Appraisal Gap Is Wider For Black And Latino Individuals – NMP Skip to main content

Appraisal Gap Is Wider For Black And Latino Individuals

Navi Persaud
Sep 21, 2021
Photo of a red house during the fall.

Appraisal values are more likely to fall lower than the contracted sale price of a home in census tracts with a higher concentration of Black and Latino households.

The latest findings from Freddie Mac's Research Note, provided evidence of a definite gap in home purchase appraisals in minority neighborhoods. Research also shows that the appraisal valuation gap is even greater for Black and Latino individuals. 

Freddie Mac examined 12 million appraisals for purchase transactions that were received between 2015 and 2020 through its Uniform Collateral Data Portal. The company found that a large portion of appraisers who completed appraisals in both minority and non-minority areas generated statistically significant gaps.

Additionally, the research showed that properties in Black and Latino tracts receive appraisal values lower than the contract price more often than those in White tracts. It was found that 12.5% of the properties in Black tracts receive appraisal values lower than the contract price compared to 7.4% for those in White tracts, leading to a gap of 5.2%. Meanwhile, as the population of Latino individuals increases, the appraisal gap for properties in Latino tracts increases from 7.7% to 9.4%.

 “An appraisal falling below the contracted sale price may allow a buyer to renegotiate with a seller, but it could also mean families might miss out on the full wealth-building benefits of homeownership or may be unable to get the financing needed to achieve the American Dream in the first place. This is a persistent problem that disproportionately impacts hundreds of thousands of Black and Latino applicants,” said Michael Bradley, senior vice president of modeling, econometrics, data science, and analytics in Freddie Mac's Single-Family division. “Our research marks the beginning of a comprehensive effort to better understand the key drivers contributing to the appraisal gap. Our goal is to develop solutions to this persistent problem, including appraisal best practices, uniform standards for automated valuation models, enhanced consumer disclosures, improved value processes, and revised fair lending exam procedures and risk assessments.”

“Equity in housing is a critical issue and one Freddie Mac takes very seriously,” said Pamela Perry, single-family vice president of equitable housing at Freddie Mac. “We're uniquely positioned to investigate potential gaps and provide data-driven research like this to advance solutions that promote equity across the valuation process. In addition, we are committed to engaging with the Appraisal Institute to review the analysis in-depth so that we can work together in identifying causes and solutions.”

Published
Sep 21, 2021
Surprise! New-Home Sales Jump Nearly 11% In May

Increase was the first this year; April estimate of sales also revised upward.

Analysis and Data
Jun 24, 2022
Demand For Vacation Homes Falls Below Pre-Pandemic Baseline

Increasing mortgage rates, home prices, and loan fees makes second-home buyers say no thanks.

Analysis and Data
Jun 24, 2022
Black Knight: Past-Due Mortgages Fall To 3rd-Straight Record Low In May

Company’s “first look” finds serious delinquencies, foreclosure starts showing continued improvement.

Analysis and Data
Jun 24, 2022
Redfin: House Affordability Crisis 'Goes To 11'

Homebuying demand pulls back further as mortgage rates near 13-year high.

Analysis and Data
Jun 23, 2022
Home Flips Are Up, But Raw Profits Hit 13-Year Low

In a striking trend, profit margins slipped to their lowest point since 2009.

Analysis and Data
Jun 23, 2022
ATTOM Spotlights The Most Vulnerable Housing Markets

New Jersey, Illinois, and inland California had the highest concentrations of the most at-risk markets in the first quarter.

Analysis and Data
Jun 22, 2022