When home appraisals are not equal: Biden administration rolls out plan to fight discrimination

Fueled by growing evidence of discrimination against Black homeowners, the Biden administration announced a series of reforms to combat racism in the home appraisal process, requiring banks to ensure their algorithms are not racially biased, making information about the race and ethnicity of homeowners receiving appraisals public and calling on states to reduce barriers to join the mostly white appraisal profession.

“Home appraisals are meant to be fair and objective estimates of the market value of a property. However, far too often, they are not,” Vice President Kamala Harris said Thursday on a press call. “Black homeowners are more likely to have their homes undervalued than other homeowners. And homeowners in majority Black and majority Latino neighborhoods are almost twice as likely to be undervalued.”

Since the murder of George Floyd in the summer of 2020 raised the national consciousness about race and discrimination, dozens of Black homeowners have alleged bias in home appraisals. Some have filed lawsuits.

Appraisals are supposed to be independent reports that estimate market value so lenders can measure risk. But the accuracy of the appraisal depends on an appraiser’s expertise and familiarity with the area, according to a White House report.

The appraisal industry is one of the nation’s least diverse professions. The vast majority of home appraisers are white, according to the Bureau of Labor Statistics.

When their properties are undervalued, Black and Latino homeowners often pay more for their mortgage, get a smaller payout when they sell and are less able to tap home equity lines of credit, Harris said, contributing to the widening racial wealth gap.

“Homeownership is one of the single most powerful engines of wealth-building available to American families,” Harris said. “Millions rely on the equity in their homes to put their children through college, to fund a startup, to retire with dignity, to create intergenerational prosperity and wealth. We also know, for generations, many people of color have been prevented from taking full advantage of the benefits of homeownership.”

Appraisal bias can undercut a family’s ability to leverage their equity to pay for college or expand a business. It can also affect entire communities by reducing property tax revenue that funds local schools, a Biden administration report found.

Homes in neighborhoods of color are appraised at far lower values than in white neighborhoods in every major metropolitan area, according to data analysis provided exclusively to Bloomberg CityLab by University of Illinois Chicago sociologist Junia Howell.

Nationwide, homes in white neighborhoods were appraised at nearly triple the value of homes in communities of color in 2022, the analysis found.

The disparities exceeded $1 million in several of the largest and most expensive areas: Los Angeles, San Francisco, San Jose, New York City and Honolulu. In less expensive places, the differences were less but the disparities were worse.

In June 2021 on the centennial of the Tulsa Race Massacre, President Biden announced the formation of the Interagency Task Force on Property Appraisal and Valuation Equity, known as PAVE, to tackle racial bias in appraisals.

The Appraisal Foundation President Dave Bunton said his organization supports the task force's efforts "to root out bias and discrimination in the appraisal profession."

"The foundation’s boards have been hard at work over the past few years to support their efforts,” Bunton said in a statement.

On Thursday, the White House introduced a series of reforms.

Financial institutions will have to ensure their appraisal algorithms do not produce lower valuations for houses owned by people of color.

The Biden administration is also making it easier for homeowners to appeal if they believe their home appraisal was biased, urging states to lower the educational requirements to become an appraiser and is publishing data on 600,000 home valuations to spotlight disparities.

This article originally appeared on USA TODAY: Biden administration announces plan to fight racism in home appraisals