Redlining 2.0

Racial inequality and home values

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As of July 1, attorneys, brokers and lenders are must have revised their real property purchase and sale agreements and refinancing forms to incorporate the fair appraisal notice now required under California Civil Code Section 1102.6. By January 1, 2023, real estate appraisers must have a "cultural competency" component to their required continuing education. This is all a result of the nearly unanimously passed Fair Appraisal Act that was signed into law on September 28, 2021 in California to combat race-based inequity.

In the face of glaring continuing inequities, in 2020 California became the first state in the country to form a task force to study reparations for Black Americans in the state: the California Task Force to Study and Develop Reparation Proposals. Among the areas of investigation undertaken by the Task Force is discrimination in the real estate industry. Dishearteningly, as reported in the Task Force's "Interim Report", released in June, 2022, unequal homeownership—built on, and perpetuated by, discriminatory practices—is a driving factor behind the enormous and growing wealth gap between African Americans and white Americans and discriminatory practices:

"Today, African Americans are in a worse position than white Americans to have homes as assets to aid them in a crisis. The racial homeownership gap was 19 percent in 1940, and grew to 28 percent in 2009. As of the second quarter of 2020, out of $30.8 trillion in real estate assets in the U.S., Black households held five percent and white households held 78 percent. In 2019, 42.8 percent of African Americans owned homes versus 73.3 percent of white Americans, and are more likely to face affordability issues in securing capital to purchase and sustain housing at 30 percent of their gross income, including utilities. In the same year, researchers for the National Bureau of Economic Research also found that Black mortgage borrowers were charged higher interest rates than white borrowers were and were denied mortgages that would have been approved for white applicants.

"African Americans who own homes have a greater reliance on the house as a source of wealth than white households. In 2014, home equity accounted for 92 percent of African Americans’ net worth. There is a gap between the appreciation of a home owned by a white family and the appreciation of a similar home owned by a Black family. When African Americans do own homes, they tend to be appraised for less than comparable white homes, limiting the amount of money that can be taken out of their home equity. Race affects the rate of return on a home asset. African American homeowners had a median home equity of $66,800 in 2019. White homeowners had a median home equity of $130,000 in the same year.

"Residential segregation contributes to the undervaluing of houses in Black neighborhoods. African American homeowners tend to own homes appraised for less in neighborhoods deemed less valuable, which decreases their available equity relative to white homeowners. Even controlling for factors like neighborhood or home quality, a study has found systemic undervaluation of homes in Black neighborhoods attributable to anti-Black bias. Major companies offering real estate insurance have been accused of targeting inner city black neighborhoods by denying as fraudulent, otherwise legitimate claims. All of this limits African Americans’ access to the benefits of home equity in a crisis."

The specific issue of systemic undervaluation of homes attributable to anti-Black bias referred to by the Task Force has gained increasing attention nationwide, and the federal level as well, over recent years in the wake of numerous alarming studies, reports, articles and lawsuits: "The Devaluation of Assets in Black Neighborhoods: the Case of Residential Property," November 27, 2018, by the Brookings Institute (finding similar homes in neighborhoods with similar amenities are worth 17.1% less in the Los Angeles area and 27.1% less in the San Francisco Bay area if these homes are located in Black-majority neighborhoods); "Racial and Ethnic Valuation Gaps in Home Purchase Appraisals," September 20, 2021, by the Federal Home Loan Mortgage Corporation (finding substantial "valuation gaps" in appraisals of homes located in minority neighborhoods, as well as valuation gaps in transactions where the homebuyer applicant identifies as Black or Latinx); "Black Homeowners Face Discrimination in Appraisals," August 25, 2020, The New York Times; and Austin et al v Miller et al, filed December 2, 2021 in the U.S. District Court (Northern District of CA), case number 3:2021cv09319 (Black couple filed lawsuit against appraiser who valued home at almost $500,000 less than it was appraised at when white friend posed as homeowner).

