax assessments are arguably an even more pressing issue than home appraisals because the assessment process is managed by local governments. Several researchers have pointed toward improved methodologies for conducting equitable property tax assessments on the large scale that localities must undertake, but far too few have done the hard work to adopt those recommendations.

With both assessments and appraisals being unfair, homeowners of color are stuck between a rock and a hard place when it comes to determining the worth of what is, for most homeowners, their most valuable asset. A more accurate understanding of the value of homes in communities of color is an important part of ensuring that they can build meaningful wealth. There is more work to be done at all levels of government, but the efforts underway by the White House and in Congress are a good start.