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Black And Latino Homeowners Are About Twice As Likely As Whites To Get Low Appraisals

A "For Sale by Owner" sign is posted in front of property in Monterey Park, Calif., in April 2020.
A "For Sale by Owner" sign is posted in front of property in Monterey Park, Calif., in April 2020.

Home appraisers are more likely to undervalue homes in Black and Latino areas than those in white ones, a new report by Freddie Mac has found.

It's the latest example of racial inequities in the housing sector, a well-documented phenomenon that has led to lower rates of homeownership among Black and Latino families.

"An appraisal falling below the contracted sale price may allow a buyer to renegotiate with a seller, but it could also mean families might miss out on the full wealth-building benefits of homeownership or may be unable to get the financing needed to achieve the American dream in the first place," said Michael Bradley, a senior vice president at Freddie Mac, a government-controlled entity that guarantees home mortgages.

"This is a persistent problem that disproportionately impacts hundreds of thousands of Black and Latino applicants," he added.

Disparities in home appraisals have been getting more attention recently, and Freddie Mac's newly released analysis of more than 12 million appraisals between 2015 and 2020 provides evidence of a racial and ethnic divide.

According to the report, only 7.4% of appraisals in majority-white census tracts came in below a property's contract price. That figure jumped to 12.5% for Black areas and 15.4% for Latino census tracts, where homes were more than twice as likely to be undervalued compared with those in white areas.

The analysis also found that as the concentration of the Black or Latino population grew in a particular area, so did the share of undervalued appraisals.

The researchers said that even when they accounted for structural differences in homes and the unique characteristics of different neighborhoods, Black and Latino areas were still more likely to see lower appraisals. There was also no evidence that the disparity was caused by a small number of appraisers, the report said.

A Brookings Institution report from 2018 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 that the disparities in appraisals call for more research to determine the "full root cause of the gap" and that the organization is also seeking 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 field of residential appraisal.

As of the end of 2018, 85% of appraisers nationwide were white, while less than 2% identified as Black, according to a report from the Appraisal Institute.

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