With the aim of ending this discrimination in the real estate appraisal process, California Assemblymembers Chris Holden and Laura Friedman and Senator Dave Min co-authored and sponsored Assembly Bill 948, also known as the Fair Appraisal Act, and introduced it into the Assembly in February of 2021. Drawing parallels to discriminatory housing practices of the past, and coining the apt new phrase "redlining 2.0" to describe this practice, Assemblymember Holden told The Sacramento Observer (March 2, 2021), “Black homeowners in predominantly white neighborhoods are getting their homes appraised for far less than their neighbors. It’s just another example of how bias, whether explicit or implicit, creates inequity for Black Americans. This is redlining 2.0."

The Fair Appraisal Act received support from groups as varied as the California Bankers Association and the California State NAACP, faced no opposition, and was only voted against by one legislator (Senator Brian Jones -R - District 38). It was signed into law by Governor Newsom on September 28, 2021.

Under the Fair Appraisal Act, California will collect and track appraisal data through the Bureau of Real Estate Appraisers (the "BREA"), which is now required to collect demographic and other relevant information to review appraisers' practices. The BREA is also now required to provide a complaint mechanism for persons who believe that their real estate has been undervalued.

In addition, Section 11340 of the California Business and Professions Code (the "CBPC") was amended by the Fair Appraisal Act. Appraisal licensees are now expressly prohibited from basing their analysis or opinion of the market value of a home on certain enumerated protected bases, including race or "any other basis prohibited by the federal Fair Housing Act." And, beginning on January 1, 2023, new appraisal licensee applicants are required to complete a least one hour of instruction in "cultural competency" and existing licensees will be required to complete at least one hour of cultural competency every four years as part of their continuing education requirements.

Finally, the Fair Appraisal Act requires that every real property purchase contract for the sale of real property signed after July 1, 2022, contain the following notice (in no less than 8-point font) and that such notice also be provided by the lender to applicants when refinancing a first lien purchase money loan on residential real property of not more than four units:

“Any appraisal of the property is required to be unbiased, objective, and not influenced by improper or illegal considerations, including, but not limited to, any of the following: race, color, religion (including religious dress, grooming practices, or both), gender (including, but not limited to, pregnancy, childbirth, breastfeeding, and related conditions, and gender identity and gender expression), sexual orientation, marital status, medical condition, military or veteran status, national origin (including language use and possession of a driver’s license issued to persons unable to provide their presence in the United States is authorized under federal law), source of income, ancestry, disability (mental and physical, including, but not limited to, HIV/AIDS status, cancer diagnosis, and genetic characteristics), genetic information, or age. If a buyer or seller believes that the appraisal has been influenced by any of the above factors, the seller or buyer can report this information to the lender or mortgage broker that retained the appraiser and may also file a complaint with the Bureau of Real Estate Appraisers at or call (916) 552-9000 for further information on how to file a complaint.”

The intention of California's leadership to identify and redress systemic discrimination and the ease with which the Fair Appraisal Act was passed into law would seem heartening, except that this raises a crucial question that demands all of our consideration (especially, in this instance, that of those of us working in the real estate industry): if there is so much public consensus toward ending discrimination, why is this act necessary? Why after so many years do discriminatory practices persist?

The answer to this question is not an easy one, because it requires understanding and recognizing the role of implicit bias and, more to the point, understanding our own, which might even require just understanding that we all have them as a starting point. As explained by the authors of the Fair Appraisal Act, quoting Dr. Jennifer L. Eberhardt from her 2019 book "Biased: Uncovering the Hidden Prejudice That Shapes What We See, Think, and Do", "implicit bias is not a new way of calling someone a racist. In fact, you don't have to be a racist at all to be influenced by it. Implicit bias is a kind of distorting lens that's a product of both the architecture of our brain and the disparities in our society."

Will the provisions of the Fair Appraisal Act further the painfully slow bend of that promised arc of justice? Is it possible to legislate enough safeguards to protect against implicit bias? Time will tell, but in the "meantime”, in addition to giving notices and attending continuing education courses, the best work we can do in the ongoing struggle for equality is the self-work of checking our bias.