Biden administration announces plan to address racial bias in home appraisals

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Studies show that racial disparities in home value estimates are 'pervasive' and have led to hundreds of billions of dollars in lost value in Black and Latino communities.

On Wednesday, the Biden administration announced a new initiative designed to combat the effects of racism in the process of home appraisal. Experts say disparities in the results of appraisals based on racial bias are widespread and have led to the loss of billions of dollars in value for Black communities.

The action plan was released by the Interagency Task Force on Property Appraisal and Valuation Equity, co-chaired by Housing and Urban Development Secretary Marcia Fudge and White House adviser Susan Rice, director of the U.S. Domestic Policy Council.

Under the plan, multiple government agencies will work in concert to increase oversight of the property appraisal industry, as well as create a federal rule aimed at setting "a nondiscrimination quality control standard as part of a forthcoming proposed rule establishing quality control standards on AVMs (Automated Valuation Models)" used in determining home values. The plan also calls for the expansion of complaint hotlines at HUD and the Consumer Financial Protection Bureau for use by consumers as part of "concrete efforts to empower homeowners and homebuyers on effective steps they can take when they receive a valuation that is lower than expected."

The task force was announced by President Joe Biden on June 1, 2021. In a speech marking 100 years since the Tulsa Race Massacre, during which the affluent Black neighborhood of Greenwood in Tulsa, Oklahoma, was attacked, looted, and burned by white mobs, Biden said the task force was part of "expanded efforts targeted toward Black wealth creation that will also help the entire community."

A 2021 study by the Federal Home Loan Mortgage Corporation, or Freddie Mac, of appraisals issued between 2015 and 2021 found that bias in home appraisals was "pervasive" and systemically led to substantially lower home values within Black and Latino communities.

Junia Howell, who teaches sociology at the University of Illinois in Chicago, told Bloomberg, "Individual bias is definitely affecting these things, but it's actually a structural issue, across different appraisers who have different backgrounds, and in different counties. We're seeing this inequality across the board, really demonstrating that it is deeply embedded in the ways and the methods of appraising."

Research by the Brookings Institution noted that low home appraisals had a wide-reaching effect, notably impacting school quality and funding:

Lower wealth in Black communities means that homes in majority Black neighborhoods tend to be older, smaller, and more likely to be attached than homes in neighborhoods with few or no Black people. Lower wealth and lower home values further hinder the ability of Black homeowners to pay for structural improvements to the home and access mortgage refinancing to pay for renovations.

 

There are also differences in neighborhood quality that show up in housing price differences. Local schools are often less desirable—at least as measured by publicly available test scores accessible to home buyers—in majority Black neighborhoods than in non-Black neighborhoods.

Brookings determined that Black communities cumulatively lost $156 billion in value, or $48,000 per home, due to appraisal disparities.

Carlette Duffy, a Black woman living in Indianapolis, filed complaints against mortgage companies with HUD in May 2021, alleging discrimination on the basis of race. After her home was appraised at $125,000 and $110,000, Duffy took steps to conceal her race from the next appraiser, including hiding photos of herself and her family and enlisting a white friend to pose as her brother when the appraisal was being made. The third appraiser valued the home at $259,000, more than double the original estimated value.

The Biden administration is making other efforts to address systemic racism in the United States, including provisions in the recently enacted Infrastructure Investment and Jobs Act that seek to undo racist decisions embedded in past road and neighborhood planning.

Published with permission of The American Independent Foundation.