Can changing home appraisal language help close the wealth gap?
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Home prices hit another record in May, up 16.6% over the same month last year, according to the S&P CoreLogic Case-Shiller National Home Price Index released Tuesday. That’s a lot of additional equity going into the market.
But it’s not spread anywhere near evenly across racial and ethnic groups, because homes in Black and brown neighborhoods have historically appraised for less than those in white neighborhoods.
Fannie Mae is trying to clamp down on discrimination in home appraisals by changing the way appraisers write their reports. That includes getting rid of terms like “crime-ridden” and “integrated community” in favor of more objective metrics.
Heather Presha, a real estate agent in South Los Angeles, had listed a four-bedroom, three-bathroom home in a historically Black neighborhood called Chesterfield Square. The buyer offered over $1 million, and over asking price.
“Chesterfield Square is right next door to Leimert Park, which, I mean, is probably one of the more desirable areas,” Presha said.
Leimert Park is also historically Black.
But “desirable” — or “desirable neighborhood” — is one of the terms Fannie Mae said appraisers should avoid because it can be racially coded for white.
“Simply not using a term does not make the attitudes go away,” said Andre Perry with the Brookings Institution. “I think this exercise is really about forcing appraisers to ask why they use these terms.”
His research shows that, on average, homes in Black neighborhoods are valued at $48,000 less than equivalent homes in white neighborhoods.
Perry applauds Fannie Mae for trying to clean up the language. But he also said he’s concerned about who’s doing the appraising, which he says is “a group of white men mostly who essentially set the standards.”
Roughly 85% of appraisers are white, according to an industry survey.
Presha, the South Los Angeles real estate agent, says she can’t remember a time she’s worked with a Black appraiser in escrow. But she also doesn’t believe the real racial bias in housing comes from the appraisal process. It’s the buyers.
“Let me tell you where the racial bias is,” Presha said. “It’s coming from the people who are coming here. And they’ll say it in a way like, ‘Oh, is this a safe neighborhood?’”
Safe neighborhood: more code.
Correction (July 27, 2021): An earlier version of this story misstated the number of bedrooms and bathrooms in a home listed in Chesterfield Square. It has four bedrooms and three bathrooms.
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