Home Appraisal Discrimination: Understanding, Identifying, and Combating Bias

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• Bias in the appraisal process strips homeowners of wealth and hurts the values of neighboring homes.
• Studies show that homes in areas with mostly residents of color are often undervalued compared to homes in majority-white areas.
• Red flags that could indicate discrimination include mentions of an area's racial makeup or poorly chosen comps.

For most homeowners, their house is their most valuable asset. And it's an asset that tends to provide a good return.

For example, the median sales price for homes in the U.S. was $327,100 at the end of 2019, according to data from the Census Bureau and the Department of Housing and Urban Development . By the end of 2023, prices were $423,200. This means that the median homeowner gained  nearly $100,000 in value during that time.

But bias and discrimination in the appraisal process can lead to homes in marginalized communities being undervalued, robbing those communities of the same wealth that their white counterparts receive. Here's what homeowners and buyers should know about appraisal bias.

What is home appraisal discrimination?

Home appraisal discrimination is also called appraisal bias. Put simply: It's assigning a lower value to a home because of the race of the person who lives there, and it can happen consciously or unconsciously. It can also happen as a result of the lingering effects of historical discrimination that linked race to property values.

Historical context of appraisal discrimination

Appraisal bias dates back nearly a century — to the days when neighborhoods (mostly ones with minority populations) were redlined on mortgage lending maps. Redlined neighborhoods faced tougher underwriting criteria, making it harder for residents to buy homes. This led to the declining real estate in these areas and further racial segregation.

These days, it's a violation of fair housing laws to discriminate in the appraisal process based on protected factors, which include race, color, national origin, religion, sex, gender identity, sexual orientation, familial status, or disability.

But research shows that biased outcomes still regularly occur. According to a 2021 study from Freddie Mac, 15.4% of homes in majority-Latino census tracts appraise for less than the contract price, and 12.5% of homes in majority-Black census tracts appraise for less than the contract price. In majority-white census tracts, only 7.4% of homes appraise below the contract price.

The study also found that this phenomenon remains even when accounting for differences between neighborhoods.

"Our preliminary modeling results suggest that even when taking structural and neighborhood characteristics into consideration, a property is more likely to receive an appraisal lower than the contract price if it is in a minority tract," the study said.

A 2018 report from the Brookings Institution similarly found that "neighborhood quality" can only partially account for the difference in valuations of homes in majority white neighborhoods compared to majority Black neighborhoods. Researchers estimated that homes in Black neighborhoods are undervalued by $48,000 on average.

When a home is undervalued as a result of discrimination, it not only hurts the homeowner, but it can also hurt the entire neighborhood. Because appraisers rely on comparable sales to value homes, one undervalued home can lead to other homes in the neighborhood being undervalued, too.

How to identify appraisal discrimination

If you get an appraisal that comes in lower than expected, your first move should be to look at the appraisal report.

If you're buying a home or refinancing, you'll get a copy of the appraisal report once it's completed. The report will look like this and will include all the data the appraiser gathered on the property, including their comments and the comparable sales they used to come up with an opinion of value.

Common signs of appraisal bias

Home sellers typically don't receive a copy of the appraisal report, but you can ask the buyer if they're willing to share the report with you, so you can check for incorrect or potentially problematic information.

Here's what to look for:

• Fact-check the information included in the report and make sure the appraiser didn't miss anything. Double-check that they got the square footage, number of rooms, and other vital information right.
• Watch out for red flags in the appraiser's comments, such as language referencing the racial or ethnic makeup of an area.
• Look at the comparable sales the appraiser used. Appraisers have some discretion in the comps that they choose to compare a home to, which can open the door to bias, whether intentional or not. Comps should generally be located within a mile of the property being appraised, in similar condition, and close in age, square footage, and number of rooms. If the comps your appraiser used don't fit this criteria, and there are comps available in your area that do, you may have a good case to dispute the report.

