At The Optimist Daily, we’re excited by stories about narrowing the wealth gap, especially when it comes to the racial wealth gap. This is why we were happy to hear on Tuesday that the House of Representatives will be pushing legislation forward to address racial discrimination in the home appraisal industry.
Unfair appraisal practices
The appraisal industry has grown more and more insular over the years. Its systemic issues have led to a pattern of undervaluing the homes of Black owners and other peoples of color. This shortchanges owners when they want to sell or refinance their mortgages, yet another impediment to growing generational wealth among peoples of color. A report published by the National Fair Housing Alliance found that the industry has grown monochromatic over time and has basically been playing by its own rules.
“Analysis finds that the appraisal industry has operated in a relatively closed, self-regulated framework,” says the report. “It is time to examine the structure and governance of the appraisal industry, particularly as they impact borrowers of color.”
The Bureau of Labor Statistics found that white appraisers comprise 97 percent of the industry. Appraisers are not supposed to consider race in their reports, but mentions about neighborhoods being predominantly Black or formerly white still abound. Fannie Mae found appraisals for Black borrowers were 10 percent lower and those for white borrowers were 10 percent higher when done by an appraiser than by an automated model. This disparity was concentrated in states such as Louisiana, Georgia, Mississippi, and Alabama.
Moves toward fair appraisals
Things are changing for the better. Representative Maxine Waters is pushing for legislation to hold the appraisal industry accountable for discriminating practices like these. The House Financial Services Committee will convene in the next few months to prepare the bill.
Leaders of the industry must sense a change in the wind, as the appraisal industry’s top organizations — the Appraisal Institute, the Appraisal Foundation, and the Appraisal Subcommittee — have collectively released a statement condemning the moves of racially motivated bad actors. The Appraisal Institute has reevaluated its ethics code and partnered with Freddie Mac, Fannie Mae, and the Urban League to hire more people of color as appraisers.
This could be the beginning of a trend increasing the property values of Black and POC owners and a step closer to closing the racial wealth gap.
