Gaps between purchase contract prices and appraisals consistently happen more often in regions with majority Black or Latino populations than in white areas, according to a new Freddie Mac study.
Appraisal gaps occurred between 2015 and 2020 at a rate of 15.4% for Latino-majority census tracts, and 12.5% for regions where Black households represent the bulk of the population. The equivalent number for white areas was 7.4%, equating to a percentage-point difference of 8 compared to Latino areas, and 5.2 for Black neighborhoods.
“We found Black and Latino buyers more frequently obtain values lower than the contract price than white buyers,” Michael Bradley, senior vice president of modeling, econometrics, data science and analytics in Freddie’s single-family division, said in an interview. “These gaps were large enough not to occur by chance. They’re real.”
While Freddie Mac’s research stopped short of identifying the drivers of appraisal inequities related to race, it tested whether other factors could account for the discrepancies, and generally found that they didn’t.
For example, the analysis finds appraisal gap prevalence is higher in census tracts where the share of Black and Latino households is elevated. The difference in the appraisal gap prevalence for areas where the share of Latino households is relatively higher (80%-100%) compared to white neighborhoods, was 9.4 percentage points. The difference in appraisal gap prevalence in areas where the share of Latino households was lower (50%-80%) was 7.7 percentage points. For regions in which the percentage of Black households was in the two aforementioned buckets, the difference in the numbers compared to white census tracts was 5.9 and 4.8 percentage points, respectively.
“The results were more pronounced the higher the concentration of Black or Latino people in a census tract was,” Pamela Perry, single-family vice president of equitable housing for Freddie Mac, said in an interview.
The report also found that the differences were consistent across a wide spectrum of appraisers. Roughly 50% of appraisers produced outcomes where the prevalence of appraisal gaps was higher in Black and Latino tracts than in white areas.
These and other statistics in the report published Monday are in line with
Appraisal industry groups acknowledged the findings and indicated that they have been working with other industry entities to reduce inequities through initiatives such as training some related to identifying and avoiding
“Unconscious bias is real and exists in all industries. Appraisal is one piece of a larger ecosystem, and appraisal groups are working alongside consumer groups, real estate brokers and agents, banks, government agencies think thanks and others to explore what inequities may stem from and what combination of solutions should be considered,” said Rodman Schley, president of the Appraisal Institute, in an emailed statement.
The institute is among several stakeholders Freddie Mac is partnering with in its diversity and inclusion efforts, Perry said.
“We are looking across the board at housing inequities and collaborating with others in the industry on solutions to that problem,” she added.
Freddie Mac plans to research whether appraisers are employing appropriate practices related to how far away comparable properties are, and whether or not other types of strategies that the UCDP makes possible might make housing more equitable.
“We want valuations to be produced through a fair and transparent process,” Bradley said. “That’s why we’re committed to doing the work needed to produce consistent appraisal outcomes throughout different communities, and researching alternatives that include digital [methods].”
