A 4-part dissection of how more than 50 years after redlining was outlawed, America’s communities continue the practice in clever and blatant ways
The Elephant in the Real Estate Room: 21st Century “Shadow” Redlining Tactics
Despite the outlawing of redlining as a sanctioned practice in 1968, during the redlining era, and ever since, there were also a variety of sinister practices created to keep potential minority homebuyers from taking part in this most pivotal aspect of the American Dream. Many of these tactics—though not explicitly deemed to be illegal because they have not been called out, described, and outright prohibited by law—are well understood within minority communities to be additional, palpable, and terrifyingly effective methods of discrimination against both homeowners and homebuyers.
We just know that we will get a lesser deal than our White counterparts when it comes to interest rates, types of properties available to us, or even whether we can even get a loan or a realtor in the first place. We know our place. We don’t need signs to point us in a particular direction. “Whites Only” signs might have been banished because of the Civil Rights Movement of the 1960s, but there are still plenty of invisible signs hanging all around us. This is one of the superpowers minority Americans are born with, and that we develop and hone over time: the ability to see these signs that aren’t physically there, but quite obviously exist. And when it comes to the world of real estate, there are plenty of these signs all along the process.
While there are countless small, seemingly innocuous ways in which state and local governments, banks, realtors, and home sellers purposefully undermine the ability of would-be buyers to gain access to homeownership, some of the most prevalent tactics established decades ago are still being employed to this day. And these are the ones most important to focus on when identifying, defining, and describing what I like to call “shadow” redlining.
The Art of the Steer
Take, for instance, language. Vocabulary. Verbs. Sentence construction. Things most of us pay little attention to in our everyday lives. Such a simple and seemingly harmless tool for communication. And yet, when it comes to law, specifically as it applies to homebuyer and homeowner rights, language is just as important as which realtor or bank you decide to choose for your process.
While it is illegal for a realtor or home seller to blatantly state who cannot buy a home based on any particular protected class (e.g. race, gender, sexual orientation, religion, political beliefs, etc.), it is a common practice to state who your intended buyer—or even renter, in some cases—might be. Using key phrases, like “perfect for families,” “safe” or “desirable neighborhood,” and similar language is understood to have underlying meaning about the makeup of a neighborhood without explicitly saying anything about crime or specific racial demographics. This practice, known as steering, which is using language or otherwise turning someone physically away from or toward particular properties, has been found to be prevalent among realtors even now.
In a recent study done by Newsday, conducted in New York, the investigation found that White potential homebuyers and minority potential homebuyers were actively steered toward and away from properties based on their racial identity. This occurred even though the “testers” (the people posing as buyers) were the same by all other metrics other than race. Their financial situations were the same. Their credit scores, the same. Their education and professional backgrounds were purposely designed to be similar. All of this to test the widely-known idea that realtors play an active role in housing discrimination, whether they mean to or not.
So, despite it being illegal to state who cannot live somewhere, according to the Fair Housing Act, it is not necessarily illegal to tell or show a potential buyer about a property that best “suits” them. This, then, is a classic and still prevalent form of what I like to call “shadow redlining.” It isn’t necessarily illegal, but the outcome is similar to that of redlining: minorities denied access to homeownership, or pushed into communities that are not as potentially lucrative as an investment in your future.
Though there have been many stories written about steering, even the National Association of Realtors—who defines this practice as unethical and heavily encourages agents to avoid it at all costs—admits this is still a commonplace tactic being employed by realtors.
Appraising as a Weapon
Then there is the extremely discriminatory and commonplace practice of devaluing minority-owned homes or homes in predominately minority communities. This practice originated with the creation of redline maps, but it continues to this day. Sadly, there is no shortage of stories of people of color who find that their homes are valued far lower than comparable homes of their White neighbors, which has a wide variety of adverse effects on a person’s financial wellbeing.
Take, for instance, the recent story of a Black woman in Indianapolis whose home was appraised three times, with dramatically different results. The first two times her home was appraised, she identified herself as a Black female on her appraisal paperwork. Her home was first valued at $125,0000, then, inexplicably, the second time it dropped to $110,000. The third time, when she suspected she was being discriminated against because of her race, she had a white friend stand in for her during the appraisal and her home value more than doubled to $259,000.
