Baldwin Hills (aka Black Beverly Hills), Fort Washington, MD (PG County), Olympia Fields, IL, Atlanta! What do all these areas have in common? They are majority black areas with high property values? That’s right, “black” neighborhoods” where many residents have generational wealth.
These areas are home to successful doctors, lawyers, dentists, educators, entertainers… Who says that property values will be lower just because your neighborhood is majority-black? Ok, well, actually numerous studies like the one conducted by Brookings Research have come to that conclusion and they’re not wrong.
Devaluing properties in majority-black neighborhoods, especially by overt practices such as appraisal discrimination, robs our people of billions of dollars of wealth. But somehow, there are some majority-black areas that have defied the odds. How did they do it?
What Are Real Estate Comps?
First, a quick primer on real estate values to make sure that we’re all on the same page. Real estate comps, short for comparables, are properties similar to the one you’re trying to value (called the subject property).
Comps are used to determine the fair market value of a property by comparing it to similar homes that have recently sold.
In simple terms, when home appraisers and realtors are trying to figure out the potential value of a property, we try to find at least 2-3 properties that are similar. Specifically:
- Location – ideally within a 1-mile radius or in the same subdivision.
- Property type – single-family home, condo, etc.
- Square footage – within 10-20% of the subject property.
- Number of bedrooms and bathrooms
- Age and condition of the property: recently renovated or is there a hole in the roof?
- Lot size – 0.5 acres? 1 acre?
- Special features – pool, garage, water views, etc…
No two homes are exactly alike so you make adjustments up or down. Fewer bathroom? Maybe it’s worth 10K less. new condition? Add 15K. etc…It’s part art, part science.
Finally, recency plays an important role. You want to compare sales of homes within the past few months. Who cares what the price of the home was 2 years ago? Housing markets change.
If a similar home sold for $400,000 2 months ago, it’s fair to say that the house we’re looking at will sell for around that same price. If it sold for 425K, then the house we’re looking at will sell for more too, around 425K. Sold for 375K? Then this house is probably worth less, around 375K. You get the point.
In other words, the property values in a neighborhood can literally be influenced by the price of other homes in the same neighborhood. Are they going up or are they going down?
This system is far from perfect and there are of course exceptions to the rule, but you get the general idea.
Setting the Comps – Growing our Dollars
Now that you understand how real estate property values work, can you start to see how we can influence the net worth of our people? Just a thought exercise and we’re not sure how practical this is but hear us out.
There are home flippers, entrepreneurs, contractors etc…who buy homes in the ‘hood‘, renovate them, and sell them for a higher price. They do this over and over in the same neighborhood, sometimes on the same block, until they boost the property values of the entire block!
We’re not going to call out these folks individually but they’re not hard to find if you look.
Think about that.
- Someone buys a bunch of abandoned, dilapidated or burnt up homes in the hood in North Philly, for example, for 50K apiece.
- They renovate them beautifully. The home is obviously now worth much more.
- They sell the first home for 200K. Either the buy it themselves and rent it out or they find a buyer.
- Now, a comp has been set. This is the key.
- They renovate the home right next to it. Comps say the home is now also worth 200K. They do it again, and again until the entire block is full of homes worth at least 200K.
Boom! You’ve increased black wealth!!
Now, imagine if this started happening in every city until we had hundreds of majority black neighborhoods with high property values like PG county or Baldwin Hills?
Why This Won’t Work
Gentrification Concerns
Ok, there’s the obvious for why this hasn’t happened yet and is a long shot. People need good jobs and/or good businesses to make money. Unfortunately, too many of us are still underpaid and overworked. What’s the point of high property values if nobody can afford to buy the home, right?
Now, if you already own the home, then maybe, just maybe, it can work for you, but what about those that are renting for now? If suddenly, the property values in the neighborhood, skyrocket, then they will be priced out of where they grew up? This is why there is a love/hate relationship with the term gentrification.
Would this make the divide between the have and the have nots even wider? What if grandma who has been living in that hood in the Westside of Chicago saw her property values double in 5 years? Wouldn’t the whole family be better off? We already live there so we have the first chance at buying the homes while they’re still cheap.
Then we flip some of these homes so that they’re undeniably beautiful and so appealing that the property values have no choice but to go up. Now the whole hood gets generational wealth.
We always want a hookup
Are we missing the forest for the trees? Are we too busy always trying to get the hookup? For the price of some things, sure, we get it, but on a home price? Never pay the listing price is what some people say.
On one hand, we get it. But on the other hand, if everyone did that, then guess what? The property values never go up.
We don’t hear people complaining about luxury items. The price for that Rolex, prada bag, Gucci shirt is what it is. Either pay it or move on.
Maybe it’s not fair to compare real estate to luxury items, but the point we’re trying to make is that if everyone stuck together, and decided collectively to boost our home values, maybe, just maybe, we could create generational wealth for millions of black people.
Gideon is a licensed real estate agent. He he holds an undergraduate degree from Northwestern University and an MBA from New York University.
He’s passionate about business, real estate, digital marketing and making sure that black people increase our collective net worth.
License #:10401336627