Although the federal Fair Housing Act was passed more than 50 years ago, housing discrimination unfortunately continues. Racial steering, redlining, and failures of lenders to finance homes are all among the more frequently cited forms of illegal discrimination. But another type of bias is just as insidious: under-valued home appraisals.
On March 25, the San Francisco Division of the United States District Court of Northern California will hear arguments on whether a lawsuit alleging racial discrimination in home appraisals should proceed. The defendants seek for the lawsuit to be dismissed, contending that the Fair Housing Act (FHA) does not apply to residential appraisers.
Fortunately, this case drew the attention and support of the Justice Department (DOJ)’s Civil Rights Division. In its statement of interest filed with the court, DOJ noted FHA’s text and the applicable case-law over the past 50 years. The law explicitly addresses discrimination in the “selling, brokering, or appraising of residential real property.”
Meet the case’s plaintiffs, Tenisha Tate Austin and Paul Austin. In December 2016, this Black family purchased a Marin County, CA, home for their children and themselves. Located in one of the state’s most costly areas, the family invested thousands of dollars in renovations that included expanded square footage, upgraded finishes and the addition of an accessory dwelling unit. They also decided to refinance their mortgage.
As part of the refinance process, the family hired a licensed appraiser, Janette Miller, with the firm AMC Links, LLC. Ms. Miller inspected and prepared an appraisal report that valued the Austin home at $995,000.
Suspecting racial bias in that figure, three weeks later the family turned to another local appraiser. This time, however, a white friend posed as the home’s owner, and all of the Austin family photographs and African-inspired artwork were removed. The second appraisal valued the home nearly half a million dollars more – $1,482,500. That figure is much closer to the $1.3 million median home price in Marin County in January 2022, according to the National Association of Realtors.
“We believe that Ms. Miller valued our house at a lower rate because of our race and because of the current and historical racial demographics of where our house is located,” said Paul Austin in a news release issued by the Fair Housing
Advocates of Northern California (FHANC) joined the family in its lawsuit.
“Unfortunately, the Austins are not alone in their experience,” noted Caroline Peattie, Executive Director of the FHANC. “Discrimination in the appraisal process is something we’ve been seeing more frequently. More homeowners of color are coming forward when they see an unfair appraisal, particularly when it results in their loan being denied.”
Multiple studies have found that when home values are artificially suppressed, a homeowner’s ability to build wealth also is diminished.
“Our analysis rules out all the factors that are typically associated with home value and still finds a significant difference between the values of otherwise nearly identical homes in similar Black and white neighborhoods. We’re left with bias and systemic racism to explain the variation in home values,” said Reginald Edwards, a senior economist at Redfin.
“Today’s Black homeowners are missing out on $46,000 worth of wealth due to racist housing policies that were outlawed in the 1960s and continuing bias- es among homebuyers and housing professionals in parts of the home buying process like appraisals and mortgage lending—and that’s $46,000 that would multiply as the years go on and benefit future generations,” added Edwards.
Redfin analyzed value estimates for more than 7 million homes that were listed and sold from 2013 through February 2021. Fundamental factors that contribute to a home’s value, such as size, condition, neighborhood amenities and schools were taken into account.
Although each state regulates its licensed appraisers and sets state training requirements, Congress adopted in 1989 the Uniform Standards of Professional Appraisal Practice (USPAP) to set national standards for all types of appraisal services, including real estate, personal property, business, and mass appraisal. Compliance is required for state-licensed and state-certified appraisers involved in federally-related real estate transactions.
The career path to becoming a real estate appraiser is multi-faceted and years in the making. Beyond industry training and completion of an associate degree or a bachelor’s degree, 200-300 hours of related work experience is required to become certified in residential or general appraisals, as well as ongoing continuing education courses.
Few people of color are represented in these occupations. According to the Urban Institute, 89 percent of all property appraisers and assessors are white, while only 2 percent are Black and 5 percent are Latino.
The Urban Institute concludes that: “Appraiser bias has likely played a role in homeownership and housing wealth outcomes, and increasing diversity in the field can diminish this bias in the long term.”
Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at [email protected].