Racial Disparity in Appraisals: Evidence from Private-Label Refinance Mortgages

Abstract Do minorities receive lower appraisals for similar housing compared to whites? I examine this question using a novel dataset that tracks the longitudinal refinancing history of US residential properties from 2002 to 2007. The analysis applies a “repeat refinances” framework, analogous to the repeat sales method, to control for time-invariant unobserved housing quality. Contrary to recent findings, I do not find evidence that the appraisals received by minority homeowners are lower than those received by white homeowners for houses of similar quality. The results are robust after controlling for the owners’ financial conditions and lender-specific factors. Additionally, I benchmark the appraisal value to the market value predicted from a hedonic pricing model and find that appraisals are not more likely to be below the market values for black-owned homes than for white-owned homes. These findings highlight the importance of unobserved housing quality when studying racial differences in housing valuation.