While the various companies who appraised her property denied any wrongdoing or discrimination, it is impossible to consider any other reason for why her home would mysteriously double in value all because the gender and race of the person who was standing in for her was a male who was White. She had done nothing new to her home, other than remove pictures of herself and her family, as well as any artwork or other cultural markers that would identify the occupants of the house as Black.
This tactic has been used for so long, and is so well known to be employed during the appraisal process, that many minority homeowners inherently understand that it is wise to remove all signs of your ethnicity from your home. This knowledge is circulated throughout communities of minority homeowners, and, tragically, is still a useful practice to employ if you need to get your home appraised to sell or refinance.
I have personally experienced this form of “shadow” redlining. And it had seriously adverse effects on my finances that I am still feeling to this day.
When I took a job in a mid-sized Indiana town in 2005, I purchased my first home from a White man who had, according to public record, bought the home himself less than two years earlier for one-fourth the price he was asking. I did not know this at the time, and the home was still relatively cheap because of the neighborhood where it was located, so I was able to afford it and managed to secure a somewhat decent loan, thanks to the FHA Loan program.
Over the next decade, I sank thousands of dollars into the home for repairs, upgrades, landscaping, and cosmetic outdoor improvements. The home was far nicer than when I had purchased it. Neighbors would regularly compliment my house when they saw me outside gardening or mowing the lawn. It was a point of pride. My first home. An investment I hoped would improve my future and my daughter’s future.
But then, in 2015, when I went to sell the home and it was appraised, the value of my home had not budged. It was valued at exactly what I had purchased it for a decade earlier, despite home values in the area rising 1% to 4% annually in the very same neighborhood. The money I had invested into the home was simply lost. The equity I had hoped to build and create was negligible because of my loan type, the PMI I had to pay (more on that in the final part of this series), and the fact that the home’s value over a decade of inflation and improvements hadn’t increased by a single dollar.
What other factors could possibly account for a home gaining 400% value in less than two years, and then 0% over the next ten? I would like to think that the value of homes in the region had mysteriously stagnated, perhaps in response to the Great Recession. However, when I did a little digging on Zillow and the county records of home sales in the last few years, this turned out to not be the case.
This type of “shadow” redlining, can be just as devastating as literal redlining. Why? Because even if you are fortunate enough to purchase a home after overcoming the various obstacles poor and minority Americans face when trying to enter the world of homeownership, you could spend years thinking you are building equity in your home only to have an appraiser come along and arbitrarily decide to negate all of your assumptions and expectations by valuing your home for less than it is truly worth, based on your color or gender—or both. Maybe you are working under the assumption that your home value is increasing while you are also paying down the principle of your mortgage, which is how your investment in your financial future as a homeowner is supposed to work. But, you have no control over how a human being, who is supposed to objectively appraise your home, will actually value your home.
The outcome of an appraisal can have adverse effects on the terms of a mortgage refinance, and most certainly it can severely impact the amount you can ask for your home if you decide to put it up for sale. All that time spent. All that money funneled into your mortgage and any home improvements you might have made. All of that can disappear in the blink of an eye with an unethical and illegal appraisal.
Though, of course, discrimination in appraising homes is highly illegal, it is the one aspect of the home buying process with the least amount of government oversight, which is shocking because it is also the one aspect of the home buying process that will have the biggest financial ramifications. It is also the one aspect of the home-buying process that is the easiest to fudge. There is so much gray area when it comes to the process of appraising homes that it is easy for an appraiser to push a home value up or down and justify the number. Manipulation of a home’s value is far easier to achieve than most people would ever believe. And so deciding to devalue a person’s home based on their race is as simple as finding a few reasons to justify the decision.
Because discrimination in home appraisals has been documented so often and for so long, even the United States Congress has proposed legislation—Real Estate Valuation fairness and Improvement Act of 2021—in an effort to curtail the use of this practice and force accountability onto this all-important sector of the real estate world. Should the bill pass, it is an important step in the right direction, but it will also still rely on the appraisers themselves to be ethical, honest, and colorblind when doing their jobs. The results of their work can positively or negatively impact their clients’ financial futures for generations to come.
Are you ready to make your move into the world of homeownership? Visit AHP75.com to learn about our homebuyer programs designed specifically to help low-income and minority Americans join the ranks of homeowners and get onto the path of financial stability and wealth generation.
Aaron Morales is the Social Justice Writer for AHP 75, based out of Chicago, IL.