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16 SAY YOU SAW IT IN SUBURBAN October 19, 2021 - November 22, 2021
MAINE
Black neighborhood home appraisal gap is
real and persistent, Freddie Mac reports
By Jeff Ostrowski
BANKRATE.COM
PHOTO | TRIBUNE NEWS SERVICE
Homes on Chicago’s South Side. Black homeowners often struggle
to build long-term wealth because their properties are undervalued
— and there’s no straightforward easy way to dispute
an appraisal or have it changed.
The racial gap in home appraisals
is a real phenomenon, one that sabotages
the wealth-building power of
homeownership in Black and Latino
neighborhoods, mortgage giant
Freddie Mac said Monday.
The company released an analysis
showing that appraised values
are more likely to fall short of the
contract price for homes in census
tracts with a higher share of Black
and Latino households. The conclusion
was based on Freddie Mac’s examination
of 12 million appraisals
ordered for purchase transactions
from 2015 to 2020.
The appraisal gap matters because
it creates a barrier for Black and Latino
consumers hoping to buy homes.
“This is a persistent problem that
disproportionately impacts hundreds
of thousands of Black and
Latino applicants,” said Michael
Bradley, Freddie Mac’s senior vice
president of modeling, econometrics,
data science and analytics.
A measurable racial gap
Freddie Mac’s study added data
points to claims that appraisers
might subconsciously undervalue
homes in non-White neighborhoods.
Valuing a home is an imprecise art,
of course, so Freddie compared appraised
values to the purchase prices
that buyers had agreed to pay.
Its study found that homes in
mostly Black and Latino census
tracts were assigned appraised values
lower than the contract price
more frequently than homes in
White tracts. While 12.5 percent of
homes in mostly Black areas were
appraised for less than the contract
price, just 7.4 percent of homes in
mostly White tracts experienced appraisal
shortfalls.
What’s more, as the concentration
of Black or Latino residents in census
tracts increases, the appraisal
gap increases, Freddie Mac found.
And the culprit doesn’t seem to be
a small number of unenlightened
appraisers — a large portion of appraisers
who completed appraisals
in both minority and non-minority
areas generated statistically significant
gaps, Freddie Mac said.
Its study said the lender will continue
to examine “the full root cause
of the gap.”
Housing industry takes aim at appraisal
gap
Freddie’s study reflects new attention
to the racial gap by big players
in the housing sector. In an earlier
finding on the same topic, a 2018
study by the Brookings Institute
found that Black-owned homes are
undervalued by $48,000 on average.
And this year Chase committed
$3 million to the Appraiser Diversity
Institute. The megabank said its
goal is “to root out bias in the residential
appraisal process.”
In a separate statement Monday,
the Appraisal Institute lauded Freddie
Mac for exploring the issue.
“Unconscious bias is real and exists
in all industries,” the trade group
said. “Appraisal is one piece of a larger
ecosystem, and appraisal groups
are working alongside consumer
groups, real estate brokers and
agents, banks, government agencies,
think tanks and others to explore
where housing inequities may stem
from and what combination of solutions
should be considered.”
Appraisals are just one piece of a
stubborn racial divide in the U.S.
housing market. Black Americans
have less wealth overall, and therefore
are less likely to own homes —
and when they do own homes, find
themselves more likely to pay higher
mortgage rates.