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According to a 2018 Brookings Institution study, homes located in neighborhoods primarily populated by black households are valued lower than similar homes in majority-white communities, 23% less or about $48k on average.
Democratic presidential candidate Joe Biden says he will fix the problem by establishing a national standard for housing appraisals.
The question is, are appraisers really to blame for this problem and will a national standard help? The Brooking's study also found that the majority-black neighborhoods exhibited features associated with lower property values, such as higher crime rates, longer commute times and lower performing schools. However, the researchers believe these factors only explain about half the lower home valuations in black neighborhoods.
This is a complicated problem that is mostly unrelated to appraisers. There is already a national standard that addresses this issue that appraisers have to follow, it is called the Uniform Standards of Professional Appraisal Practice (USPAP). There may be some appraisers with racial prejudices, but if these are exhibited in their appraisals, they could be sanctioned and potentially lose their appraisal licenses.
One solution would be to use only comps from outside the lower priced neighborhoods, but that would lead to over-valuations and potentially another real estate market crash. Is that really what we want? This is really not a black or white issue. I am sure if you compared the prices of homes in lower income areas to similar homes in higher income areas, a similar discrepancy would be found. The bottom line is that appraisers do not create value, they simply report what the market is doing.
- Jeff Jorgensen
Source:
Market Watch, published Feb 26, 2020
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