How "Sales Comps" Built Racism Into the Housing MarketRoundup
tags: racism, segregation, housing, housing discrimination, real estate
Elizabeth Korver-Glenn is an assistant professor of sociology at Washington University in St. Louis whose research focuses on the racial and economic housing inequalities. She is the author of Race Brokers: Housing Markets and Segregation in 21stCentury Urban America (Oxford University Press 2021).
The New York Times recently published a story about two Black scholars in Baltimore who say their home was undervalued by hundreds of thousands of dollars because of their race and have filed a lawsuit against an appraiser and mortgage lender in Maryland. Their story is rightfully raising questions about how racism shapes the contours of Americans’ experiences in the real estate market and what individual homeowners can do about it.
But appraisal discrimination is not just a story about individual racist appraisers or personal experience. It is a story about the racism that infuses the appraisal industry and the housing market as a whole.
This racism took root and began to flourish almost 100 years ago, in the appraisal industry’s earliest days. Choosing among multiple appraisal methods, influential industry players like Frederick Babcock decided that the best way to determine home value and property financial risk was to compare for-sale homes to other, previously sold homes in the same or similar neighborhoods. Importantly, in this model – known as the sales comparison approach – neighborhoods were rated on how “desirable” or “risky” appraisers perceived them to be.
Babcock, who oversaw the initial “Underwriting Manual” for the then-newly formed Federal Housing Administration (FHA), explicitly defined neighborhood desirability and risk by neighborhood racial and socioeconomic composition. For instance, the 1936 manual (Part II, Paragraph 233) explained:
“The Valuator should investigate areas surrounding the location to determine whether or not incompatible racial and social groups are present, to the end that an intelligent prediction may be made regarding the possibility or probability of the location being invaded by such groups. If a neighborhood is to retain stability it is necessary that properties shall continue to be occupied by the same social and racial classes. A change in social and racial occupancy generally leads to instability and a reduction in values.”
A series of fair housing laws passed between 1968 and 1977 as well as lawsuits against the appraisal industry into the 1970s resulted in explicit racial criteria being deleted from official appraisal forms, training materials and underwriting guidelines by 1977. But beyond deleting explicitly racist criteria, this method and the logic that informs it have not meaningfully changed over the past nine decades. The racist, if unofficial, through-line persists.
For instance, federal underwriting guidelines and appraisal industry training materials direct appraisers to consider neighborhood “demographic” and “economic” characteristics and “appeal” when they select comparable sales, or “comps.” (“Comps” is real estate speak for the previously sold homes in the vicinity of the for-sale home that appraisers use as a basis for determining the for-sale home’s value.)