If you decide you want to dispute the appraisal, work with your real estate agent to ask for a reconsideration of value. You'll typically need to back up your request with evidence that the initial appraisal used incorrect or incomplete information.

Impact of appraisal discrimination on homeowners

Appraisal discrimination can have sweeping impacts on all residents in the area, but especially homeowners.

Financial consequences

Appraisal bias hinders the wealth-building opportunities of homeowners affected. Their homes don't grow in value as much as those in other neighborhoods, and they're unable to build as much wealth through real estate.

In fact, according to a 2022 Brookings study, homes in Black neighborhoods are valued up to 23% below what they'd be valued in a non-Black neighborhood. This amounts to a total financial loss of about $162 billion across U.S. cities with at least one Black neighborhood.

Emotional and psychological effects

Studies show that discrimination can lead to emotional and psychological distress. It can also lead to lower self-esteem, and, according to the American Psychological Association, lead to mental health struggles, like anxiety and depression.

Legal protections against appraisal bias

Today, there are legal protections against appraisal bias. These aim to protect consumers against potential discrimination in the homebuying process.

Fair Housing Act

The Fair Housing Act was passed by Congress in 1968, prohibiting discrimination regarding race, religion, nationality, or sex in the sale, rental, or financing of housing. Congress has since amended the law several times to include gender identity, sexual orientation, disability, and familial status to its protected classes.

Legal recourse and reporting mechanism

Appraisal discrimination is a form of housing discrimination and is prohibited by federal law. Many states also have their own laws that prohibit this practice.

If you believe you've experienced appraisal discrimination, you have a few options for reporting it. See below for the steps to address appraisal discrimination:

• File a complaint with the Department of Housing and Urban Development. You can make a report online, via email, over the phone, or by mail. You can also contact your regional HUD office .
• Contact the Appraisal Complaint National Hotline . When you file a complaint with this hotline, you'll receive a list of state and federal agencies that may be able to help you. You can file a complaint online, via email, or over the phone.
• Report housing discrimination to your state. Your state should have an office or entity where you can file housing discrimination complaints. This could be the attorney general's office or your state's civil rights division.
• Talk to a local fair housing organization . Nonprofit organizations in your area dedicated to fair housing can help you explore all your options and determine the best place for you to make your report.

Steps to combat home appraisal discrimination

Despite the legal protections that are in place, appraisal bias still happens. Fortunately, there are ways to help.

Educating homebuyers and appraisers

Education is critical when combating home appraisal discrimination. When homebuyers are aware of what appraisal bias is and how to spot it, they can take action when it occurs. This may mean reporting it to their state, HUD office, or local fair housing organizations, which can help stop the practice in the area.

Appraiser education can help, too. There are courses appraisers can take in Fair Housing, bias, discrimination, and more.

Working with Fair Housing organizations

If you want to help stop appraisal discrimination — or discrimination in any part of the homebuying process — working with local fair housing organizations is a good place to start. Your city or state may also have a fair housing department you can work with.

Advocating for policy changes

You can also advocate for policy changes. the National Fair Housing Alliance has a number of actions you can take , including urging Congress to consider Fair Housing in its budgeting process and HUD funding. Get in touch to find out how you can help.

Appraisal bias FAQs

What is home appraisal discrimination?

Home appraisal discrimination occurs when a property is undervalued based on the homeowner's race, ethnicity, or other protected characteristics.

How can I identify if my home appraisal was biased?

Identifying home appraisal discrimination can be tricky. Look for inconsistencies in comparable properties, significant undervaluation, or comments that suggest bias.

What legal protections exist against appraisal discrimination?

The Fair Housing Act prohibits discrimination in housing, including home appraisals, based on race, color, religion, sex, and other protected characteristics.

What should I do if I suspect appraisal discrimination?

Report the incident to local fair housing organizations and consider seeking legal advice to address potential discrimination.

How can I prevent home appraisal discrimination?

To prevent appraisal discrimination, ensure appraisers have accurate, comprehensive information about your property, and consider obtaining multiple appraisals.