For nearly two decades, Lynnette Khalfani-Cox has given personal finance advice and insight to countless news organizations. In 2019, the financial educator became the story.
Khalfani-Cox and her husband took a home equity line of credit on their three-bedroom, three-bathroom ranch home and needed to appraise it.
This wasn’t the couple’s first experience with home appraisals. Khalfani-Cox was ready with a one-sheet with all the home’s upgrades and improvements. What she wasn’t prepared for was the dismissive home appraiser.
“An older white man came to the door,” she says. “He looked my husband and me up and down. Then he sped through and did a really quick photographing and measuring of our house.”
Khalfani-Cox also wasn’t prepared for the low appraisal.
“He came back with an appraisal that was about $100,000 less than comparable homes in our neighborhood that had recently sold. We had done a $40,000 renovation for our kitchen. We knew we were getting lowballed right off the bat. Sadly, we knew what the cause of it was. It was that we were African American.”
Throughout history, Black Americans have faced unequal housing opportunities. A lack of representation in real estate-related occupations has been cited as one of the contributors to the disparities.
“This is a multifaceted problem that requires a multitude of solutions at the policy level – certainly at the level of corporations and the industry, whether that’s the banking and lending industry, the appraisal industry, the real estate, the brokerage industry and more,” says Khalfani-Cox. “I do think representation matters.”
Appraisal Bias
According to research from the Brookings Institution, homes in majority-Black neighborhoods are valued up to 23% below non-Black communities, resulting in $162 billion in lost equity. The devaluing of Black homes is also a systemic problem in predominantly white areas, as Khalfani-Cox experienced.
The home appraisal industry is overwhelmingly white and property appraisers are less likely than other real-estate-related occupations to be people of color.
“We observe in education and health that greater diversity – specifically more people of color in those in sectors serving other people of color – have resulted in better outcomes for patients and students of color,” says Michael Neal, Principal Research Associate in the Housing Finance Center at the Urban Institute. “The same can potentially be true here. If there is racial bias, whether conscious or unconscious, diversifying the industry can help with that.”
The Appraiser Diversity Initiative, a collaboration with Fannie Mae, Freddie Mac, the Appraisal Institute and the National Urban League, aims to eliminate disparities in appraiser demographics by providing new entrants with education and resources. U.S. Bank (No. 11 on the Fair360 2023 Top 50 Companies for Diversity list) has launched a trainee program for residential appraisers to increase Black representation in appraiser roles.
After the low appraisal, Khalfani-Cox and her husband immediately contacted their bank. A second appraisal was conducted at their own expense. But this time, a Black appraiser arrived at their home.
“He was very meticulous,” she says. “He very carefully measured our property.”
The appraiser also took pictures of all the rooms, but not before instructing the couple to take down their family photos. The process has been described as “whitewashing,” when non-white homeowners remove evidence they live in their home before an appraisal.
“It was erasure,” she says. “Talk about having to battle toxic racism and structural inequality. We can’t even be represented in the pictures? The man was trying to pull our coattails and tip us. Even though we were so upset, my husband relented and we took the pictures down.”
The second appraisal returned $100,000 higher than the previous one. Khalfani-Cox’s story is not uncommon. Not only does appraisal discrimination prevent homeowners of color from building generational wealth, but it also perpetuates the racial wealth gap.
“It was disturbing to me overall,” she says. “I think about all of the sapped wealth. All of the disenfranchisement. All of the ways in which people who are less familiar with the process don’t have the same access to information or knowledge that I possess and who may not have even been aware that they were unjustly lowballed.”
READ: How Appraisal Discrimination Devalues Homes Owned By People of Color
Housing Discrimination
The real estate professional industry is overwhelmingly white. While Blacks make up more than 14% of the U.S. population, only 5% of real estate agents are Black.
“If you have a group of people who are racially prejudiced and at the same time, they’re the ones in positions of power, then you run the risk of racially discriminatory outcomes taking place,” says Neal.
More than 50 years after the Fair Housing Act of 1968, race-based discrimination in housing continues to be a problem.
Blockbusting is when real estate agents encourage white homeowners to sell their homes for low prices by convincing them minorities are moving into the neighborhood.
“Real estate agents and speculators and others used the business strategy that allowed them to purchase homes that were owned by white Americans at cheap rates and then turn around and sell those same properties at steep prices to African Americans who had very limited housing options,” says Nikitra Bailey, Executive Vice President of the National Fair Housing Alliance. “That was the way the market operated for many years.”
Steering is when an agent guides someone to buy or rent a home in a specific area because of their race, disability, religion or other legally protected characteristics.
“The industry has admitted that white real estate agents did engage in steering, which resulted in Black homebuyers buying lower-valued homes in less desirable neighborhoods,” says Neal. “This is critical because it contextualizes the homeownership rate gap and that there’s a need to close that inequity.”
In 2020, The National Association of Realtors (NAR) apologized for its role in perpetuating housing discrimination. The organization, which once supported policies like steering and excluded members because of their race, reports that its demographics are changing.
“Based on the 2022 data, Hispanics accounted for 11% of Realtors and this is up from 9% in the previous year,” says Nadia Evangelou, Senior Economist & Director of Real Estate Research at the NAR. “Then we have Black Americans with 8% and Asians with 5%. New members tended to be more diverse than experienced members. Among those who have two years of experience or less, 37% were minorities which is up from 34% last year.”
Mortgage Denials
According to research from the Federal Reserve Bank of Dallas, minorities are significantly underrepresented among loan officers, adversely affecting borrowers’ access to credit.
Minority applicants are less likely to be approved than white applicants working with the same white loan officer when automated underwriting systems aren’t used. However, minority applicants are more likely to be approved and less likely to default when working with minority loan officers—especially when the officer is of the same race/ethnicity.
Mortgage denials are a significant obstacle for Black Americans trying to get a piece of the American Dream. Not only does the group have the lowest homeownership rate, but the Black-white homeownership gap is the largest it’s been in a decade.
All mortgage loan providers on Fair360’s Top 50 Companies for Diversity list have diversity goals set or approved by their Executive Diversity Council and are focused on improving opportunities for ethnically diverse populations.
“A year ago, we hired 12 new Black mortgage loan officers across the country who are part of the bank’s first-ever training and development program designed to deliver on Access Home’s commitment to creating future mortgage leaders who represent all the communities the banks serve, starting with Black consumers,” says Lenny McNeill, Executive Vice President, Strategic Markets and Affordable Lending, U.S. Bank. “Mortgage experience wasn’t required to participate.”
The U.S. Bank Access Home Program first targeted the Black community, where the disparities are the largest. In 2023 and beyond, the bank will expand its focus to include the Hispanic community.
TD Bank (No. 20 on the Fair360 2023 Top 50 Companies for Diversity list) is also transforming its mortgage salesforce to increase homeownership in the Black community. Michael Innis-Thompson, Senior Vice President, Head of Community Lending & Development & Fair Lending Center of Excellence at TD Bank believes increasing representation in the banking field can help prospective customers feel more comfortable and welcome.
“The assumptions that we’ve made are actually playing out in the actual data that we’re seeing in the loans that are being produced by diverse loan officers,” he says. “It’s showing that it works. These individuals are reaching customers who otherwise probably would not have trusted the system because they feel more comfortable talking to someone who looks at them. It’s not enough to just hire diverse loan officers, but to ensure they have the tools to be successful across the board.”
