Federal data show evidence of home appraisal bias in Philadelphia

Publicly released data from the federal government show that home appraisals are more likely to be below contract sale prices in primarily Black neighborhoods in Philadelphia than in primarily white neighborhoods in the city.

The same disparity appears when comparing home appraisals in lower-priced areas of the city to higher-priced areas of the city.

Both findings, highlighted in new research from the Reinvestment Fund, suggest there is home appraisal bias in Philadelphia. The long-standing, but ill-defined practice potentially cheats families out of generational wealth, while also making it harder for homeowners to refinance or secure a mortgage for a more expensive house.

In Philadelphia, homes in primarily Black neighborhoods are undervalued by an average of $26,000, according to Redfin.

“It’s possible that the buyer ends up being able to negotiate that contract sale price down a little bit. The seller experiences a loss in terms of what they can sell their home for,” said Ira Goldstein, president of policy solutions at the Reinvestment Fund.

The non-profit’s analysis is based on limited and incomplete census tract data from Fannie Mae and Freddie Mac — specifically for Philadelphia homeowners looking to sell their houses.

In 2020, 7.1% of appraisals in predominantly white neighborhoods came in below the contract sale price. In mixed-race and Black neighborhoods, that figure was 9.2% and 9.4%, respectively.

Anecdotally, gaps like those have led Black homeowners to “whitewash” their homes — remove family photos and other identifying objects — before a real estate appraisal in an effort not to lose out.

During the same year, 10.3% of appraisals in the city’s lowest-priced neighborhoods — under $150,000 — were below the contract sale price. By comparison, only 4.9% of appraisals in the highest-priced neighborhoods — $450,000 and above — were below the contract sale price.

The data doesn’t quantify the gap between a home appraisal and a contract sale price, it only shows that the appraisal was lower. The data also doesn’t include information from many of the city’s racially mixed and Black neighborhoods, which Goldstein equates to suppression.

“What difference we see is likely an understatement because so many of the city’s Black and mixed-race neighborhoods are not even considered inside of the data,” said Goldstein of the missing data.

Fannie Mae and Freddie Mac did not immediately respond to requests for comment.

The Fund’s analysis comparing Philadelphia to the surrounding suburbs is less problematic overall, said Goldstein.

Between 2013 and 2021, the percentage of appraisals below the contract sale price for a home was between 6.4% and 8.5% in Philadelphia, which went from being the county with the highest percentage to the county with the lowest percentage over that span.

The percentage of appraisals in Philadelphia that were above the contract sale price also remained comparable to its suburban neighbors during those seven years. The figure for the city was 58.6%, according to the data. Only Chester County’s was higher at 59.4%.

The research follows a report published in July by the Philadelphia Home Appraisal Bias Task Force, which Goldstein chairs in addition to his duties at the Reinvestment Fund. The group was convened by former City Councilmember Cherelle Parker with hopes of eliminating home appraisal bias across the city, state, and country.

The report includes a series of recommendations for each level. There are calls to make the home appraisal industry more transparent, easier to break into for women and people of color, and more defined by knowledge of local markets.

In Philadelphia, 95% of appraisers are white. The vast majority are men. And most of them live in the suburbs, according to the report.

Other recommendations are focused on having better appraisal data, more training for appraisers, and more targeted education for homebuyers, homeowners, and appraisers alike.

WHYY is one of over 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push towards economic justice. Follow us at @BrokeInPhilly.