Frederic J. Brown / AFP via Getty Images
A recent report by Freddie Mac found that house appraisers were more likely to underestimate homes in black and Latino areas than those in whites.
It is the latest example of racial inequalities in the housing sector, a well-documented phenomenon that has resulted in lower home ownership rates among black and Latin American families.
“An estimate that falls below the contracted sale price may allow a buyer to renegotiate with a seller, but it could also mean families are missing out on, or may not be able to, the full wealth-building benefits of home ownership achieving the American dream in the first place, “said Michael Bradley, senior vice president at Freddie Mac, a state-controlled company that guarantees home mortgages.
“This is an ongoing problem that disproportionately affects hundreds of thousands of black and Latin American applicants,” he added.
Inequalities in household ratings have drawn more attention recently, and Freddie Mac’s newly published analysis of more than 12 million ratings between 2015 and 2020 provides evidence of a racial and ethnic divide.
According to the report, only 7.4% of valuations in mostly white counting areas were below the contract price of a property. That number rose to 12.5% for black areas and 15.4% for Latino census areas, where homes were more than twice as likely to be undervalued as homes in white areas.
The analysis also found that as the black or Latin American population became concentrated in a given area, the proportion of undervalued reviews also increased.
The researchers said that even when they took into account structural differences in homes and the unique characteristics of different neighborhoods, black and Latino areas were still more likely to receive lower ratings. There is also no evidence that the inequality was caused by a small number of reviewers, the report said.
A 2018 report by the Brookings Institution found that homes in black neighborhoods are worth 23% – or an average of $ 48,000 per home – less than similar homes in neighborhoods with few or no black residents.
Freddie Mac researchers said the assessment discrepancies require more research to identify the “full cause of the void” and that the organization is also looking to improve data collection.
Freddie Mac is part of an ongoing initiative – along with its sister organization Fannie Mae, the Appraisal Institute and the National Urban League – that aims to increase diversity in the home appraisal space.
According to a report by the Appraisal Institute, at the end of 2018, 85% of reviewers nationwide were white, while less than 2% were identified as black.