Lawmakers and policy advocates have been closely examining the barriers to homeownership for many, particularly in light of National Homeownership Month this past June. It’s crucial that any examination must include a focus on structural barriers faced by Americans of color – including home appraisal bias, undervaluation and barriers to wealth generation.
For people of color, the home valuation process has long been fraught with the shadow of perceived but unproven prejudice. Recent reports from The Washington Post, NPR and other outlets highlight horror stories of appraisers undervaluing Black-owned homes, and have shown the rest of America the shocking measures Black families have had to take to counter bias. Yet as heartbreaking as these personal stories are, they don’t come close to exposing the true dimensions of inequity within the valuation and lending industries.
Digging a little deeper to understand the full impact of appraisal bias reveals numbers that tell a powerful story. A Brookings Institution report using data from 2012 to 2016, for example, found that homes in neighborhoods defined as majority-Black were on average undervalued by nearly $50,000, resulting in $156 billion in total lost value.
What do these numbers mean to a family of color? Consider that from 2012 to 2016, the U.S. worker averaged $44,574 in annual net compensation, according to data from the Social Security Administration. For many families of color, an equitable home appraisal would mean gaining an additional $48,000 in home value, and be akin to adding one more earner to their household. It also could mean financing a better education, accessing necessary health care or starting a business.
Because home values generally increase at a faster rate than the typical paycheck, that now-dated undervaluation of $48,000 would be worth about $66,000 in 2021, representing a robust 37% overall increase, or 6.5% average annual growth over five years – with no special effort required from the homeowner. By contrast, data indicates average net compensation grew from between 2.8% to 3.5% per year from 2016 to 2020.
Media and calls for action focusing on the behavior of individual appraisers should be heeded but mustn’t distract us from recognizing and working to fix a more insidious, overarching issue: The traditional valuation approach inherently undervalues homes in communities of color. That’s the real horror story. In an industry responsible for producing the vast majority of household wealth in America, our appraisal method for single-family homes is destined to sequester wealth from communities of color thanks to a century of exclusionary real estate policy and practice.
Data Can Drive Lasting, Holistic Solutions
The stories of massive swings in value and homeowners’ self-erasure should motivate our collective commitment to build accountability and make the appraisal industry more reflective of our society. But we must also use technocratic tools to inform responsive policy that can support transformational change and address bias.
And there is hope. Thanks to the individual and collective efforts of many, a new chapter in the American appraisal story is being written. The Biden administration’s PAVE Action Plan, put forward by a 13-agency task force, calls for nothing less than a complete and transparent overhaul of the appraisal industry. The plan’s bold, clear summation of the “causes, extent, and consequences of appraisal bias” sets the stage for an aspirational body of steps and recommendations to root out racial and ethnic bias in home valuations.
Everyone Can Act, but Lawmakers Can Have an Outsize Impact
Housing remains one of the few issues that can be characterized as truly bipartisan, with a long history of leaders on both sides of the aisle able to join forces. Now, through their action or inaction, lawmakers undoubtedly will play key roles in what comes next for fixing home appraisals.
Overhauling the appraisal industry and allowing more people to access the wealth-generation opportunities available through homeownership requires a unified mindset and approach, and can deliver tremendous, tangible impact to individuals and communities.
Common sense updates are mandatory in a sector as influential as the appraisal industry. Here are some recommendations for lawmakers and other stakeholders as we seek to make progress and eliminate bias:
- Start with diversity. The appraisal industry is among the least-diverse professions, with whites accounting for 97.7% of its workers, beating out occupations such as farmers, ranchers and other agricultural managers (94.8%) and museum specialists (94.4%). National and locally focused efforts aim to diversify the appraiser base. But an industry so segregated requires more than pumped-up recruitment initiatives to attract and retain people of color. Systemic gating and training barriers must be tackled while supporting professional associations geared toward appraisers of color.
- Seek accountability. A number of industry stakeholders point to the need for clearer and more rigorous oversight of the industry. Federal officials already have taken a key step by clarifying that certain federal antidiscrimination standards apply to the valuation industry. Modernizing the industry’s governance structure to increase transparency and public participation is an essential next step to ensure equity and accountability for every homeowner’s appraisal.
As we all work to enable increased homeownership, let’s level the home appraisal playing field, recognizing the true value of each and every American home – and of each and every American.
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