Terry Horton has been a landlord in Cincinnati for more than a decade, renting to single mothers who rely on Section 8 housing assistance to pay their rent. All of his tenants are Black, and so is he.
Cincinnati lacks tens of thousands of affordable housing units, and the waiting list for Section 8 housing vouchers can stretch from one to five years. So in February 2022, as interest rates dipped to historically low levels, Horton began eyeing a new vacant property in the South Cumminsville neighborhood, where the median family income is just above $31,000 and there are few stores where residents can buy healthy food.
Horton imagined he could turn it into a mixed-used development with a grocery store and two additional units of low-income housing. To free up cash for the new investment, he sought to refinance his three-unit rental property in the North Avondale neighborhood, which is near Xavier University and has a median family income of just above $39,000. His lender estimated the property’s value at around $500,000.
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But an appraiser declared his property worth only $359,000, significantly less than his lender’s initial assessment.
Horton believes that the first appraiser, who is white, discriminated against both him and his tenants — all of whom were home at the time and interacted with the appraiser when they opened their doors — on account of their race. Two subsequent appraisals of Horton’s property recorded higher values, but by the time Horton reapplied for a loan based on the later values, interest rates had climbed so steeply that it no longer made financial sense for him to refinance his mortgage.
“It was completely devastating,” Horton said in a phone interview. “It rips the whole bottom out when you come to the realization that because of the color of your skin, they’re devaluing your property.”
His allegations of discrimination mirror those of Black property owners nationwide who say that appraisers who are white are using their race to determine how much their homes are worth. About 97% of appraisers in the United States are white, according to the Bureau of Labor Statistics, and watchdogs of the industry say the result is widespread appraisal discrimination. The National Community Reinvestment Coalition released a report on appraisal bias last year that showed appraisers, on average, assigned a value that was $7,000 higher to the same home when a white homeowner opened the door rather than a Black homeowner.
Paul Austin and Tenisha Tate-Austin, a Black couple whose home in Marin City, California, was appraised for nearly $500,000 more when a white friend posed as the owner, reached a settlement agreement with the appraiser, Janette Miller, in a federal housing discrimination lawsuit. The settlement included an undisclosed sum of money, and mandated that Miller, who is white, pledge not to discriminate in the future, attend a training session on the history of segregation in Marin County and watch the ABC documentary “Our America: Lowballed,” which focuses on appraisal bias.
In another high-profile case, the Baltimore-area home of Dr. Nathan Connolly and Dr. Shani Mott was valued at nearly $300,000 more when they performed a “whitewashing experiment” in 2021, removing family photos and asking a white colleague to stand in for them. The couple has filed a lawsuit in Maryland, and on Monday, the Department of Justice made the unusual move of issuing a statement of interest in their case, just as it did last year with the case of Austin and Tate-Austin.
Horton’s case differs from those two: He did not whitewash his property to test the first appraiser. But Horton said he believes discrimination was still at play because the appraiser ignored comparable properties in his neighborhood and instead looked at buildings of “inferior size and condition” located in a different neighborhood, with more Black residents and lower home values.
Redlining, a Depression-era practice that denied mortgages to people of color in certain neighborhoods continues to drive down home values in Black neighborhoods, and today, racism and discrimination are still inextricably entwined in housing values.
In February, Horton took formal steps to bring attention to the low appraisal, filing a complaint to the U.S. Department of Housing and Urban Development in partnership with the reinvestment coalition, which pushes for the creation of generational wealth in low-income communities.
The Washington, D.C.-based civil rights law firm Katz Banks Kumin is representing Horton. The complaint points to multiple methodological and factual errors in the initial appraisal, which was performed by Brent Martin of Martin Appraisal Co. The company was subcontracted by Appraisal Nation, an appraisal management company used by Horton’s lender, Stratton Equities.
Neither Martin nor representatives from Appraisal Nation responded to multiple requests for comment.
According to the complaint, in the initial appraisal, Martin underreported the size of Horton’s property by more than 500 square feet, which in turn prompted him to select “comps” — nearby properties of comparable size and quality that are used as a metric for establishing value — that were within a smaller size bracket than Horton’s property. Martin also reported that all three of the property’s rental units contained three bedrooms, when in fact, two of them contain five bedrooms. And when he calculated Horton’s monthly rental income, which is used as an indicator of his property’s market value, he came up short by more than $450, the complaint said.
Horton raised his concerns with his lender, Stratton Equities, which had provided a good-faith estimate of $500,000 before the appraisal. Stratton Equities offered him an appraisal dispute form from Appraisal Nation. After Horton submitted his dispute, Appraisal Nation responded and refused to change its $359,000 valuation. According to Horton’s complaint, the appraisal firm did not address the concerns about the methodology and comparable properties.
Horton then told Edrian Francisco, his loan officer with Stratton Equities, that he felt the appraisal was filled with significant errors, even noting “this could be unconscious bias,” and asked for his concerns to be escalated. But on March 29, the complaint reads, Francisco sent Horton an email that read, “It seems like this appraiser has made up his mind on the valuation and there is nothing I can do.”
In late April, Horton paid for a new appraisal out of his own pocket, and his property received a value of $450,000. By mid-May, however, when he was presented with refinance terms based on that second value, interest rates had climbed several percentage points. He was unable to pull out the cash to invest in the new property.
“My credit score went down. I couldn’t buy Section 8 Housing. It wasn’t just the appraisal, it was a wave of other things that came as a result,” he said. “I felt like I was robbed of an opportunity to create and pass down generational wealth to my family.”
Race “was a motivating factor in the discriminatory treatment that Mr. Horton experienced,” the complaint declares, for multiple reasons: Not only are both Horton and all of his tenants Black, but there were clear errors in the appraisal that neither the appraiser, appraisal management company nor the lender took steps to resolve even after being made aware of them; the properties used for comparison were in less desirable, more urban neighborhoods with more Black residents; and a second appraisal paid for by Horton, with comparables located closer to the property in question, revealed a significantly higher value.
Francisco is no longer employed by Stratton Equities and did not respond to requests for comment. But Gary Merritt, another loan officer with Stratton Equities, said in a phone interview that while complaints about appraisals are common, instances in which those complaints make a difference are rare.
“We often get appraisals that come back and borrowers believe they are worth more,” Merritt said. “But we don’t have any direct relationship with the appraiser. They’re a third party to us. What we can do is just give them a form, and in about 5% of cases that form has an impact.”
Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, said his organization chose to serve as co-complainant with Horton because his case crystallizes a total system failure in flagging bias in an appraisal.
“This was a unique case that clearly demonstrates the number of different entities who were involved, knew about problems with the appraisal, and did nothing,” he said.
Through a spokesperson, HUD confirmed receipt of Horton’s complaint and said they plan to begin processing it. Should HUD determine that there is cause to suspect discrimination, the case could be moved to an administrative law judge within the agency or to a federal judge.
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