Interracial couples were assigned different appraisal values for their homes in the Baltimore, Md., area depending on the skin color of the partner who greeted the appraiser and whether the house was “whitewashed,” a new study from the National Community Reinvestment Coalition shows.
In one case, a single row house was valued at $350,000 when the appraiser met only with their white homeowner in an interracial relationship. The person’s Black partner received a valuation of $310,000 — given by a separate appraiser who met only with them, according to the NCRC, which said it chose the appraisers randomly and scheduled their inspections on different days, but as close together as possible.
For each test, two full appraisals using two different appraisal companies were conducted, with the white partner presenting a “whitewashed” home where any evidence of their Black partner, including family photos and cultural items, had been removed. The Black partner, on the other hand, presented a “blackwashed” home, removing signs of the white partner.
“The discrimination we found in the appraisals system undermines Black wealth-building and almost certainly violates the law,” Jesse Van Tol, president and CEO of the NCRC, a nonprofit based in Washington, D.C., said in a statement. “It is unacceptable for appraisers to undercut the value of homes and conduct themselves less professionally when dealing with Black homeowners.”
“‘The discrimination we found in the appraisals system undermines Black wealth-building and almost certainly violates the law.’”
The NCRC’s study is hardly the only recent example of bias in the home appraisal industry, which is overwhelmingly white, according to government data.
Earlier this year, the National Fair Housing Alliance issued an 84-page report noting how discriminatory associations between race and risk have historically undermined the value of Black neighborhoods, including through color-coded maps that “redlined” neighborhoods of color and deemed them hazardous, making it difficult to get mortgages in these areas.
“Because home value has been the cornerstone of intergenerational wealth in the United States, the historical appraisal practices have had long-term effects in creating some of the current wealth inequalities where white wealth has soared while Black wealth has remained stagnant,” the report said.
Last year, Freddie Mac FMCC, +0.46% also said that, based on data from more than 12 million appraisals, it discovered that 12.5% of homes in Black Census tracts received an appraisal value lower than the contract price, compared to 7.4% of homes in white census tracts.
Furthermore, a 2018 Brookings Institution study found that homes in majority Black neighborhoods were undervalued by 23% less on average — amounting to $48,000 less per home — when compared to the value of homes of similar quality in neighborhoods with similar amenities, but few to no Black residents.
These disparities have also been the subject of various lawsuits from Black homeowners alleging mistreatment.
A Black couple in Marin City, California, for example, said that an appraiser assigned their home a value of $995,000 in 2020, which they felt was low because they’d made $400,000 in renovations. When the Black couple brought in a white friend to act as if the property belonged to her, though, a different appraiser valued the home at $1.48 million, according to KGO-TV in San Francisco and the Washington Post.
“These disparities have also been the subject of various lawsuits from Black homeowners alleging mistreatment. ”
The family later sued the first appraiser and her company, and a trial is set to take place next fall, according to the North Bay Business Journal. (A settlement deal was reached with the another party in the lawsuit — the firm that hired the appraisers, the North Bay Business Journal reported.)
And, in Baltimore, a Black history professor and his wife, a lecturer in literature and Africana studies, said that before they began to refinance their home last summer, a local appraisal company valued their home at $472,000, just $22,000 more than the amount they had paid in 2017 despite $35,000 in renovations and a new $5,000 tankless water heater, according to the New York Times. The family was then denied a refinance loan.
However, when they removed family photos and a white, male colleague stood in for a second appraisal, their home was deemed to be worth $750,000. They ultimately sued the mortgage lender who denied their loan, the appraisal company who gave their first appraisal, and the first appraiser, who they said improperly weighed the value of their home against the sale prices of “comparable” properties that allegedly included a fixer-upper and a property outside the boundaries of their neighborhood, according to the New York Times.
Both cases were mentioned in the NCRC’s report.
“The evidence of systemic bias in the appraisal business has been mounting for some time,” Van Tol said in his statement about the NCRC’s report, “but NCRC’s new testing showed that interracial couples in Baltimore get far better treatment and valuations if the appraiser believes the homeowner and their family are white.”
“One Black partner was ghosted by the appraiser and never received a report; another was asked to pay upfront. ”
The NCRC study examined appraisals across four interracial couples who own homes in the Baltimore area, with 14 appraisals conducted across seven “tests.”
On average, the white partners received valuations worth nearly $7,000 more than their Black partners, despite showing the same property, the report said. *
However, Black partners were given valuations higher than their white partners in three of the seven tests, with one Black homeowner receiving an appraisal of $500,000 while their partner had the home appraised at $460,000. The other gaps in valuation were more slight, with another Black partner receiving $10,000 more on a home than their white partner and a third receiving $5,000 more.
The Black partners also sometimes received dramatically worse customer service during the tests. While white partners universally reported having pleasant experiences and received their appraisal reports promptly across all seven tests, Black partners had negative experiences in two of the seven tests, the NCRC report said. One Black partner was ghosted by the appraiser and never received a report; another was asked to pay upfront, and then didn’t receive their test for nearly 11 weeks.
Those kinds of delays can cost Black homeowners money in the home-selling or refinancing process, the NCRC noted, either by getting in the way of a sale or by subjecting the homeowner to increase borrowing costs as interest rates rise.
To be sure, the Appraisal Institute, a professional association of appraisers, says it’s trying to improve diversity in the profession, and its president, Jody Bishop told the House Committee on Financial Services earlier this year that the organization was “deeply concerned” about allegations of bias.
“When we see even one story of a consumer who feels they were treated differently because of their race, it’s gut-wrenching because that goes against everything appraisers stand for,” Bishop said in a statement to MarketWatch. “Appraisal is one piece of a larger ecosystem to look at when it comes to housing issues. Ensuring unconscious bias doesn’t play a role in appraisals and seeking broader solutions to diversity, equity and inclusion in housing is a priority for the Appraisal Institute.”
“Creating a more equitable housing environment in this country will take solutions advanced by real estate brokers/agents, banks, government agencies, appraisers and others,” Bishop added.