appraisal bias and what philadelphia is doing about it

AHCOPA's Kenneth Bigos and Urban League's Abraham Pardo discuss appraisal bias with large group of housing counselors from Philadelphia

What is Appraisal Bias?
And What is Philadelphia Doing About It?
Philadelphia has been looking to understand “Appraisal Bias” since 2021, when then Councilmember Cherelle Parker launched the Philadelphia Home Appraisal Bias Task Force. This task force was created to understand what appraisal bias is, and if it was affecting Philadelphia communities.

​What is Appraisal Bias?
Appraisal bias is a concept that when a homeowner gets their home appraised, Black homeowners and communities may see their home undervalued compared to their white counterparts. A hypothetical, but all too real, scenario would be as follows:

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A Black and a white family have each purchased their own homes approximately 5 blocks from each other. Both homes are 3 bedrooms, 2 bathrooms, and almost the same square footage. Both homes were purchased for around $200,000-$250,000. Ten years later, both families wanted to refinance and needed a home appraisal. The only substantial difference between the two homes is the neighborhood they are in and the racial identity of who lives there. The same appraiser surveys each home and grades the white family's home at a value of $350,000. But, he grades the Black family's home at just $250,000.

Appraisers may not be consciously targeting a family due to their race, however, they may be responding to implicit biases that are based in racism. They may view a Black neighborhood as less desirable because it looks less like the white neighborhoods they’re familiar with. For example, they may rate the home as being on “A busy street”  or the outside “Is not well kept.” It can be difficult to legally prove bias, so it can be a good idea to get a second opinion. This is especially true if a low appraisal is the determining factor on whether a person qualifies for certain mortgage programs or not. Appraisal bias could be the determining factor on whether a person can refinance their home to afford certain medical bills or if they have the funds to send their children to college.

Undervaluing homes can lead to issues outside of just refinancing a mortgage. If someone's home is undervalued, they fail to get the maximum amount of money they deserve when selling their home. When trying to get cash out of their mortgage, many applications get rejected from homes that were later deemed undervalued.

Why Does This Happen?
We’ve already talked about implicit biases that impact appraisal values, but another important factor is the demographic of home appraisers. Home appraisers are a rapidly aging workforce with the majority of appraisers being over 60 years old. Two-thirds of appraisers are men, and 86% of real estate appraisers are white.
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In Philadelphia the problem is even more exasperated. 95% of appraisers are white, and only 5% are Black or Brown. In comparison, 22% of real estate agents are Black and Brown and 32% of the banking industry.

The lack of representation in appraisals leads to appraisers evaluating communities that they are unfamiliar with. Appraisers have an “objective” list that they must follow, but many of these qualities are up to subjective evaluations. One evaluator may rate a bathroom as a “half bath” while another evaluator may rate the same bathroom as a “full bath.” Like the previous example, the appraiser’s personal experiences may be the difference between a house being designated as on a “clean” or “dirty” street.

Having appraisers from the local community who understand the value and importance of their neighborhoods is crucial for accurate appraisal values. If an appraiser is familiar with a community or culture, they won't feel as out of place when assessing, leading to higher assessments. A good example of this phenomenon is “whitewashing tests,” where some Black and Brown homeowners or activist groups will remove any racial identifiers from their home, even replacing family photos with a fake white family, and have a white individual walk the appraiser through. In these tests, they find that the whitewashed homes have a higher chance of being appraised at a fair value or higher than the original Black homes.

Philadelphia and Appraisal Bias
City officials have been concerned about appraisal bias due to recent studies that have found that appraisal bias is rampant in Philadelphia and Black and Brown communities are seeing their homes undervalued while white communities are 3% more likely to have their homes over appraised.

The Philadelphia Home Appraisal Bias Task Force has also come to the conclusion that there is appraisal bias in Philadelphia, but we need more local, state, and federal resources and information to determine the deeper causes and the extent of the problem.

Gathering the Information
On February 10th, The Division of Housing and Community Development for the City of Philadelphia held a “Housing Counseling Training & Roundtable” with AHCOPA and many other housing counseling agencies such as Urban League of Philadelphia, Southwest CDC, and Liberty Resources. 

This training helped open the eyes of housing counselors towards appraisal bias and established the discussion around identifying these biases and rectifying them for Philadelphians. There is still more training and work that needs to be done, as realtors are another housing profession that may see appraisal bias.

Ira Goldstein, one of the researchers who published the original article that spurred the task force, says “Philadelphia will work to improve data access on appraisals locally, and will support a federal effort to create a national public reporting process.” AHCOPA and our partners wholeheartedly agree.

If you believe that your home was undervalued due to appraisal bias, reach out to the Department of Human Relations and file a complaint. If you or someone you know are interested in becoming an appraiser, check out Temple’s Real Estate Institute!

Michael Iwan

Michael serves at AHCOPA as an AmeriCorps VISTA with the Housing Action Corps