Causes Of Appraisal Bias And The Impact On Communities Of Color

Tai Christensen is the Diversity, Equity and Inclusion Officer and the Director of Government Affairs for CBC Mortgage Agency, a national down payment assistance provider, and has 17 years’ experience in the mortgage industry. She has been a loan processor, the manager of a mortgage brokerage focusing on modifying loans for families facing foreclosure, and the manager of a law firm specializing in negotiating mortgage terms for families facing Trustee Auction dates. She talked with our editor about appraisal bias and the impact on communities of color.

Q: What do you think is causing racial disparity in appraisals?

TAI CHRISTENSEN: I think it’s a combination of factors, but to a great extent the problem lies within the significant lack of diversity in the appraisal profession. While white males make up less than half of the U.S. population, they account for 85 percent of all appraisers. It’s true that appraisers are taught to be objective when performing appraisals and to not let their personal feelings or opinions get in the way. But we all have biases, whether we’re able to recognize them or not. If the appraisal industry looked more like the general population, I don’t think racial disparities in appraisals would be as pronounced as they are today.

Q: How are CBC Mortgage Agency’s borrowers impacted by appraisal bias?

TAI CHRISTENSEN: The impact is significant. A majority of our borrowers are low-income minorities, and many of them live in majority-minority neighborhoods where homes appraise for much lower values than homes in similar, mostly White neighborhoods. When they go to sell their home, they may be told by their Realtor that houses like theirs are fetching certain prices. They know it’s a hot market, so they believe them. Then an appraiser comes in, often bringing their own built-in biases, and nixes the seller’s plans because the estimated value of the home is far less than they reasonably thought it would be. It’s an extremely heartbreaking experience, especially if they had planned to use the proceeds from their home’s sale to buy another home and came up short.

Q: Census Bureau data indicates that from the Eighties through 2015, values in White neighborhoods were up an average of $200,000 more than in neighborhoods of color; how did that escalate so much?

TAI CHRISTENSEN: It sounds hard to believe, I know. You really have to go back and look at the history of this issue. The problem originated from generations of redlining, during which time minorities were driven away from White neighborhoods and into lower-income neighborhoods, where home prices were far cheaper. These perceptions about majority-minority neighborhoods didn’t go away once redlining was made illegal.

In fact, the Kinder Institute for Urban Research at Rice University looked at the numbers you’ve just cited and found the disparity was caused by appraisers using past sales prices to determine home values, even though historically, past sales prices were rooted in racism. It explains why homes in majority-minority neighborhoods continue to be valued less than homes in most White neighborhoods today.

Q: How were they driven from more desirable neighborhoods?

TAI CHRISTENSEN: Historically, covenants, conditions and restrictions, or CC&Rs, prohibited or limited the number or share of Black or Brown homeowners in a particular community. For years, many banks wouldn’t sell mortgages to borrowers in certain neighborhoods as well. Keep in mind that home equity comprises a significant share of household wealth for the average American family, but it’s an even larger share for Black and Latino families, because they have less wealth overall. But until the Civil Rights Act and the Federal Housing Act in the mid-1960s, millions of people of color lost out on generating wealth from the real estate they couldn’t buy. Even after these practices made illegal, there have been many cases of real estate agents steering minority homebuyers away from White neighborhoods and White homebuyers away from minority neighborhoods.

The bottom line is that appraisal bias has roots in systemic racism in the housing market, and the impacts are still being felt today. Fortunately, public awareness about appraisal bias has grown to the point where the federal government and the housing industry, including appraisers, are taking steps to address it. In order to create a more equity housing market for all current and future homeowners, let’s hope they succeed.