Homeowning while Black: Couple alleges bias in appraisal
How much does it pay to hide the photos of your family at your home, or anything else that shows your race? If you're Black and trying to find out how much your house is worth, one family suggests it could be hundreds of thousands of dollars.
A couple in Baltimore is suing an appraiser and a mortgage lender, alleging their home was severely undervalued because they are Black, blocking them from refinancing their mortgage. The couple says a separate appraisal, done after "whitewashing" the place by removing family photos and having a white colleague stand in for them, pegged the home's value higher by $278,000.
The two "were shocked at the appraisal and recognized that the low valuation was because of racial discrimination," according to the suit filed earlier this week in U.S. District Court in Maryland.
Officials at the lender accused in the case, loanDepot, declined to discuss the allegations. But in a statement, the publicly traded company said it strongly opposes bias. "While appraisals are performed independently by outside expert appraisal firms, all participants in the home finance process must work to find ways to contribute to eradicating bias."
The appraisal company in the case, 20/20 Valuations, could not be immediately reached for comment. Neither it nor the individual appraiser named in the suit has lawyers listed yet in the court filings.
Home improvement
The situation began last year, when two professors at Johns Hopkins University, Nathan Connolly and Shani Mott, wanted to do the same thing millions of others across the country were doing. They hoped to take advantage of low interest rates and refinance their mortgage and a home-equity loan.
The couple had bought their four-bedroom home in 2017 for $450,000 and had made several upgrades to it. They remodeled their club room for $35,000, for example. They also invested in a tankless water heater, recessed lighting and other improvements that the family's lawyers say raised the value of the home.
That would be on top of the general rise that home prices enjoyed in the area and across the country between 2017 and 2021.
The couple applied in mid-2021 with loanDepot, which initially approved them for a 2.25% interest rate, pending an appraisal to ensure the home was worth enough in case of a default. A loanDepot lending officer told the family a "pretty conservative" estimate was $550,000, according to the suit.
But the appraiser from 20/20 Valuations, who was hired by loanDepot, said the home was worth only $472,000, according to the complaint. That pushed loanDepot to call to say it would not extend the loan, according to the complaint.
The suit alleges that while researching other homes to benchmark against the plaintiff's home, the appraiser ignored nearby sales in majority-white areas, similar to the plaintiff's, that had higher values. Instead, the complaint said he included lower-valued homes and ones in areas with more Black residents.
Later that year, the couple learned the government assessed the value of their home at $622,000. After that, they tried for another loan. This time, they conducted an experiment where they replaced family photos with ones borrowed from white friends and colleagues. They even brought in new artwork, including a vintage print featuring a "white pin-up model." And they made sure not to be home during the appraisal, with a white colleague there instead to greet the appraiser.
After that, the home appraised for $750,000, or 59% more than the appraisal from less than seven months earlier.
"It's shocking to a lot of people that a home should be an objective valuation, but when the appraiser appraises it believing it's a Black-owned home, it gets one value, and suddenly it's worth 50% more when the appraiser believes it's a white-owned home," said John Relman of the Relman Colfax law firm that's representing the plaintiffs.
"You have two eminent professors at Johns Hopkins. They did everything they were told to do," Relman said. But "appraisal discrimination is so nuanced and so pernicious that it literally follows them into this predominantly white neighborhood. And they, unlike their neighbors, can't access the value that's rising and that they should benefit from."
The U.S. housing industry has a long history of racial discrimination, one that helped build the racial wealth gap and one that carries through today. Last year, on the 100th anniversary of the Tulsa race massacre, President Joe Biden said he was launching an interagency initiative to combat bias in home appraisals.
It's a history with which the plaintiffs are well aware. Connolly has written a book about how property ownership helped set the terms of Jim Crow segregation between the early 1900s and the 1960s. Mott has written about African-American and American literature and history.
A 2021 analysis by Freddie Mac found that 12.5% of homes appraised in Black communities were valued at less than the original cost of constructing the home. That figure compares to 7.4% of homes in White neighborhoods and as 9.4% of homes in Latino areas, the analysis found. The differences suggest there's an appraisal gap among homeowners of color and it exists across the nation, Freddie Mac officials said.
Freddie Mac's data was based on appraisals of single-family homes in the top 30 metropolitan areas in the nation.
Other research has also shown that Black and Latino homebuyers have a tougher time landing a mortgage — and when they do acquire a loan, it sometimes carries a higher interest rate than for Whites in similar economic circumstances. In some instances, real estate agents have been known to steer Black homebuyers to less desirable neighborhoods.
