This blog post is going to hit a nerve with some individuals who may be oblivious to the "appraisal game" played in housing markets across the country. If you're a history lover, voracious reader, real estate professional or something similar, you may already know the role that racism plays in the real estate industry.
HISTORY OF HOMEOWNERSHIP
Home ownership is the most ancient means of creating the opportunity to build #wealth. 73% of Caucasians own a home compared to 45% of African Americans because of racist obstacles that perpetuate lack of access to funds and actual properties. This in turn, hinders Blacks from starting a trajectory of wealth for familial generations. For instance, #Forbes notes that white households have a median net worth that is 20xs
higher than that of black households.
As far back as the 1930’s, private mortgages were reserved for Caucasians. (the caucasity, right?!!). African Americans were denied access to mortgages for home purchases. Even housing communities built for veterans excluded Black veterans, although they sacrificed in just as many ways as Whites, if not more because of their race.
It was and IS still being done, although sometimes in more subtle ways. This is so much so that in 2015 a large banking entity paid out a $250+ million settlement for denying mortgages to African Americans and #Latinos systemically. Also, Black people making $100k/yr are often only given housing options where white individuals making $30k/yr are living. So, they are essentially kept from even indulging in living in homes that match their pay grade, simply because of a system that deems African Americans unworthy.
"…black neighborhoods are devalued by $48,000 per home on average.” This is said to amount to approximately $156B of cumulative loss
THE WEALTH TERMINATOR- REDLINING MAPS
Redlining maps were used by home funding sources, such as insurance companies and banks, to deny Black individuals home insurance coverage or homeownership altogether. American systems are set up to have homeownership and college education as the best ways to build wealth. However, #redlining was an incredible tool used to thwart this opportunity for African Americans. Redlining is sort of viewed as a type of racial zoning of neighborhoods. This is used along with pushing minorities out of up-and-coming neighborhoods. This was done in the form of segregation, which occurred with the creation of #housing projects. And all of these efforts were government initiated, or at the very least, #government supported. With African Americans pushed out of this primary wealth, that obstacle has perpetuated less-than sustainable financial conditions of most African #Americans across generations.
Neighborhoods at least moderately populated by African Americans were labeled as disadvantageous and even hazardous to invest in. So funding wasn’t given for properties in such places. According to brookings.edu, “…black neighborhoods are devalued by $48,000 per home on average.” This is said to amount to approximately $156B of cumulative loss in such a neighborhood. Do you know black neighborhoods who would do well if they had access to this kind of true value? So do I.
Victims of racist appraisal practices have seen their properties devalued by $40,000 below their home’s true value, and even so much as $100,000 . Some have seen their home appraise for 46% more in a second #appraisal after asking a white friend or neighbor to pose as the owner of the home.
Viewing appraisals from another perspective, they are also used to determine the amount of money needed for closing in a home purchase. When conducted on a home in this process they also determine how much a bank will give you for the purchase. So, presenting misjudged appraisals could also cause obstacles. This is also the case where appraisals are set too high. For instance, if a home appraisal is valued inaccurately high, this could make property taxes extremely high. Consequently, this would make it difficult for #homeowners to afford their real estate taxes and they could essentially lose their homes due to nonpayment. And obviously local governments cannot reap tax revenue for public services from nonpaying homeowners. In this sense, neighborhood resources, infrastructure such as roads and bridges, and other public services are left underfunded or just not funded at all.
Someone’s online comment to this issue read something to the effect of “well isn’t an appraisal just an opinion of value? How is this a big deal?” This was one of the most ignorant questions that I’ve ever encountered online. Well, maybe not. I’ve seen worse. But it still made my blood boil. Why are we still explaining this stuff?
Anyhow, the answer to that is NO. It isn’t just an opinion of value. Public #schools are funded by property #taxes. So, schools in neighborhoods with subpar property values disadvantages those schools. There are less funds for adequate hiring and to sustain extracurricular activities which play a role in the attended colleges and other aspects of the futures of public school children. Also, the process uses metrics, research and analysis to develop fact supported opinions of property value. Even more important, lying about property value because you don’t think highly enough of the homeowner’s ethnic group isn’t a metric to be used in the assessment! Furthermore, where properties are undervalued, everything from that immediate family’s income, future, and the wider community’s access to quality public services are all negatively affected. What is worse is if these practices are habitual they perpetuate continued use which creates a harmful cycle that robs and pulverizes generations of wealth for people of color... JUST BECAUSE they are people of color.
TO BATTLE THIS
African Americans will always have to play catch up if these practices persist.
To push back we all must support changes in equality efforts. Be aware of the housing experiences of African Americans and others so that you can voice your concerns from an informed perspective; versus strictly from emotion. This will lend credibility to your position if you decide to engage politicians. We must share this information to help inform others. This could lead to them aiding you in creating change! Remember what does work in your favor and use those things. This includes investing in REITs to obtain funding for eventual #investment in physical real estate. Also note that it works in your favor to save money, as does creating opportunities versus waiting for others to provide you with them. Take the time to learn of alternative funding sources available to African Americans such as real estate development grants. You could also decrease the use of sources that further diminish your wealth and opportunities like poor spending and lack of saving, and use of unnecessary loans; especially those with high #interest rates. There is also the option to take advantage of wealth building retirement plans. Lastly, for your wealth building plan that includes college, you could get scholarships instead of loans.
Finally, I leave you with the questions: should appraisals just be banned at this point? In their place, should there be requirements for lenders to use other market data to perform property value analyses?