by Dr. Courtney Johnson Rose
WASHINGTON, D.C.—The National Association of Real Estate Brokers released Home Appraisals in Black and White: Disparities in the Estimated Valuation of Homes by Neighborhood Racial Composition, a comprehensive study of appraisal bias Oct. 24. The study found some narrowing of contract price undervaluation gaps and reduction of disparities in appraisals in Black neighborhoods compared to White communities. Substantial progress was made in specific cities, offering hope for environments where Black intergenerational wealth can thrive.
The study identified two types of appraisal bias: the gap between median appraisal values of homes in Black communities relative to similar-quality homes in White neighborhoods and “contract price undervaluation,” which is the share of appraised homes that fail to meet or exceed the price set by sellers in sales contracts.
“HUD recognizes that appraisal bias is a significant barrier to fair housing and economic opportunity, particularly for communities of color who are most affected by undervaluation and discriminatory practices,” said HUD Acting Secretary Adrianne Todman. “It not only limits the wealth-building potential for families but also perpetuates a cycle of inequity in our housing market. I commend NAREB for their leadership in releasing this important report and advancing collective efforts to ensure that every homeowner has an equal opportunity to realize the full value of their property.”
The report that revealed appraisal tapered in disparities between Black and White neighborhoods proved that “shining a light on these longstanding concerns can drive real change” that benefit thousands of aspiring and current homeowners, according to Sandra Thompson, director of the Federal Housing Finance Agency. However, she said the fact remained that persistent inequities still exist and called it “unacceptable.” She went on to say that her agency will continue to work toward fairness in the housing finance system and enable underserved communities to “build generational wealth continues.”
Dr. Courtney Johnson Rose, NAREB president, asserted that while the study, shows that appraisal bias continues to exist, there has been improvement following the establishment of the White House’s Federal Interagency Task Force on Property Appraisal and Valuation Equity in 2021. The release of the PAVE Action Plan on March 23, 2022, outlined policy measures actively working to lessen the occurrence and impact of appraisal bias.
Rose also credited FHFA director Thompson and former HUD Secretary Marcia L. Fudge for facilitating the public release of Uniform Appraisal Dataset Aggregate Statistics, which provides aggregate data on home appraisals. Some major housing industry stakeholders had opposed its release. The data empowers housing experts to monitor appraisal practices, similar to the impact of the public release of Home Mortgage Disclosure Act data in 1991, a cornerstone in fighting housing and lending discrimination.
“We couldn’t have done this study previously,” Rose said. “With the new data, we can analyze what is happening in Black communities. NAREB thanks the Biden-Harris administration, the PAVE task force, and FHFA for providing us with these tools to better understand and address the problems. We now have more transparency. NAREB can work with the mortgage and appraisal industries to identify and implement solutions. But it all starts with the data.
“I want to thank Vice President Kamala Harris, who was a driving force behind PAVE. At our national convention in August 2023, Vice President Harris asked what NAREB is doing to help fight appraisal bias, citing its role in restricting Black wealth. I took her words to heart, and NAREB is addressing the issue with this detailed study and other substantial actions.”
Rose noted that home equity comprises 65 percent of the median net worth for Black households, making it a leading component of Black wealth. As a result, appraisal bias, housing discrimination, and the Black-White homeownership gap have been significant factors in restricting Black wealth over the decades.
The study, compiled by James H. Carr and Michela Zonta, determined that the most significant decline in contract price undervaluation in Black communities was in neighborhoods with the largest shares of Black borrowers – at or higher than the national average. Those communities experienced a fall in contract price undervaluation from 14.8 percent to 10.3 percent.
In reviewing data from the 20 metropolitan areas with the largest Black populations, the study found that in Houston, the Black median appraised home undervaluation gap narrowed by 31 percentage points, falling from 41 percent in 2021 to 10 percent in 2023. The undervaluation gap plunged 14 percent in the Washington, D.C., metropolitan area, from 35 percent in 2021 to 21 percent in 2023. The median appraised home undervaluation gap has also narrowed in the Atlanta, Chicago, Dallas, Detroit, Philadelphia, Richmond and Virginia Beach metropolitan areas.
However, there were other locations where the gap increased. In Los Angeles, the Black appraised undervaluation gap grew 17 percentage points, from 31 percent in 2021 to 48 percent in 2023. The gap also rose by four percentage points in Baltimore and Miami. It increased by up to three points in the Charlotte, Cleveland, Memphis, New York, St. Louis, and Tampa metropolitan areas while remaining the same in Orlando.
The research also found that:
- When the volume of home purchases by Blacks in Black neighborhoods (i.e., neighborhoods where Blacks are buying rather than simply residing) is considered, in both 2021 and 2023, homes in Black neighborhoods with large shares of loan originations to Black borrowers had a median home appraised undervaluation gap of 47 percent compared to White neighborhoods with no Black borrowers.
- After controlling for housing quality and neighborhood location, amenities and socioeconomic characteristics, homes in Black neighborhoods in 2023 had a median appraised home value of $299,572 compared to $430,915 in White neighborhoods, a 30 percent undervaluation gap.
- Between 2021 and 2023, the median appraised home undervaluation gap fell from 38 percent to 23 percent in gentrifying Black neighborhoods with no Black loan originations compared to White neighborhoods with no Black loan originations.
- Nationally, the adjusted median appraised home valuations gap increased between 2013 and 2022. From 2022 to 2023, however, the gap decreased. The median appraised home valuation gap between Black and White neighborhoods varied significantly based on the share of Black and White borrowers in Black census tracts.