Home appraisals are often based on nearby properties, leading to large price differences and lending practices across Chicago neighborhoods:

That means if you’ve got an area with lots of boarded up houses and lots of extremely low value sales, then it’s likely that even a newly rehabbed house would be appraised at a lower price. Hobbs says that’s because most residential appraisals are determined by comparing that property with ones that have recently sold in the neighborhood.

“In the desirable neighborhoods, there’s an insufficient amount of inventory or supply and therefore buyers are competing even more ferociously to be in place, to be the one individual or family that is successful in buying that property,” he said.

So in an area like Lincoln Park, that demand drives prices way up, even beyond peak prices. And appraisers and banks feel comfortable with that because they have the numbers to back it up. But when someone wants to make a traditional purchase in a marginal area like Lawndale, appraisers and lenders are more conservative, especially after what happened during the housing crisis…

Rose said in the post-bubble market, banks are putting more weight on the value of a property than they did before. He thinks using cash transactions and distressed sales as comparables doesn’t really give a true market sense for what a house should sell for.

Another point in favor of living in hot or desirable neighborhoods: lenders are more likely to make loans. In contrast, economically depressed neighborhoods have a tougher time recovering unless lending institutions decide to make an investment or people have cash or capital to get past the lower appraisals. This could have the effect of reinforcing residential segregation for long periods of time.

As they say in real estate, it’s all about location, location, location…