The Fair Housing Act prohibits discrimination in all housing-related financial transactions, including home appraisals. A home appraisal is an impartial assessment of a home’s value by a licensed professional and may be conducted when a home is being offered for sale to determine the fair market value of a property or when a borrower applies for a home purchase, refinance, or home equity loan. This appraisal is used by lenders to determine how much money they are willing to loan to a borrower based on the property’s actual value, and it also ensures that buyers are not overpaying for a property. An unbiased and objective appraisal acts as an important safeguard in determining true value for both the buyer and the lender. An artificially high or low appraisal can create significant risk or loss of opportunity for those seeking to purchase a home, refinance a mortgage, insure their home against loss, or sell their home.
When an appraiser assesses a property, they take into consideration the size, age, and condition of the home along with interior and exterior renovations and upgrades. In addition to the condition of the home, the appraiser will factor in the location of the property including the immediate neighborhood and its overall desirability, crime rates, school reputation, and environmental quality. Access to parks, recreation, retail centers, public transportation, and other amenities can increase desirability. Local real estate market conditions are considered along with recent sales of comparable homes in the area (often referred to as “comps”).
Discriminatory appraisals can occur when the race or ethnicity of the homeowner or the racial and ethnic composition of a neighborhood is factored into an appraisal via the appraiser’s personal biases or practices. Historically, properties in neighborhoods with a higher concentration of Black, Latino, or other minority groups have been appraised lower than similar homes in predominantly white areas. This contributes to the “redlining” of communities where entire neighborhoods are devalued, causing opportunities for homeownership and wealth accumulation to be hindered.
The selection of “comps” can lead to undervaluing properties in minority neighborhoods. A discriminatory appraisal may include the selection of recent sales that do not sufficiently resemble the subject property in terms of location or characteristic to provide an accurate comparison of its value. Cultural or racial bias can influence a real estate assessment. For example. if an appraiser feels that a neighborhood is “less desirable” based on its racial or ethnic composition, the appraiser’s perception of the home’s value can be affected even though those perceptions are not reflective of the property’s true market value. Language in the appraisal report that refers to a neighborhood as “crime-ridden,” “lacking pride,” or “undergoing a demographic shift” could be indicative of a biased appraisal.
Redlining has historically devalued properties in communities of color. Homes in areas that were once redlined may still face lower home values which can have far-reaching consequences for homeowners, communities, and the broader housing market. Lower appraisals mean that homeowners have less equity available for essential home repairs (via a home equity line of credit). Communities that are economically disenfranchised take an emotional and psychological toll on residents who feel that their homes and neighborhoods are not valued. A lower property resale value negatively impacts generational wealth and reinforces patterns of racial and economic segregation.
If a person believes that they have been the victim of a discriminatory or biased appraisal, they can contact the Housing Equality Center of Pennsylvania (HECP) here. HECP can help to evaluate the complaint and can assist in filing a complaint with the U.S. Department of Housing and Urban Development’s Office of Fair Housing and Equal Opportunity.
