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Ending American Horror Stories by Eliminating Rating Bias | Health News from the Healthiest Communities

ByWillie M. Evans

Jul 25, 2022

Lawmakers and policy advocates have taken a hard look at the barriers to homeownership for many, especially in light of National Homeownership Month last June. It is crucial that any review focus on the structural barriers faced by Americans of color, including home valuation bias, undervaluation, and barriers to wealth creation.

For people of color, the home valuation process has long been shadowed by a perceived but unproven bias. Recent reports from The Washington Post, NPR and other media shine a light on horror stories of appraisers undervaluing black-owned homes, and showed the rest of America the shocking steps black families had to take to counter bias. Yet, as heartbreaking as these personal stories are, they fall far short of exposing the true dimensions of inequality within the appraisal and lending industries.

Digging a little deeper to understand the full impact of valuation bias reveals numbers that tell a powerful story. A Brookings Institution Report using data from 2012 to 2016, for example, found that homes in neighborhoods defined as predominantly black were on average undervalued nearly $50,000resulting in a total loss in value of $156 billion.

What do these numbers mean for a color family? Consider that from 2012 to 2016, the average American worker earned $44,574 in net annual compensation, according to data from the Social Security Administration. For many families of color, a fair home appraisal would mean earning an additional $48,000 in home value and adding one more income to their household. It could also mean funding better education, accessing needed health care, or start a business.

Since home values ​​generally increase at a faster rate than the typical paycheck, this current undervaluation of $48,000 would be worth around $66,000 in 2021, which is a solid 37% overall increase, an average annual growth of 6.5% over five years – without any special effort on the part of the owner. In contrast, the data indicate that average take-home pay increased between 2.8% to 3.5% per year from 2016 to 2020.

Media and calls to action focused on the behavior of individual evaluators should be heeded, but should not prevent us from recognizing and working to address a more insidious and broader problem: the traditional evaluation approach inherently underestimates homes in communities of color. This is the real horror story. In an industry responsible for producing the vast majority of household wealth in America, our single-family home valuation method is intended to sequester wealth from communities of color through a century of exclusionary real estate policies and practices. .

Data can lead to sustainable holistic solutions

Stories of massive swings in value and owner self-effacement should drive our collective commitment to strengthening accountability and making the appraisal industry more representative of our society. But we also need to use technocratic tools to inform responsive politics that can support transformational change and challenge bias.

And there is hope. Thanks to the individual and collective efforts of many people, a new chapter in the history of American evaluation is being written. The Biden Administration PAVE Action Plan, proposed by a task force of 13 agencies, calls for nothing less than a complete and transparent overhaul of the assessment industry. The plan’s bold and clear summary of the “Causes, Extent and Consequences of Rating Bias” sets the stage for an ambitious set of steps and recommendations aimed at eradicating racial and ethnic bias in home ratings.

Anyone can act, but lawmakers can have an outsized impact

Housing remains one of the few issues that can be characterized as truly bipartisan, with a long history of leaders on both sides of the aisle able to join forces. Now, through their action or inaction, lawmakers will undoubtedly play a key role in what comes next to set home valuations.

Overhauling the appraisal industry and enabling more people to access the wealth-creating opportunities afforded by homeownership requires a unified mindset and approach, and can have a significant and tangible impact on individuals and communities.

Common sense updates are mandatory in a sector as influential as the appraisal industry. Here are some recommendations for legislators and other stakeholders as we seek to move forward and eliminate bias:

  • Start with diversity. The appraisal industry is among the least diverse professions, with white people representing 97.7% of its workersahead of occupations such as farmers, ranchers and other farm managers (94.8%) and museum specialists (94.4%). National and locally targeted efforts are aimed at diversifying the base of evaluators. But such a segregated industry requires more than bloated recruiting initiatives to attract and retain people of color. Systemic triggering and training barriers need to be addressed while support professional associations geared towards color evaluators.
  • Seek accountability. A number of industry stakeholders point to the need for clearer and more rigorous industry oversight. Federal officials have already taken a key step by clarifying that some federal anti-discrimination standards apply to the appraisal industry. Modernizing the industry’s governance structure to increase transparency and public participation is an essential next step to ensure fairness and accountability in every owner’s assessment.

As we all work to enable increased homeownership, let’s level the playing field when it comes to home appraisals, recognizing the true value of every American home – and every American.