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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 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 .” 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. Black homeowners often struggle to build long-term because their properties are undervalued — and there’s no straightforward easy way to dispute an appraisal or have it changed. Learn more
To make housing market fair, sweeping changes required, advocate says SHARE: Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal. Related Articles