The Appraisal Gap on the Black Community: The Current Effects and How It Can Be Changed.

Research has shown that for decades, houses in predominantly Black neighborhoods have generally been appraised less than houses in majority-white neighborhoods. It is hard to pinpoint one single explanation for this disparity, but it is clear that the appraisal gap has a significant impact on Black homeowners. Unfortunately, even with new policies and practices being implemented over time, it has been found that the gap has nearly doubled since 1980. To address this issue, it will take understanding the history of real estate and identifying the root causes of this appraisal gap within the Black community.

Broadly speaking the appraisal gap most likely derives from a pricing method called the “sales comparison approach.” In the 1960 and 1970s, fair housing laws were implemented to prohibit racist housing practices such as redlining. The real estate industry believed that these would help take race out of the equation. The problem they faced, however, is that the sales comparison approach was based on pricing before this legislation. As a result, it unintentionally baked racism into the system.

In other words, if an appraiser is calculating the value of a home in a Black neighborhood by comparing it to houses recently sold around it, chances are they are comparing it to other Black-owned houses. Due to the legacy of undervalued homes, market prices when compared to white communities would be lower. It becomes the system that is perpetuating this issue not necessarily racial bias by the appraiser.

The appraisal gap has had a snowball effect on the Black community. For most families, their home is their greatest asset. As the home appreciates in value their wealth increases, enabling them to fund their retirements, their children’s college educations, or unexpected expenses. With lower property values comes less home equity which in turn makes it harder for Black families to build wealth. It also means a higher cost of homeownership which inhibits the ability to refinance or even move to other neighborhoods.

In order to close this gap, steps need to be taken to rectify the historic inequalities in the real estate market. There needs to be a reexamination of how homes are valued and financed in different neighborhoods. By decoupling neighborhood demographic characteristics from home values and determining how to facilitate a fairer system for all families, change can happen. Closing the homeownership gap will also be essential to closing the wealth gap in this country.