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Are lower values driven by the market or discrimination?

Are the nation’s appraisers deliberately undervaluing homes owned by Black homeowners? An article published in The New York Times¹ last summer reported on numerous instances where Black individuals received significantly lower appraisals for their properties than their white neighbors in comparable homes. Further, a national study by the Brookings Institute² found that in metropolitan neighborhoods where 50% of the residents are Black, those homes typically were priced at half the value of similar homes in white neighborhoods.

Responding to these and other reports of racial bias by appraisers, Fannie Mae conducted a study of appraisals³ across the country. Although the organization does not provide loans or originate mortgages, it is tasked by Congress to support affordable mortgage financing. Fair and accurate appraisals are a key component of that process. 

Fannie Mae’s study revealed that residents in predominantly Black or Latino areas are more likely to receive lower appraisals for their properties than comparable properties in majority white neighborhoods. The disparity grows in proportion to the percentage of Black or Latino residents. Further, an analysis of appraisals in minority and white neighborhoods showed there was a significant difference in appraisals for comparable homes. Such gaps were present in the work of “a large portion of appraisers” in the United States.

According to the study, the lower appraisals cannot be explained by historical differences in comparative values between minority and white neighborhoods. The report concludes that Fannie Mae’s “preliminary modeling results” indicate Black and minority-owned properties are more likely to receive lower appraisal values if they are in neighborhoods with a higher concentration of minorities.

However, the Fannie Mae study does not address the lower appraisal values seen by Black homeowners in predominantly white neighborhoods. Although appraisers must abide by the Fair Housing Act of 1968, and not discriminate based on race, religion, national origin or gender, lower appraisal values for Black-owned homes are difficult to explain in purely market-based terms.

The Times article recounts the experience of Abena and Alex Horton, a married couple who wanted to refinance their ranch-style home in Jacksonville, Florida. Properties in their largely white neighborhood usually sold for $350,000 to $550,000. The Hortons anticipated an appraisal of around $450,000. After meeting with the appraiser in their home, the couple was surprised their home was valued at only $350,000. Suspecting discrimination, Ms. Horton, who is Black and an attorney, complained to the bank. A second appraisal was ordered.

Before the appraiser arrived, the Hortons decided that Alex, who is white, would be present and Abena would leave the house. They carefully removed all photos of Abena and her Black relatives, leaving only photos of Alex and his white family members. They even packed away books by Black authors.

The new appraisal came in at $465,000, an astonishing 40% increase. Not long after that, Ms. Horton filed a complaint to the U.S. Department of Housing and Urban Development (HUD), which in turn referred the case to the Jacksonville Human Rights Commission. The matter is still under investigation.

To learn more about the issues surrounding low appraisal values for Black and minority-owned homes, check out these resources.