{"id":19265,"date":"2020-09-30T15:44:41","date_gmt":"2020-09-30T22:44:41","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=19265"},"modified":"2024-05-28T21:07:18","modified_gmt":"2024-05-29T04:07:18","slug":"buyer-real-estate-appraisals-racism","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-real-estate-appraisals-racism\/","title":{"rendered":"Exploring the Connection in Real Estate Appraisals Racism"},"content":{"rendered":"

In August 2020, a couple in Jacksonville, Florida, ordered an appraisal on their house so they could take advantage of low refinancing rates. As The New York Times<\/i> reported, after their first appraisal came in suspiciously low<\/a>, and the homeowners then made some minor decorating adjustments, a second appraisal valued their home a full 40% higher than the first. And what was the difference between the first and second appraisal? The perceived race of the homeowners had changed: The homeowners (a Black family) removed all signifiers of their race from the home in between the first and second appraisal. This example showcases a widespread and longstanding issue with real estate appraisals and racism in the United States.<\/p>\n

If you\u2019re just trying to get a foothold in the real estate market as a first-time homebuyer<\/a>, you might still be learning the fundamentals of glossary terms like \u201cappraisal<\/a>.\u201d But while you’re building your knowledge foundation, you should also be aware that real estate appraising has an unfortunate history \u2014 and a deeply entrenched and ongoing pattern \u2014 of bias and racism.<\/p>\n

Redlining<\/a> and other biased practices permanently depressed home values in certain minority neighborhoods in the 1930s. And that nearly century-old context continues to play out today, with negative effects for people of color in communities across the country.<\/p>\n

This is an old, systemic problem that will take major cooperation at many levels to solve. But the good news is that researchers are shining more light on the issue and its effects, and some organizations are already working hard to help ease the burdens this issue has put on people of color.<\/p>\n

Here\u2019s what to know about real estate appraising and bias, with expert intel from researchers Junia Howell and Elizabeth Korver-Glenn, who dug deep into the issue for their sociological study, \u201cNeighborhoods, Race, and the Twenty-first-century Housing Appraisal Industry<\/a>.\u201d<\/p>\n

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Source: (Andrey_Popov \/ ShutterStock)<\/figcaption><\/figure>\n

Real estate appraisals and racism<\/h2>\n

Unfortunately, biased real estate appraising is very real \u2014 and it\u2019s not just in the past. Here are more details on the August 2020 incident involving appraisal bias as reported in The New York Times<\/i>:<\/p>\n

A Jacksonville, Florida couple wanted to have their home appraised<\/a> as part of an effort to take advantage of low home-refinance rates<\/a> as a result of the pandemic. But when they got their first appraisal, it seemed much too low \u2014 in fact, it seemed suspiciously<\/i> low.<\/p>\n

Background: Appraisers use comps<\/a> to come up with a value for a house. That means they look for at least three comparable homes that recently sold, and use those sale prices to put a value on the subject house. But choosing comps is not an exact science.<\/p>\n

If appraisers choose those comps based on factors other than their similar identity to the subject property, it can lead to a biased appraisal. For example, an appraiser might see family photos on bedside tables that reveal a homeowner\u2019s race and then decide \u2014 consciously or unconsciously \u2014 that a Black homeowner\u2019s property is more comparable to homes in predominantly Black neighborhoods instead of to recently sold homes in their own neighborhood.<\/p>\n

The most accurate comps should come from the most similar homes that are closest in proximity to the subject property and that have sold most recently; when appraisers start comparing homes across different neighborhoods and developments but closer comps are available, or when they use older comps but more recent sales are available, then this can be a sign that the appraiser is relying on factors other than the property itself to influence the appraisal.<\/p>\n

To test their theory that racism was at play in this scenario, the Jacksonville couple eliminated all signs of Blackness from their home \u2014 swapped out family photos, removed certain books and holiday cards, and other minor changes \u2014 and got it appraised a second time. This time, they found the appraisal price increased by 40%. (Think about that: a full 40%!)<\/p>\n

That\u2019s just plain bias: As this Florida couple\u2019s anecdote indicates, sellers may suffer from a \u201cBlack tax,\u201d with some Black sellers accruing less value in their homes than a comparable white seller would, even in the same neighborhood.<\/p>\n

And speaking of taxes, there\u2019s also a measurable tax assessment gap that places \u201ca disproportionate fiscal burden on racial and ethnic minorities<\/a>.\u201d Black and Hispanic residents have a 10% to 13% higher tax burden than white residents for the same assortment of public services.<\/p>\n

So when \u2014 and how \u2014 did this all start?<\/h2>\n

The bias in today\u2019s appraisal system goes back to the 1930s and the now-notorious practice of redlining.<\/p>\n

\u201cRoosevelt had just gotten elected on the promise to restore the economy. His administration argued a key component should be enabling more middle-class families to become homeowners. To do this, they fundamentally restructured the housing market,\u201d explains the appraisal bias study\u2019s co-author Elizabeth Korver-Glenn, assistant professor of sociology at the University of New Mexico.<\/p>\n