The Detroit Lions Loss Isn’t the (Only) Elephant in the Room. Lowballed Appraisals Are.
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| Source: Michigan.org |
“Detroit. Phenomenal fan base. Great city. It’s been through a lot. The downtown area, big time. The stadium, big time. But you go to the outskirts of the Detroit area and it looks like a d*mn desert town.” –Stephen A. Smith speaking on Detroit as the Detroit Lions were in the “final four” contenders to be in Super Bowl LVIII.
Although Stephen A. Smith is not quite wrong, he’s not right either.
What do I mean?
The Brookings Institution summed it up well:
Today, downtown Detroit is nearly unrecognizable from previous decades, with new features such as the QLine streetcar system, a renovated Detroit Tigers ballpark, a riverwalk, and Campus Martius Park. Yet as surrounding neighborhoods appreciated in value with increased amenities and services, rising costs pushed out the mostly Black, longtime residents—excluding them from the benefits of development. –The Brookings Institution
Have you ever wondered how the Motor City, Motown, which was once a “mecca” destination for financial upward mobility could be so cavalierly called a “d*mn desert town”?
Well, there are several factors to cite but for the sake of this article not turning into a doctoral dissertation, I want to highlight a key area that may be taken for granted – that not everyone receives a fair home appraisal.
The Elephant in Real Estate: Lowballed Appraisals
Stifled
The Fair Housing Center of Metropolitan Detroit shared that loan denial rates in Detroit due to the appraised value of a home (a.k.a. the collateral) being insufficient, accounts for approximately 3x of the national rate (HDMA 2022 data). Yeesh! This data for Detroit is twice as high as the rest of the state of Michigan. Yikes!
What’s going on then in Detroit?
Well, in my live classes, this is always the moment we hop in our DeLorean so that we can go back in time before going to the future.
To begin, if you did not know, a literal wall was built (with parts of it still standing) to divide white homeowners from Black residents along portions of 8 Mile (yes, Eminem’s track is titled after the notorious street). The “wailing wall” helped to ensure that any non-Black, would-be homeowners had a better chance at not being “redlined” simply because of the neighborhood.
“Redlining”, although illegal since 1968, still happens (c.f. Current Combatting Redlining by Department of Justice).
As a refresher, “redlining” means that no matter the features or amenities that a home provides, if the home is in a neighborhood with Black residents (homeowners or renters), traditional (and more affordable) lending and insurance would be denied although a few sub-prime options tend to circle these communities like sharks. In other instances, sometimes Mexican, sometimes Jewish, sometimes South Italian, sometimes Polish, and sometimes Greek neighborhoods (based on Hoyt’s Hierarchy) could also be downrated to “yellow” from the esteemed “green” rating (with “green” signifying open access and opportunity to lending and insurance products).
Here’s a summary of how “redlining” flows from its inception during The New Deal until today:
A Black homeowner seeks an appraisal
→ “Redlining,” says if you belong to this racial demographic (no matter the features of the home) the home is automatically worth less
→ Any would-be homebuyer cannot get a traditional (read: lower cost, market rate) loan or insurance, making this inner city home more expensive, particularly as suburban home developments become all the rage after World War II
→ Homeowner subsequently misses out on appreciation, equity, capital gains, generational wealth/inheritance due to her home being devalued simply because of race/color/ethnicity
→ The city/county services, schools, grocers and medical facilities face disinvestment and divestiture
→ The neighborhood is shunned by service providers who want larger profit margins
→ The neighborhood experiences disrepair due to diminished services
→ Less access and opportunity for area homeowners
Ultimately, this is a double-edged sword in that homeowners do not experience the exponential power of appreciation nor capital gains, meaning real estate is not the same long-term, wealth-building investment vehicle for everyone, nor do they have the same access to local services.
Sidebar: My parents have lived in Detroit’s Palmer Woods (which is between 7 Mile and 8 Mile) since I was a ‘tween. While home shopping in the 1990s, my parents (to this day) remember reading the racially restrictive covenants for the “exclusive” enclave that banned any Black person from living there. But, for the sake of length, I am skipping the history lesson on racially restrictive covenants, but I would be remiss to not mention that such covenants were also a contributing factor.
Shunned
Let’s be honest, shows like “Million Dollar Listing ____” (insert your favorite place) are not just fun TV. They represent an aspirational lifestyle for many. Having been a real estate coach and instructor for over a decade (beginning during the tough economy of “The Great Recession”, I actually nearing two decades!), I have met learners who are community supporters (I believe this has been the majority) but I have also met learners who only care about their “bag”-- enriching themselves even if it means a community goes up in flames.
Sometimes this pursuit is alleged to not be intentional as in the digital “redlining” settlement that Redfin faced. Redfin affirmed no evil, discriminatory intentions in setting a floor to the price point of homes they would service. Yet, the very act of having a floor limit meant that certain neighborhoods – and their residents despite other qualifications – would not have access to their services. Limited services mean limited options, access, and opportunities. That is anathema to the spirit of fair housing (and lending).
Approximately twenty years ago, as a new resident to Georgia (still learning the ins and outs of that market), my first real estate broker, whose office was in the “exclusive” north Atlanta/Sandy Springs area said, “I don’t want to sell homes in Stone Mountain or on the south side of Atlanta”. She said a lot without explicitly anything. Her office later had an infraction by the real estate commission and had to take extensive training on fair housing (surprise, surprise).
Okay, but that was twenty years ago. A lot has changed when it comes to attitudes, right?
Recently, as a REALTOR®, I reached out to my network to help sell my grandmother’s Detroit home. I had an agent that lived in the city say, “Oh, I only work in the suburbs”. I knew what he was saying between the lines, “I want a higher price point so I can make a higher commission.”
I repeat: Lowballed values do not just mean the homeowner’s equity is diminished, it also means that homeowners are excluded from numerous resources and opportunities that are included by default elsewhere.
Support
Detroit has real estate like no other place in the world – we can see homes that have been designed by Frank Lloyd Wright and where folks like Aretha Franklin and Francis Ford Coppola had their humble beginnings.
How can we help Detroit and similar places?
“We must take the profit out of prejudice.” Coleman A. Young, Detroit’s 70th mayor
I am encouraged by the examples in New Jersey and Maryland of recent initiatives to improve fair appraisals. I’m advocating for more locales (from Detroit to Tacoma to Boston) to adopt similar fair appraisal drives and policies. I hope you will join me! Also, I am encouraging and educating service providers (e.g. real estate agents, lenders, appraisers, etc.) to voluntarily become Fair Housing D.E.C.O.D.E.R.s©.
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