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| Home Valuation is not related to race, President Joe Biden |
I'm glad that on June 17, 2021 President Joe Biden made Juneteenth a Federal holiday. It's been a holiday in most states including California for years. Unfortunately during that presentation President Joe Biden made a totally false statement about home valuation and race when he stated the following (sic),
"...it belongs to an aggressive effort to combat racial discrimination in housing. Finally address the cruel fact home owned to this day by a black American family is usually appraised at a low rate for a similar home owned by a white family in a similar area."
Someone repeated a misleading statement related to the misleading Brookings report to Joe Biden. A paper was written by Andre Perry who is promoting and selling a book on the subject. The "report" misstates an alleged relationship between home valuation and race. The report only showed that all people of color including Latinos, Native Americans, Alaskans ... tend to buy and own less expensive homes in less expensive areas. The home values were determined by Zillow robots who didn't see the homeowners or the homes and the actual homeowners. Race and color were not a factor in the calculation of home values.
The mathematical formula used to determine value is the most used asset valuation formula used worldwide for thousands of years. That formula compares one item to another similar item. It's also called matched pairs analysis. Homes of the same size, bed/bath count, condition, amenities were compared to other similar homes which recently sold in the SAME EXACT AREA. Homes in certain geographical areas are worth less than others in more desirable geographical areas with different characteristics. The mathematical calculation has absolutely nothing to do with race or color. In this instance they used Zillow listing prices per square foot. All appraisers know the "a" in "Zillow" stands for "accuracy." Zillow "zestimates" are not accurate at all. They also used ACS data which is the value the actual homeowner thinks their own home is worth.
A home in South Los Angeles is worth less than a home of the same size, condition and features in Beverly Hills. The main difference is the value of the land and not the house. Here in California the land makes up over 70% of the total value. A vacant lot in South Los Angeles is worth less than a vacant lot of the same size in Beverly Hills. Everyone knows home value is based on three main factors, i.e. location, location, location.
There is a correlation between all people of color, new immigrants, people who don't speak English, people with less education... and level of income and net financial worth. ALL OF THESE PEOPLE tend to have less income and a resulting lower net worth. Because they have less income, less financial worth they tend to buy less expensive homes which they can afford in less expensive areas. Andre Perry committed the main fatal statistical sin confusing correlation with causation. That makes his "report" totally meaningless and useless. There are even more grave errors in his analysis which will be examined below.
In Andre Perry's paper he used the separate inaccurate Zillow home valuation listing prices per square foot and self reported home values from the American Community Survey. The ACS is sent to a sample of 3.5 million people in the nation in the mail. A response to their written questionnaire is mandatory but most people throw it away assuming it's junk or scam mail. All of the information is self reported including when the home was built, number of bedrooms, rooms... Here's a sample form. Based on my experience most homeowners don't know all of this information off the top of their head. They generally don't know what their home is worth today. I would not trust the results of the ACS to be accurate about real estate values or home characteristics. Perry refers to the ACS results as the Census results. The ACS is not part of the Census.
Perry compared those values to the racial makeup of the areas at large. Again, Zillow valuations are not accurate and listing prices don't equal home valuations. Perry used price only per square foot which is never used in appraising because it's not accurate. We weight homes based on similarities. Self reported home values are also very inaccurate.
Perry stated an area was "primarily black" if 50% or more of the population identify as "black." He compared that to an area with less than 1% black residents. Perry actually stated zero black residents in the report. How many places have zero black people? I find it hard to believe they are any unless they are very tiny towns in the middle of nowhere. Perry clearly intentionally chose two very extreme comparison groups in order to create the most extreme statistics possible to fit his preconceived "results." That would be like comparing only very tall people to very short people to see if there's a difference in their lives. Of course there will be a difference. This is clearly an example of "garbage in, garbage out" GIGO statistics. Perry actually stated the areas that are "primarily black" are "more segregated." If you are looking at an area that is 50% plus black of course it's more segregated.
How much of the US fell into only those two very specific small categories? Perry states that 10% of the US falls into the category of "primarily black." An analysis of only 10% of the country does not represent the entire country, see Perry's map below. Per the map this 10% appears to only be in the East and a little in the South. This is still only the percentage of the population living in the specific area and not the percentage of all black homeowners in that area or the entire country. Most homes in less wealthy areas which tend to have more people of color are actually owned by white investors or large public and private corporations. Perry then compared those values to areas with only 1% black people. Again, that would be a very small group for comparison. Of course it will show differences when you intentionally choose two very small and extremely different groups for comparison. This is very misleading statistical analysis. It's as bad as any Fox News "statistics" or poll.
What about the white, red, yellow person who lives next door to the black person in an identical home in the "primarily black" area? What about the other <50% in the area who are not black? From Perry's report "Though most residents are Black (because he chose 51%+ black areas)(14.4 million non-Hispanic Blacks) by definition, approximately 5 million non-Black Americans live in majority Black neighborhoods." The 5 million non-Black person's home is worth exactly the same as the black person's if it's the same size and condition. The white person's home value is not "caused" by being black because they're not black. They're white or other. The home was not "devalued" or valued by black skin color of the homeowner.
If you actually read the 28 page report, Perry out of one side of his mouth admits "Majority
black neighborhoods do exhibit features associated with lower property values, including higher crime rates, longer commute times, and less access to high-scoring schools and well-rated restaurants." He then states that only explains half of the alleged devaluation of homes. Those are just the characteristics of poorer areas in general. I live in a high crime area with poor schools. It's 80% Latino. The homes are valued less here but it's not because of black homeowners.
