By Falon Young
Today’s data shows that unequal access to credit is the driving force perpetuating the homeownership and racial wealth gap, with white families having 10 times the net worth of Black families, and white homeownership being 73 percent compared to just 42 percent for Black families. Appraisal bias exacerbates this gap. Appraisal bias refers to discrimination in the appraisal process that involves assigning a lower value to a home because of the race of the person who lives there. It is a process that continually strips homeowners of color of their equity and wealth.
A 2021 study examining appraisals received from 2015-2020 shows that appraisals in predominantly Black neighborhoods are more likely to fall short of the contract price compared to white neighborhoods. The data shows that 7.4 percent of appraisals in majority white neighborhoods were below the property’s contract price but jumps to 12.5 percent for Black census tracts, and 15.4 percent for Hispanic Latino neighborhoods. The study also estimates that homes in majority-Black neighborhoods are undervalued by $48,000 per home leading to a $156 billion cumulative loss in value nationwide.
Our efforts focus on working to reform the appraisal process by improving the complaint systems at the state level, increasing consumer protections with state and regulatory agencies to address appraisal complaints, raising awareness about appraisal bias, and empowering consumers to know their rights entering the appraisal process.
To do this, we must address certain myths within the appraisal process:
- Myth #1: You cannot talk to your lender or Realtor about the appraisal process: We walk people throughout the entire appraisal process for those looking to buy, sell, or refinance their home. We teach people what happens when an appraiser comes to the home and how implicit and explicit bias can manifest.
Most people do not know that they are able to work with their lender to ensure that they have an appraiser who is knowledgeable about their neighborhood and community. We show people how to research their appraiser and assess their competency working within neighborhoods of color. Furthermore, we show people how they can work with their Realtor to best prepare for the appraisal process. Realtors are able to put together an appraisal package that includes vital information on the home to give to the appraiser prior to the appointment.
- Myth #2: No one can be present at the appraisal. Your Realtor or any representative who is knowledgeable about your home or neighborhood can be present at the appraisal appointment. This individual can help answer any questions the appraiser may have.
- Myth #3: You are not able to request a reconsideration of value:
Most people do not recognize that they have encountered appraisal bias or where to go if they have. We teach people how to request a “reconsideration of value,” which is the process of filing a dispute of the appraised value with your lender. This allows the borrower to point out factual errors or inadequate comparable properties and to show evidence that their home’s value was influenced by bias.
Things to look out for:
- Check your report for inaccuracies or errors. Make sure the appraiser didn’t miss anything. Check your report for common inaccuracies, such as the number of rooms, square footage and other important information.
- Read the report for coded language: words that reference the racial or ethnic makeup of an area that impact the value of the home.
- Check the comparable sales used. Appraisal bias can be uncovered within appraisal reports by looking at the comparable homes that are used. Appraisers will list comparable homes within the report. These are properties that are similar to the subject property and are used to determine the value of the home. Typically, they are homes sold in the same neighborhood or ones nearby. If your report contains homes that are in no way identical to the subject property or located in a neighborhood farther away, this could indicate bias.
Falon Young is the Policy Associate at Neighborhood Housing Services of Chicago and leads the agency’s Appraisal Equity Campaign. She is a recent graduate of DePaul University, majoring in Political Science and Public Policy. She can be reached at [email protected]. For more information, go to https://www.nhschicago.org/about/policy-updates/.