Combatting Discriminatory Appraisal Practices Which Cost Homeowners Their Equity
Many adults consider homeownership to be the realization of the “American Dream.” Homeownership can enhance self-worth, improve educational outcomes, increase civic involvement, and improve health. Homeownership is also critically important to the accumulation of family wealth. As of 2019, a typical homeowner’s net worth was $393,230, while that of a renter was just $15,750.
Unfortunately, racial disparities persist in homeownership rates. In 2020, the average ownership rate was 72.1% for non-Hispanic white people, in comparison to 51.1% for Hispanic people and 43.4% for Black people. These disparities impact generational family wealth. The average net worth in 2019 for white people was $306,360, compared to $71,800 for Hispanic people and $53,000 for Black people.
Devaluation of Homes in Communities of Color
The Detroit-Warren-Dearborn Michigan Metropolitan Statistical Area ranks 7th nationwide in the devaluation of homes in Black neighborhoods - 36.9%, even after controlling for factors such as home quality, education, and crime.
The undervaluation of homes limits opportunities to finance home improvements, the opportunity to sell homes at higher values and access to education. This primarily affects seniors, many of whom have worked hard for many years to pay off mortgages and, in their later years, should benefit from the increased equity in their homes.
Racial Bias Driving the Devaluation of Homes
Recent news reports and fair housing complaints have highlighted numerous instances where Black and interracial homeowners received very low initial home valuations. These homeowners then removed pictures, books, and other items that would reveal their race. Subsequent appraisals – performed by appraisers who did not know their race – resulted in appraised values at more than twice the initial valuations.
Sadly, such discriminatory appraisal practices are widespread. In 2021 Freddie Mac analyzed nearly 2 million appraisals, examining instances in which homes received an appraised value below the agreed upon contract selling price. Freddie Mac found that
31% of the appraisers were more likely to provide valuations below the contract price in Black neighborhoods.
Fair Lending Claims
Discrimination in appraisal practices violates both the federal Fair Housing Act and the Equal Credit Opportunity Act.
To identify appraisal discrimination, homeowners should:
Compare the appraised value of their homes with the valuation estimates provided by real estate agents and online home valuation sites;
Examine whether the appraisal identifies appropriate comparable properties nearest to the subject property and within the most recent time period;
Assess whether excessive adjustments were made based on square footage, number of bedrooms, etc.;
Look for comments or conclusions based on subjective observations. Examples include statements such as “pride of ownership” or “no pride of ownership” as well as “desirable neighborhood or location” or “undesirable neighborhood or location”;
Consider purchasing your own independent appraisal.
Appraisal discrimination claims have been brought against lenders so homeowners should determine whether the lender, not just the appraiser, may also be responsible for a low appraisal. Lenders have a duty to examine appraisal reports for evidence of discrimination and not to make decisions based on biased appraisals.
The Fair Housing Center of Metropolitan Detroit receives discrimination complaints involving appraisal practices and can answer questions about appraisal practices and other housing-related matters, free of charge, for Wayne, Oakland, and Macomb County residents. For more information, visit www.fairhousingdetroit.org or call 313.579.FAIR(3247).