The home purchasing process should be black and white when it comes to the numbers, but those who’ve gone through it say it’s often about whether the buyer or seller is Black or white, or brown or straight or LGBTQ+.
Now there’s a concerted public and private effort to help families avoid discrimination as they try to live the American dream of home ownership and build generational wealth through proper valuations.
Part of the issue involves the appraisal process, during which homes owned by people of color or same-sex couples are often given a much lower valuation than the actual worth of their property, data shows.
“The home appraisal is basically someone else, a third party ... coming out and assessing the value of your home. And with the appraisal that value is basically what you buy or sometimes sell the home at,” said Bryan Young, the co-creator of Home Lending Pal.
Young’s tech company aims to help prospective buyers hoping to get a fair approval for a mortgage by anonymizing data so lenders can make a decision of approving or declining the loan “without having any insight into your age, sex or race.”
The appraisal is necessary to go through the underwriting process, he told Yahoo News. “It has to say that this home was worth X amount of dollars when you purchased that particular home for yourself as a buyer.”
Young is part of a recent push to help families avoid stories like that of the Austins in Northern California, who believe their home valuation was skewed because of race.
Paul Austin and his wife, Tenisha-Tate Austin, were looking to refinance their home in early 2020 to take advantage of low interest rates as they were finishing a remodel. Their Marin City house, with views of the San Francisco Bay, had already been appraised in 2019. So they were shocked when the February 2020 appraisal came back $455,000 lower than the one done the previous year, which totaled $995,000.
The Black couple then decided to seek another opinion and, following a hunch, asked their white friend named Jan to stand in and meet the appraiser as if she was the homeowner. They swapped family photos with her and removed any art that might suggest a Black family lived there.
The appraiser valued their home at $1,482,500.
FHANC files lawsuit with Brancart & Brancart alleging race discrimination in home appraisal process of Tenisha Tate-Austin and Paul Austin, a Black couple from Marin County. Read the press release and complaint here: https://t.co/WjsvvKPvts@sfchroniclehttps://t.co/2drnyVBUC5
— Fair Housing Advocates of Northern California (@FairHsngNorCal) December 6, 2021
This prompted them to file a fair housing lawsuit in federal district court against the appraiser, Janette Miller, who allegedly lowballed their valuation. The suit names Miller, her firm Miller and Perotti Real Estate Appraisers and national appraisal company AMC Links, according to multiple reports.
“We believe that Ms. Miller valued our house at a lower rate because of our race and because of the current and historical racial demographics of where our house is located,” Austin said. “The sales comps that the appraiser chose to use were unsuitable and were guaranteed to lower the value of our house.”
A motion filed in January on behalf of Miller and the defendants seeks to dismiss the claims against them, saying that the Fair Housing Act doesn’t apply to them in this case because the home was not being “sold or rented” by the owners.
The Austins are far from alone in their situation, with couples across the country reporting similar instances of alleged bias.
A 2021 study from Freddie Mac, the publicly traded, government-sponsored loan mortgage corporation, found that “12.5 percent of appraisals for home purchases in majority-Black neighborhoods and 15.4 percent in majority-Latino neighborhoods result in a value below the contract price (the amount a buyer is willing to pay for the property), compared to only 7.4 percent of appraisals in predominantly white neighborhoods.”
The research coincided with previous observations that the more a neighborhood is populated with historically marginalized communities, the more the average appraised property value tends to decrease.
“So one of the biggest issues is, you know, as you’re going through the underwriting process, how a minority is looked at when it comes to the appraisal value of the home or even the ability to accept a mortgage loan, versus ... a Caucasian male,” Young said.
“And in today’s society, basically, if you're not a Caucasian male, if you're a woman, if you're a same sex couple, if you’re minority, the numbers and the data shows us that you are more likely to be declined and your homeownership rate is not as high as what it should be based on just pure financial and credit information.”
The Austins were highlighted at a White House press conference addressing the issue of home bias in appraisals. There, the Biden administration announced the actions its Property Appraisal and Valuation Equity (PAVE) task force is taking.
“Together we’ve developed a robust set of concrete actions and commitments to transform the home appraisal process so that no homeowner should have to swap out family photos or art work just to receive a fair value on her home,” said Susan Rice, White House domestic policy adviser, at the March 23 event.
“Studies show that eliminating the disparities in wealth generated by home ownership could significantly sink the racial wealth gap,” Rice said.
Similar to Home Lending Pal, the task force is focusing on technology to prevent algorithms from making biased decisions by proposing a rule that will establish quality control standards on automated valuation models.
“The home appraisal workforce is one of the least diverse in our nation. Less than 5% of home appraisers in America are people of color,” Vice President Kamala Harris said.
Some believe the problem is already improving through more accountability and training on the real estate side. Mark Johnson, president of JPAR real estate, says the National Association of Realtors pushed education and awareness on fair housing.
“I think in our industry there is what they call the explicit bias and the implicit bias. The explicit bias, we all see those, are conscious decisions where people make choices that you and I may not agree with, the ones that are dangerous enough. But the ones that are really dangerous is when you’re not in tune to the unconscious bias — the implicit bias — and that’s what we’re really working on with our team to say, ‘Hey, question yourself, what biases may you have that come out in different ways that are unconscious?’” Johnson told Yahoo News.
He believes it all comes back to education and said if his company is ever aware of it, they would never do business with the vendor again.
“The data shows that we’re making a lot of progress in this area, and the four major lenders have to track and report it, basically.”