Home Appraised With a Black Owner: $472,000, With a White Owner: $750,000
Nathan Connolly and his wife, Shani Mott, say an appraisal company undervalued their home based on their race. The couple has filed a lawsuit in Maryland.
Last summer, Nathan Connolly and his wife, Shani Mott, welcomed an appraiser into their house in Baltimore, hoping to take advantage of historically low-interest rates and refinance their mortgage.
They believed that their house — improved with a new $5,000 tankless water heater and $35,000 in other renovations — was worth much more than the $450,000 that they paid for it in 2017. Home prices have been on the rise nationwide since the pandemic; in Baltimore, they have gone up 42 percent in the past five years, according to Zillow.com.
But 20/20 Valuations, a Maryland appraisal company, put the home’s value at $472,000, and in turn, loanDepot, a mortgage lender, denied the couple a refinance loan.
Dr. Connolly said he knew why: He, his wife and three children, aged 15, 12 and 9, are Black. A professor of history at Johns Hopkins University, Dr. Connolly is an expert on redlining and the legacy of white supremacy in American cities, and much of his research focuses on the role of race in the housing market.
Months after that first appraisal, the couple applied for another refinance loan, removed family photos and had a white male colleague — another Johns Hopkins professor — stand in for them. The second appraiser valued the house at $750,000.
This week, Dr. Connolly and Dr. Mott sued loanDepot, which is based in Foothill Ranch, Calif., as well as 20/20 Valuations and Shane Lanham, the owner of 20/20 Valuations. Mr. Lanham is the appraiser who conducted the first appraisal.
“We were clearly aware of appraisal discrimination,” said Dr. Connolly, 44. “But to be told in so many words that our presence and the life we’ve built in our home brings the property value down? It’s an absolute gut punch.”
The home appraisal industry, which relies partly on subjective opinions to translate home values into dollars and cents, has faced a firestorm of criticism over the past two years.
More than 97 percent of home appraisers are white, according to the Bureau of Labor Statistics, and since the summer of 2020, when conversations on race and discrimination in America rose to the forefront following the murder of George Floyd, dozens of Black homeowners have alleged discrimination in the home valuations they received. Some have filed lawsuits, and the Biden administration in March announced a set of planned reforms to overhaul the appraisal industry and dismantle systemic bias.
Dr. Connolly and Dr. Mott live in the North Baltimore neighborhood of Homeland, known for its strong public schools and colonial architecture, which has earned it a place on the National Register of Historic Places. A majority of their neighbors are white.
According to their complaint, which was filed in Maryland District Court on Monday, the couple applied to refinance their mortgage with loanDepot in May 2021. The lender approved a loan at a rate of 2.25 percent and, according to the complaint, told the couple that their home was likely now worth $550,000 or more.
To conduct the appraisal, loan Depot hired 20/20 Valuations as a subcontractor. Mr. Lanham conducted the inspection himself on June 14, 2021. According to the complaint, Dr. Connolly, Dr. Mott and their three children were home during the visit, and their house was also filled with family photos, children’s drawings of figures with dark skin, a poster for the film “Black Panther” and literature by Black authors (Dr. Mott lectures on literature and Africana studies).
“It would have been obvious to anyone visiting that the home belonged to a Black family,” the complaint reads. The appraisal came back just $22,000 more than they had paid, and loanDepot based its rejection of the couple’s application on the low number.
The couple criticized the way Mr. Lanham came up with his appraisal. Home appraisers frequently rely upon the sales comparison approach, in which they weigh real estate against the sale prices of similar nearby homes to determine value.
In Mr. Lanham’s appraisal, he selected three homes with values ranging from $435,000 to $545,000 (a fourth comparable, which sold for $650,000, was ultimately not used in his valuation).
The first home used, the complaint argues, would be considered a “fixer-upper,” which the home of Dr. Connolly and Dr. Mott is not.
Taking on this issue a prominent valuation professional Er. Sunil Pandey from India said that Community-dominated markets and open Market behave differently, Even in our country One can see the difference between transaction data in a community and open non-dominated territory. The value may be called as Non-Market Value but the Market value concept does not satisfy.
Now Bank is also talking about the term ‘BIAS’. One Banker(AGM) Recently transferred from a city had raised this matter before Valuers. I object as valuer ‘Bias on Grounds’. I am of the opinion that the Estimation of FMV of adjoining properties (Even at the borderline of a community-dominated area) can not be done on the basis of comparables in a community-dominated area. Er. Pandey said ‘REASON is FAIR but one can not say Appraisal is UnFair’ .
Er. Pandey added that As a valuer I am in favor of identifying classified marketplace, someone can call me bise but it is fact that a True Valuer can never be a Baise.
One more Prominent Indian valuation professional without quoting his name said that ‘Appraisal Bias isn’t new at all; it’s been for decades even after more than 50 years of passage of the Fair Housing Act. If we look at the issue historically, one will appreciate the broader concerns and impacts of appraisal bias in the US. Systematic undervaluation of properties in a neighborhood can have a significant effect on property values and on the accumulated wealth of homeowners in that community.
Last year, President Biden formed the Property Appraisal and Valuation Equity (PAVE) task force to look into this matter. Most likely, the next version of USPAP by the end of the year 2023 will substantially address this issue.