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A home’s appraised value largely impacts whether a mortgage lender will approve your application for a new mortgage, home refinance, home equity loan, or home equity line of credit. So, it makes sense that the home appraisal, an assessment of how much your property is worth, should be unbiased. But what happens when it’s not?
“Discriminatory home valuations undermine longstanding goals for fair housing and fair lending across our country,” noted Tia Elbaum, spokesperson for the Consumer Financial Protection Bureau (CFPB), via email. “Automated valuation models and in-person traditional appraisals can both suffer from bias and inaccuracy without appropriate safeguards.”
So, what happens when you experience appraisal bias? And what should you do next?
In this article:
Learn more: What is a home appraisal, and how does it work?
Home appraisal bias is when the appraiser’s property valuation is influenced by neighborhood or personal characteristics unrelated to the property’s fair market value, such as race, ethnicity, gender, and sexual identity.
While there are several reasons why homeowners can experience appraisal bias, race and ethnicity are among the top. A 2023 Federal Housing Finance Agency (FHFA) study showed homes were more likely to be undervalued in areas with predominantly Black and brown populations.
Over a 10-year period, the FHFA found:
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For predominantly Hispanic or Latino communities, 16.1% of homes were undervalued.
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In areas with majority Black populations, 13.9% of homes were undervalued.
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Areas with majority white populations saw undervaluations in 8.1% of home appraisals.
Whether intentional or unconscious, home appraisal discrimination can be financially detrimental to impacted homeowners. Here are just a few of its effects.
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Higher loan denial rates: Your home’s equity is a key factor lenders use to determine your eligibility for a mortgage refinance, home equity loan, or home equity line of credit (HELOC). An undervalued appraisal underestimates your home’s equity, which can lower your chances of approval.
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Wider wealth gap: Home equity is one of the largest assets for Americans, making it a critical factor in building wealth. Undervalued homes due to bias means marginalized groups accumulate wealth at a slower rate.
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Disinvested neighborhoods: Areas with higher property values tend to attract more development than areas with lower property values. Communities with undervalued homes may see fewer job opportunities and less funding for schools, health systems, and other public services needed for a community to thrive.
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Fewer options for buyers: If the appraised value comes back lower than what a home buyer offered on your house, their lender probably won’t approve them for a mortgage. As a result, they could end up backing out of the sale or negotiating for you to sell your home to them for less.
Read more: What happens if a home’s appraised value is lower than the amount offered?
Start with your appraisal report, which typically documents details about your property and comparable sales, or “comps” — homes similar to yours that recently sold in the area. If the comps’ sales prices don’t make sense when compared to your appraised value, the opinion could be biased.
“A red flag could be the appraiser selects comparable sales that are significantly older, ignoring more recent and more relevant sales,” said Kenya Lewis, licensed real estate broker with ReeceNichols Real Estate in Kansas City, Mo., via email. “Not accounting for recent renovations that clearly enhance the property’s value could also be cause for concern.”
More obvious examples of home appraisal bias could include descriptions of your race or ethnicity or the general racial makeup of the neighborhood in the appraiser’s report. This is not allowed under the Uniform Standards of Professional Appraisal Practice (USPAP) and is a clear instance of racial bias in the appraisal process.
Dig deeper: What’s the difference between a home’s appraised value and market value?
If you have a reasonable hunch that your home appraisal is biased, there are a few steps you can take for a more accurate, unbiased estimate.
Gather what you can as evidence of your home’s worth.
“Prepare an approximate estimate of the money you’ve spent on improvements, landscaping, or major upgrades,” advised Anna DeSimone, fair lending policy consultant and author of “Closing the Gap in Homeownership — Re-writing the Rules Against Mortgage Discrimination,” via email.
“Take advantage of internet-based real estate sites like Zillow, Realtor.com, and Redfin to see recently sold properties in your community similar to yours,” she said. Use the information you gathered when reaching out to your mortgage lender.
Talk to your lender about submitting a reconsideration of value (ROV). An ROV is a request to challenge the initial appraisal because of errors, missing information, inappropriate comparable sales, or discriminatory practices. Share your concerns along with any supporting documentation with your lender, who can request an ROV from the appraiser on your behalf if it seems warranted. The appraiser may update the report or conduct a second appraisal. Your lender can also choose a new appraisal from a separate appraiser.
If you believe your home appraisal was undervalued because of discrimination, it’s important to report your case to the appropriate regulatory agency. Housing discrimination is illegal. Reporting it helps uphold the Fair Housing Act and prevent future instances.
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The Office of Fair Housing and Equal Opportunity (FHEO): The FHEO may document and investigate your case and help you reach a resolution or take legal action if needed. Report discrimination with the FHEO online.
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The Consumer Financial Protection Bureau (CFPB): The CFPB takes complaints on lender misconduct. You can file a complaint with the CFPB online.
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The State Appraiser Regulatory Agency: Each state has a regulatory agency that governs the licensing and actions of real estate appraisers. Find your state’s office to report to a biased appraiser.
If you’re unsure where to start, you can submit a complaint to the Appraisal Complaint National Hotline, which will refer you to the right organizations.
An example of home appraisal discrimination could include an appraiser undervaluing a home that is obviously owned by a member of the Black or brown community. Then, a second appraisal comes in significantly higher once the house is “whitewashed,” when the homeowner removes all evidence of race or ethnicity. One famous case in 2021 involved a Black Baltimore couple who initially received a $472,000 valuation and subsequent denial for a mortgage refinance. Months later, the couple applied with a new lender, whitewashed their home, and received an appraisal valuation of $750,000.
Home valuations can come in lower than expected for several reasons. However, the appraiser’s estimate should not be based on your race, ethnicity, gender, religion, or any other characteristic protected by law. Check the appraisal report for inaccuracies, missing information, or discriminatory language or assumptions. If you have any concerns, discuss them with your lender.
If you suspect appraisal bias, you can talk with your lender about submitting a reconsideration of value. The ROV is a formal dispute against the appraiser’s initial estimate, pointing to errors, missing details, or irrelevant comparable sales, all of which could change the valuation. Gather documents to support your claim, like your spending on improvements, renovations, or major appliances. Consider using online home valuation tools or working with a professional who can provide a comparative market analysis for your area. Separately, you can file a claim with the Office of Fair Housing and Equal Opportunity to investigate your situation.
This article was edited by Laura Grace Tarpley.