Racial bias in home appraising has only in the last few years captured the attention of policymakers, the media, and, more generally, the public. But it has long been illegal because of the harm it can cause to individuals and communities.
What is meant by a discriminatory real estate appraisal? An example is estimating (or judging) the value of a family’s home and considering in that estimation of value the person’s race or ethnicity – or the racial or ethnic composition of the neighborhood within which that family lives. Appraisal bias can occur at a personal level, a geographic level, or both.
When it occurs, it can result in the need for a higher down payment from a homebuyer or a lower sale price. It can prevent homeowners from completing a cash-out refinancing or in some cases, affect the interest rate or mortgage insurance premiums a homeowners pays. Compounded broadly, it can hinder communities of color in building wealth, as each artificially low valuation becomes a “comp,” driving down prices from one transaction to the next.
This report, authored by Ira Goldstein and Alana Kim with the Reinvestment Fund, examines newly available public data from the Federal Housing Finance Agency’s (FHFA) Uniform Appraisal Dataset (UAD) to analyze potential racial bias in home appraisals in the Baltimore metropolitan area from 2013-2022.
The report finds that neighborhoods with larger non-white populations still tend to experience a higher percentage of homes with appraised values that are lower than the contract sale price than what is observed in predominantly white neighborhoods. Conversely, predominantly white, non-Hispanic neighborhoods tend to experience a higher percentage of homes with appraised values that exceed the contract price.
While these racial differences in appraisal accuracy have diminished somewhat in recent years, troubling patterns persist. Analysis of the public appraisal data suggests the presence of systematic appraisal bias that undervalues homes in predominantly Black communities in Baltimore City and the surrounding counties. The report also provides a summary of policies Maryland could institute to reduce the impact of appraisal bias.