Eliminating appraisal bias from the housing market has seemingly been all but impossible. The appraisal industry, which is overwhelmingly white, is attempting to diversify. Government officials have assembled task forces that have themselves issued recommendations.
And yet, sweeping, tangible change remains elusive.
How appraisal bias — a form of discrimination that seeps into the estimate of a home’s value — persists is open to interpretation. Some real estate experts point to individual appraisers as the cause, while others argue the problem is a result of systemic prejudice. Regardless, the issue has resulted in Black-owned homes at times being valued tens of thousands less than what they could be because of where they are located or who owns them.
“What we’re still dealing with today is kind of the legacy of redlining,” said Stephen Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers, or MBREA. “That value differentiation [between majority white and Black neighborhoods] is kind of baked in all the way from the ‘30s to now.”
Homeownership is an important driver to building generational wealth. But decades of racist and exclusionary practices have prevented many Black Americans from obtaining that goal. For those who do own homes — about 38 percent of Black Bay Staters, and even fewer in Boston — there is sometimes appraisal bias to contend with.
Appraisals come at the final stages of a home sale or refinance. A bank hires real estate appraisers to offer a third-party evaluation of a property’s value in order to ensure the loan being issued is reasonable. A low appraisal can affect a home’s sale price or determine how much equity a homeowner can claim when applying for a line of credit or taking out a second mortgage.
Jonathan Rothwell, a principal economist at Gallup, co-authored a 2022 Brookings Institute study about appraisal bias in Black neighborhoods. He said there’s “no doubt” the data show a larger gap between appraisal estimate and sales price compared with white neighborhoods.
“It’s a lingering issue in the industry,” he said.
His research shows about 10 percent of appraisals in majority Black neighborhoods — about two times the frequency in majority-white neighborhoods — are valued below the contract price compared with what would be expected in the absence of racial bias.
The study also found that houses in majority Black neighborhoods are appraised about 23 percent below what their valuations would be in non-Black neighborhoods. In Greater Boston, the study found an 8 percent difference, for an average devaluation of $36,000 per home.
Boston outperforms most of the country when it comes to racial appraisal gaps. But Rothwell believes this is possibly a reflection of gentrification in Black neighborhoods and a booming housing market that enables developers “to take advantage of the fact that you can buy a home undervalued, you can fix it up, and then make a huge profit.”
To be sure, there have been efforts to crack down on appraisal disparities. The White House in 2021 launched a task force to tackle the issue. It recommended, among other things, diversifying the appraiser workforce, which in 2023 was 95 percent white.
The Federal Housing Finance Agency and quasi-government corporations Fannie Mae and Freddie Mac have released yearly updates of what language is acceptable to use in appraisal reports. Phrases such as “pride of ownership,” “gentrified,” and any mention of ethnicity in appraisal reports are now frowned upon.
In Massachusetts, Attorney General Andrea Joy Campbell named appraisal bias as one of the issues she wants to address, an unorthodox step for the office, which has seen previous attorneys general focus their energy on civil litigation.
“As my office seeks to close [the racial wealth] gap and promote economic mobility, we will leverage our various tools, such as educating consumers and enforcing our fair housing laws, to advance appraisal equity across Massachusetts,” Campbell said.
But real estate experts say there aren’t many formal actions for recourse if someone experiences appraisal bias.
Richard Taylor, director of Suffolk University’s Center for Real Estate, said given “a house is an asset, it’s not just shelter,” appraisal gaps reduce Black homeowners’ ability to “leverage your ownership for whatever is in the best interest of your family.”
For some, this means taking out a loan against their home in order to finance a business or pay for education, as Taylor himself once did.
“When I had my first house in then-Dudley Square — now Nubian Square — in 1977, I needed $15,000 to pay Harvard to get my diploma. I refinanced my house and paid them,” Taylor, who is Black, said. “If I didn’t have that property… I don’t know how I could’ve gotten [the money] immediately.”
According to Rothwell, an undervalued appraisal at the eleventh hour is sometimes enough to collapse a previously agreed-upon home sale altogether.
That’s what nearly happened to a client of Jean Transtamar five years ago in the final stages of a deal in Mattapan. When the appraisal report came back $100,000 below the expected sales price, Transtamar, a Black real estate agent who often works with Black buyers and sellers in predominantly Black areas, suspected appraisal bias.
“With every single deal where it’s people of color, or maybe even an agent of color, you have a slight hesitation where you just don’t know [if there will be appraisal bias],” he said. “Do I see my clients as victims? No, because victimhood doesn’t help out. What it does is it forces me to kick into another gear to be creative.”
Transtamar noticed the appraisal only listed two units, although the property had three. When a second appraiser was hired, he said, the value “was changed and it reflected the true amount of the property.”
If someone experiences appraisal bias, Transtamar suggested, “don’t take no for an answer” when requesting a second opinion, “because people will back you into a corner and they’ll take your equity.”
Rothwell said there should be further reform to the way appraisers do their job.
“There needs to be a much greater scientific development of the appraisal process, much greater use of big data and quantitative analysis,” he said.
Still, Sousa argues only “a small percentage of appraisers” are actively biased, but some discretion is inherent to the nature of the profession, which he called “an art and a science.”
Appraisers, he said, are tasked both with assessing objective measures of a home’s value, such as square footage, and also offering an opinion on how the characteristics of a neighborhood, such as crime rates and proximity to schools, affect the value of a property.
Any liberties an appraiser takes should be “supported by market evidence,” Sousa said. This includes one of the most important components of any appraisal: the selection of comparable properties, which are ideally other similar homes that were recently sold nearby.
But the comparable houses appraisers choose, Talyor argues, often reinforce implicit bias against Black neighborhoods in the real estate market.
“If all the neighborhood was discriminated [against], I will never get an accurate comp,” Taylor said. “That’s how [appraisal bias] really multiplies itself to impact the whole neighborhood and the whole community.”
The result, Rothwell’s research suggests, is Black homeowners nationwide losing out on billions of dollars “because of perceptions of their assets’ value.”
In Boston’s predominantly Black neighborhoods, for instance, a Globe review of 2021 US Census data showed the average median home value was $473,000 compared with $735,000 for homes in mostly white neighborhoods.
The MBREA, for its part, offers a free class on fair housing, bias, and ethics for appraisers. In addition, Sousa said there are MBREA members who have made “personal commitments” to mentoring trainees of color.
But, Sousa warned, until regulating bodies figure out how to fully “break down those artificially created boundaries, we’re going to continue to feel the impact of something that happened almost 100 years ago now.”
This story was produced by the Globe’s Money, Power, Inequality team, which covers the racial wealth gap in Greater Boston. You can sign up for the newsletter here.
Julian E.J. Sorapuru can be reached at julian.sorapuru@globe.com. Follow him on X @JulianSorapuru.