*Originally posted on Insidephilanthropy.com

Dawn Wolfe | May 20, 2024

The $250,000 commitment that the Robert Wood Johnson Foundation provided last year to the for-profit company Just Value to develop its alternative home appraisal tool pales in comparison to the nearly $1 billion that Minneapolis-St. Paul has been slated to receive from members of the public-private GroundBreak coalition to address racial disparities in home and business ownership.

But while Just Value’s project is more modest in its immediate scope, its effort is equally important: combating systemic bias in the home appraisal industry, which has gained attention in recent years as a significant factor inhibiting Black homeowners from unlocking the equity in their homes at sale and taking advantage of a wealth-building tool that has allowed generations of whites to secure their economic futures.

The RWJF commitment, which is wrapping up its first year, was made by the funder’s Impact Investment team. Research provided by RWJF shows that being able to properly repair a home has a direct bearing on the health of the people living within it; one study alone showed that every $1 in funding for urgent home repair can save up to $19 in Medicaid/Medicare costs. The problem is that Black and low-income homeowners frequently can’t get loans to make the repairs they need because systemic biases within the appraisal process result in artificial undervaluing of their homes. And when they sell, they can’t gain the full benefit of the maintenance and care they have provided because their homes remain undervalued.

Artificially low appraisals also affect their ability to build the kind of intergenerational wealth that most Americans associate with home ownership. “I think it is an unspoken condition that home ownership is actually not financially accretive to a household’s wealth in many, many cities, and in many, many conditions,” said Just Value CEO and founder Charu Singh. “I’ve had personal interactions with people who were the first-time homeowners in their families, and they have left home ownership with less money than they put into it.”

Those experiences aren’t an anomaly. Claims of anti-Black appraisal bias have been the subject of lawsuits by families claiming that they received much higher valuations on their houses after “whitewashing” them by removing all traces that a Black family lived there. In 2022, the Brookings Institution found that homes in Black neighborhoods were valued around 21 to 23% less than they would be in non-Black neighborhoods.

To counter the problem, Just Value is creating its own automated valuation model, which Singh likened to the tools used by Zillow or Redfin, but with an equity-boosting twist. “We are not calculating the market value as those tools are doing,” Singh said. “We are calculating what we call a ‘restorative value’; that is, the value of a home located in a community of color if we were to remove institutional biases that impact that value.” RWJF’s funding is supporting Just Value’s collaboration with the Center for NYC Neighborhoods, a community development financial institution (CDFI), to expand pilot program work it’s currently pursuing in Boston and New Orleans.

Eventually, Singh hopes that the Just Value valuation model will be adopted by the appraisal industry to use side-by-side with standard market value when determining a home’s worth. “Our valuation model is not a critique or indictment of the value that appraisers generally produce for a home in communities of color, because they’re using the market comparables that are available to them,” she said. “Instead, what we focus on is [that the appraisers’] methodology has bias baked into it.”

In addition to its valuation model, Singh said that Just Value is also working with lenders, primarily CDFIs like the Center for NYC Neighborhoods, to persuade them to make second mortgage products available that use Just Value’s approach to home appraisals. That’s important because, by itself, “restorative value is only a mathematical truth. It is not a transactional value” that will impact BIPOC and other low-income homeowners’ ability to repair and build wealth from their homes, Singh said.

“Nobody cares about the nitty-gritty part”

Robert Wood Johnson has been supporting homeownership since 2021. But while a lot of funders in this area focus on helping Black and other underserved communities buy homes in the first place, RWJF is taking a different approach.

“We’re one of the only philanthropies focused on preservation of home ownership,” said RWJF Impact Investment Lead Zoila Jennings.

The results of a quick overview of Candid’s Foundation Directory Online for search terms related to home ownership support that assessment. To give one example, one major funder in this area — the donor-advised fund sponsor National Philanthropic Trust — made 12 grants for a total of $10.4 million to home ownership-related work in 2021. A full $10 million of that funding went to a single grant under the subheading of “civic participation.” Meanwhile, “foreclosure prevention” and “housing loss prevention” each received grants in the $10,000 range.

Jennings said that getting someone into a home may be exciting, “but a lot of work has to happen on the back end to also mitigate bias.” Citing ongoing challenges that include artificially low home appraisals and the difficulty in obtaining home insurance, she said, “nobody cares about the nitty-gritty part” of supporting first-time buyers once they’ve obtained a house. “And I think that’s one of the most important parts.”

Singh said that donors are definitely not knocking on her door, “but I have noticed that there’s a lot of calls for submission right at the intersection of… closing racial wealth gaps, technology and housing.” Singh added that she has also seen more openness to market-based solutions on the part of funders. “Venture philanthropy is really critical if we want to deeply address social issues using things like financial products that are scalable and technology that’s scalable, and private companies are an important structure for attracting talent to this problem.”

Editor’s Note: A previous version of this article incorrectly attributed RWJF’s Just Value funding to the foundation’s Healthy Communities focus. The commitment was made by the foundation’s Impact Investment team.