As COVID-19 restrictions are being lifted across the U.S., home prices have been steadily rising. It’s a seller’s market, but not every homeowner can reap the full benefits.
One reason why is the home appraisal. Before you can put your property on the market, you have to get it appraised to determine the appropriate value given its condition, features and location. This makes a huge difference in how much you can list your home for. The problem is, minority homeowners tend to get much lower appraisals for similar homes than their White counterparts.
According to a 2018 study from the Brookings Institution, Black homes in the U.S. are appraised at 23% less, on average, than similarly appointed homes in White neighborhoods. The reasons for this are varied, but racial bias remains a big factor. The study found that “across all majority Black neighborhoods, owner-occupied homes are undervalued by $48,000 per home on average, amounting to $156 billion in cumulative losses.”
In 2018 my husband and I purchased a foreclosure in a residential neighborhood, gutted it and did a full home renovation from the foundation to the hinges. The house was fully paid off and we had been living in it for more than five months when we decided to pull out some equity from the place and invest it. But we’d first have to get our newly renovated home appraised.
As a precaution, I decided to take down all of our family photos and ethnic artwork to minimize the chance of bias in the assessment process. I’d heard stories from friends and acquaintances about their negative experiences with home appraisals, and I didn’t want to take any chances.
Our appraisal came back at least $30,000 to $40,000 lower than it should have been. This was according to a different independent appraiser who reassessed our home using comparable homes in the surrounding area. The initial appraiser had used comps that were not renovated and assigned us a rating that was comparable to a home with little to no renovations.
There’s a tangible cost to devaluing property like this. It’s literally robbing Black households of billions of dollars and their ability to effectively build intergenerational wealth. A home is typically your biggest asset and generator of wealth. To have its value carelessly or maliciously undercut is one of many contributing factors in America’s widening racial wealth gap. It’s this systematic undervaluation that ultimately helps to perpetuate inequality.
Increasing awareness about such bias and educating homeowners about steps to take are both important pieces in changing the status quo.
If you’re interested in having your house appraised or re-appraised, here are a few things you can do to protect yourself as a Black homeowner:
• Educate yourself on the exact guidelines that are used to assess your home. You can start by looking at Fannie Mae’s Uniform Residential Appraisal Report (which many appraisers use during inspections) and using websites like Zillow to research the values of comparable homes in your area. This will help you to better engage with appraisers or even spot inaccuracies in the final report.
• Contact the original appraiser. Suspicious about your initial appraisal? If you purchased the assessment, you are entitled to review it. Check that all upgrades, repairs and renovations were accounted for. Also find out what comps were used when determining your home’s value. Present your findings to the original appraiser and see if they are willing to revise the evaluation.
• Get a second opinion. The appraisal process is highly subjective. Appraisers are human and are not above making mistakes, so it can be worth finding another appraiser who is familiar with your area. Ahead of meeting them, prepare talking points about your neighborhood and what your home has to offer.
For example, when I got my second appraisal, I had a realtor compile relevant comparable homes in my neighborhood ahead of time. When meeting with the appraiser, I also made sure to point out some of the work we did to the property that may not have been otherwise obvious during the inspection.
• File a complaint. There are a few places where you can report suspected home appraisal bias. These include but are not limited to: submitting a report to the appraisal subcommittee of the Federal Financial Institutions Examination Council; making a complaint with the U.S. Department of Housing and Urban Development; filing an Equal Credit Opportunity Act violation to the Consumer Financial Protection Bureau; reporting the appraiser to trade groups like the National Association of Realtors, the Appraisal Institute, and the American Society of Appraisers; and filing a complaint with your state’s Attorney General’s office.
Ultimately, no amount of financial education or creative hacks can supersede systemic devaluation. Without more systematic solutions, Black homeowners’ only reprieve from appraisal bias is to do what I did and hide indications of their race during the assessment. I know of other families who have even gotten white friends to stand in for them during the process. This is unacceptable.
On a national level, President Joe Biden has pledged to create national guidelines for home appraisals during his presidential campaign — a needed first step toward fighting racial bias in the industry. While current appraisal standards differ from state to state, implementing a national standard that all appraisers can follow, ensuring that appraisers are adequately trained to recognize implicit biases, and encouraging diverse representation in the appraisal industry would all be steps in the right direction.
There are things you can do at the state level too. If you want to see changes, reach out to your legislators and let them hear your concerns about unfair appraisals. I’m currently pursuing this route in my own state of New Jersey.
Home appraisals play a critical role in the home selling process and in the creation of intergenerational wealth. Every homeowner, regardless of race, deserves equal footing in the game, and it’s up to our policy makers to ensure that.
Tiffany Aliche is a financial educator and the author of “Get Good With Money.”