Home Appraisers Shown Using Race in Valuations

Some spoke of a ‘spicy’ ethnic neighborhood and a ‘White-Flight Red-Zone’

Real estate agent examining house with couple discussing in background

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Does the race of your neighbors influence how much your home is worth? How about the religions they practice, or the languages they speak? Some home appraisers apparently think so—even though that’s forbidden under housing discrimination laws, according to a new report.

Key Takeaways

  • Home appraisers aren’t supposed to take race, ethnicity, or religion into account when valuing houses, but a government review of millions of appraisals found instances where they did. 
  • Appraisals included mentions of the racial composition of neighborhoods, shops in the area catering to certain ethnicities, and, in one instance, the fact that the area had its first Asian mayor.
  • Homes in Black and Hispanic neighborhoods are often undervalued by appraisers, according to studies, hurting families’ ability to buy houses and build wealth.

Appraisers noted a city’s racial composition, the ethnic backgrounds of people in the neighborhood, and, in one instance, even the race of the area’s mayor when evaluating the price of homes, according to a report from the Federal Housing Finance Agency (FHFA) released Tuesday. The agency, which regulates mortgage lending, surveyed a database of millions of home appraisals to see if appraisers were complying with federal civil rights laws, such as fair lending laws like the Fair Housing Act, which forbid them from considering race when setting home values.

The report illustrates that, in some instances, appraisers are taking prohibited factors into consideration when setting home values. 

“The racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family's home,” the housing finance agency wrote in the report. “Our observation of appraisals suggests that racial and ethnic compositions of a neighborhood are still sometimes included in commentary, clearly indicating the writer thought it was important to establishing value.”

In several cases flagged by the FHFA, the appraiser overtly discussed race. One noted the percentage of the city’s population that was White, Black, Hispanic, Asian, and Native American. 

Another wrote that the town had “a "Black race population above state average,” and another that a neighborhood had been "White-Only" before becoming a "White-Flight Red-Zone" to explain why the neighborhood was mostly "Working-Class Black" now. Another appraiser saw fit to mention that the area had its first Asian mayor.

Other comments focused on ethnicity, with one appraiser saying an area was “one spicy neighborhood” because of all the different groups that had moved there over the years, while a different appraisal described an area as "'not especially-diverse' ethnically, with a high percentage of white people."

Another appraiser brought religion into play by noting the "commercial strip featuring storefronts supplying Jewish Households” nearby. 

A Persistent Problem

While the report only provided examples (without identifying the companies or individuals responsible) and did not indicate how common or widespread such practices are, it adds to a growing body of research showing that racial discrimination is a persistent problem with home appraisals

For example, a study by mortgage giant Freddie Mac earlier this year found that homes in majority Black and Latino areas were more likely to be undervalued by appraisers compared to homes in majority White areas, by margins of 5.2% and 8% respectively. Owner-occupied homes in majority Black neighborhoods are undervalued by an average of $48,000, a 2018 study by the Brookings Institution think tank found. 

Undervaluing a home harms homeowners by making it more likely for a loan application to be denied, and it also hurts the ability of minority families to accumulate wealth, Michael Hsu, acting Comptroller of the Currency (another financial regulator), noted in a speech earlier this year. 

The FHFA is in the middle of a review of the appraisal process including bias in the industry, with regulators evaluating the extent of the problem and how government and lenders can best tackle it. The agency is exploring increased transparency in the industry and more training and education as possible solutions. 

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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  1. Federal Housing Finance Agency. “Reducing Valuation Bias by Addressing Appraiser and Property Valuation Commentary.”

  2. Freddie Mac. “Racial and Ethnic Valuation Gaps In Home Purchase Appraisals.”

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