Perry goes on to say there is a "significant correlation between the devaluation of homes in black neighborhoods and upward mobility of black children in metropolitan areas with majority black neighborhoods." The real correlation is any and all children living in poorer areas will find upward mobility very difficult. It has to do with more than just the value of the homes in the area. It has to do with the people being poorer.
Here is another example of poor data used. Perry used the EPA walkability index to determine if an area had amenities such as access to shopping, jobs and schools. The EPA index only shows the "suitability for walking as a means of travel."
Here is yet another example of Perry selectively using statistics. He states there is a correlation between a high number of violent crimes, black areas and reduced valuations. He also stated there is a correlation between high number of property crimes in high valuation non black areas. For that reason he only included violent crimes in his analysis of black areas. Then he didn't really include "crime" in his analysis. His "conclusion" is crime doesn't explain the devaluation of homes in primarily black areas. A high violent crime area does explain a lower home valuation area. That's why all the home sites include the crime statistics. I would not live in a high crime area if I could afford to live elsewhere.
On top of the useless statistics Perry then used the results of his limited analysis to extrapolate devaluation to 113 other metropolitan areas if they had at least one majority black area. He took very bad math from a few small extreme areas to state that many other areas he did not analyze have his same preconceived results. Andre Perry's entire paper should be dismissed because of the intentionally misleading statistics used to fit Perry's personal agenda to sell his book.
One more ridiculous comparison. Someone with less money will buy a less expensive car which they can afford. People of color tend to have less money as do some others who are not of color. Kelly Blue Book uses a computer program to calculate the value of your car. You type in make, model, year, mileage, condition and it tells you what it's worth. They will tell you the value of a Rolls Royce or a Ford Escort. They don't know the color of the person typing in the information. Is Kelly Blue Book "intentionally devaluing" cars owned by black people when they tell the owner of a 1990 Ford Escort that their car is worth less than a 2020 Rolls Royce? No. Real estate robot appraisals are the same. Land in Beverly Hills is the Rolls Royce of land and worth more than land in South Los Angeles. It's perceivable that all homes in less desirable areas could be worth $48,000 less than homes in more desirable areas per Perry's report.
A last thing to consider is that people who own homes in less expensive areas paid less for the homes originally compared to homes in more expensive areas. They bought a home they could afford. When they go to sell that home they will sell it for the same price as a similar home in the area which is market value. If they bought a home in South LA, it will sell for less than a home in Beverly Hills. Did someone "devalue" or "steal" the difference in price between their home and a home in Beverly Hills? No homes were "devalued" by $48,000 by robot appraisals, appraisers or anyone.
Andre Perry has done very poor biased research. The report is therefore meaningless. Perry is guilty of using misleading statistics and data to prove his preconceived bias that black homes are devalued compared to white homes only because they are owned by black people. Perry used small extremely biased sample sizes. He organized the data to omit any findings that contradict the result he tried to prove. He manipulated the results to influence perception through misleading graphs and visuals. He used faulty correlations and causations to create false statistics. He committed every single statistical sin in the book. The Brookings Institute should retract his report.
At the June 20, 2019 House Finance Committee meeting Andre Perry spoke about the alleged devaluation of black owned homes. There were real estate appraisal industry experts at the meeting. I watched the meeting and took notes, see above link. When the speakers were asked by a Committee member if they thought appraisers discriminate against black people in arriving at their home's value Perry was the only person who raised his hand in a room of real estate valuation experts. Perry was the only non expert in the room.
Perry clearly does not understand real estate valuation. He is trying to use his report full of bad statistics to state that racist appraisers intentionally devalue the homes of black people by $48,000. He stated that in the Committee meeting. He stated the purpose of the report was to give "Black homeowners and policymakers a target price for redress." Oddly enough in the meeting Congresswoman Rashida Tlaib stated that the government should just add $48,000 to the value of all black people's homes. One doesn't have to be a real estate appraiser to realize how ridiculous that would be.
If Joe Biden or anyone wants to tackle the real issue of the correlation between people of color and income, net worth, they need to deal with those issues.The issue is most people with less income and money are people of color including many other colors and races other than black. Those issues have nothing to do with robot home appraisal analysis or home appraisers. They would need to make sure everyone makes the same amount of money regardless of any other factor. Until that happens all people with less money will buy and own less expensive homes in less expensive areas. People with no money won't buy or own any home at all. Most people in the US don't even own a home. Some don't even rent a house but maybe rent a tiny apartment or else they're homeless. Don't forget about those people.
The point of this article was to analyze the Brookings report and prove Joe Biden's statement incorrect. No one should ever rely on this misleading report. The media and others today have been stating that white real estate appraisers are intentionally appraising homes owned by black people lower than market value because all appraisers are white racists. No appraiser appraised any home in the report. The alleged valuations came from misleading computer analyzed Zillow listing prices per square foot and the ACS which uses self reported home values from the homeowner. Any low balling would therefore be caused by Zillow or the homeowner. These attacks on appraisers must stop. While racism certainly exists and there are racist appraisers not all appraisers are racists who devalue homes owned by black people. Most of us are hard working appraisers who always provide the best appraisal possible which complies with all the laws for everyone and anyone.
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References
Perry, Andre (2019). The Devaluation of Assets in Black Neighborhoods.
Perry, Andre M. (2020). Know Your Price: Valuing Black Lives and Property in America’s Black
Cities. Washington, D.C.: Brookings Institution Press
Mary Cummins of Animal Advocates is a wildlife rehabilitator licensed by the California Department of Fish and Game and the USDA. Mary Cummins is also a licensed real estate appraiser in Los Angeles, California.
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