The racial gap in home appraisals is a real phenomenon, one that sabotages the wealth-building power of homeownership in Black and Latino neighborhoods, mortgage giant Freddie Mac said.

The company released an analysis Monday showing that appraised values are more likely to fall short of the contract price for homes in census tracts with a higher share of Black and Latino households. The conclusion was based on Freddie Mac’s examination of 12 million appraisals ordered for purchase transactions from 2015 to 2020.

A measurable racial gap

The appraisal gap matters because it creates a barrier for Black and Latino consumers hoping to buy homes.

“This is a persistent problem that disproportionately impacts hundreds of thousands of Black and Latino applicants,” said Michael Bradley, Freddie Mac’s senior vice president of modeling, econometrics, data science and analytics.

Freddie Mac’s study added data points to claims that appraisers might subconsciously undervalue homes in non-white neighborhoods. Valuing a home is an imprecise art, of course, so Freddie compared appraised values to the purchase prices that buyers had agreed to pay.


Its study found that homes in mostly Black and Latino census tracts were assigned appraised values lower than the contract price more frequently than homes in white tracts. While 12.5% of homes in mostly Black areas were appraised for less than the contract price, just 7.4% of homes in mostly white tracts experienced appraisal shortfalls.

What’s more, as the concentration of Black or Latino residents in census tracts increases, the appraisal gap increases, Freddie Mac found.

And the culprit doesn’t seem to be a small number of unenlightened appraisers — a large portion of appraisers who completed appraisals in both minority and non-minority areas generated statistically significant gaps, Freddie Mac said.

Its study said the lender will continue to examine “the full root cause of the gap.”

Housing industry takes aim at appraisal gap

Freddie’s study reflects new attention to the racial gap by big players in the housing sector. In an earlier finding on the same topic, a 2018 study by the Brookings Institute found that Black-owned homes are undervalued by $48,000 on average.

And this year Chase committed $3 million to the Appraiser Diversity Institute. The megabank said its goal is “to root out bias in the residential appraisal process.”


In a separate statement Sept. 20, the Appraisal Institute lauded Freddie Mac for exploring the issue.

“Unconscious bias is real and exists in all industries,” the trade group said. “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 tanks and others to explore where housing inequities may stem from and what combination of solutions should be considered.”

Appraisals are just one piece of a stubborn racial divide in the U.S. housing market. Black Americans have less wealth overall, and therefore are less likely to own homes — and when they do own homes, find themselves more likely to pay higher mortgage rates.

Black homeowners often struggle to build long-term wealth because their properties are undervalued — and there’s no straightforward easy way to dispute an appraisal or have it changed.