Education and transparency can help eliminate racial bias in home appraisals, a Philly task force says

Over the last year, a group of local, federal, and national representatives convened by City Councilmember Cherelle Parker has been searching for solutions to a long-standing form of discrimination that strips home equity from Black property owners and adds to racial wealth gaps: biased home appraisals.

In Philadelphia and across the country, homes in primarily Black neighborhoods are valued less than comparable homes in primarily white neighborhoods because of factors that include disinvestment in Black neighborhoods, conscious and unconscious racial bias in real estate industries, and decades of racist and segregationist housing policies and systems.

In a report to be released Wednesday, the Philadelphia Home Appraisal Bias Task Force recommends making the appraisal process more transparent, educating homeowners and appraisers, and diversifying the appraisal profession. The report places Philadelphia at the forefront among cities in the current national conversation around racial discrimination in appraisals.

» READ MORE: Homes in Black neighborhoods are valued less than similar homes in white areas

Mark Alston, a task force member and public affairs chair of the National Association of Real Estate Brokers, the country’s largest Black real estate trade association, said what Philadelphia has done is “groundbreaking for me, historical. And hopefully it sets a precedent.”

Parker said that whenever she heard or read an account of Black homeowners removing all traces of themselves and their families from their properties to try to get a fair appraisal, “I was pissed.”

Home appraisal bias “is too complex of an issue to have a silver-bullet solution,” she said. “Until there are some very tangible structural processes, procedures, and protocols we can put in place to ensure that there are no race gaps in home appraisals for anybody, particularly in our city, I won’t be happy. But I think this report is going to take us one step closer.”

The task force’s 22 members, including appraisers, fair housing advocates, real estate agents, and government officials, began meeting in June 2021 to come up with the recommendations they will now push the city, Pennsylvania, and the federal government to adopt. They also want to set examples for other local communities.

» READ MORE: When race plays a role in home appraisals

“It is absolutely our intention to try to ensure other cities learn about what we’re doing, and we will help them,” said Ira Goldstein, chair of Philadelphia’s task force and president of policy solutions at the Philadelphia-based community investment group Reinvestment Fund.

The city’s more than one-year effort to develop recommendations mirrors the work of a federal task force that was formed soon after its local counterpart. Last year, President Joe Biden announced that the Interagency Task Force on Property Appraisal and Valuation Equity would recommend steps to fight bias in home appraisals nationwide. In March, the federal task force released its plan, which includes better enforcing fair housing and lending rules, limiting the use of subjective criteria in appraisals, and some of the same recommendations as Philly’s group.

A Redfin report last year found that in Philadelphia, homes in primarily Black neighborhoods were undervalued by an average of nearly $26,000.

The appraisal industry in Philadelphia is even less diverse than it is nationwide, according to the task force. Across the country, 86% of real estate appraisers are white. In the city, 95% of appraisers are white. The “vast majority” of the city’s appraisers are male, according to the report.

Appraisers have to be familiar with the history of and planned investments in the neighborhoods in which they are working to correctly evaluate the worth of a property. But Philadelphia’s variety of distinct neighborhoods and a growing trend of appraisers not living where they work makes that difficult. Members of the task force reported that most of the city’s appraisers live outside the city.

The task force recommended that City Council introduce an ordinance to require the city to collect appraisal information for all residential real estate transactions.

The group wants the city to work with a nonprofit partner to investigate how and why appraisal bias happens in Philadelphia; work with local lenders as well as city, state, and federal programs to collect appraisal data; and get community development financial institutions and housing counseling agencies to ask clients for appraisal reports and loan data.

The report recommended that the city follow the example of the Chicago Rehab Network’s Appraisal Equity Campaign and create a way to collect incidents of residents’ appraisal issues. It also suggested that local groups convene listening sessions to hear the experiences of homeowners and appraisers.

Parker said she and colleagues would work to make sure the city does everything it can to try to eliminate home appraisal bias. The report urged city government to prioritize this effort.

The task force suggested Council introduce an ordinance to require appraisers who work in Philadelphia to get a local business license and potentially have to complete fair housing training.

The city could create a list of local appraisers from historically excluded groups and require city programs and organizations doing business with the city to use those professionals when they need appraisals, the report recommended. The city could also help promote the appraisal profession to students and work with appraiser associations to establish classes within the city, so trainees don’t have to travel far.

The city and local partners should educate residents about the appraisal process, their rights, and how they can appeal appraised values, the report said. And the city should help educate appraisers about redevelopment efforts and support neighborhood groups in teaching them about neighborhood assets.

“This type of solution,” Johnnie White, chief executive officer of the American Society of Appraisers, said in a statement, “focuses not on the negative of what lower home values can do, but on how to better inform appraisers so they are more likely to find value in a neighborhood.” His group was on the task force.

The task force recommended that the state treat appraisal bias as a fair housing issue and that lawmakers introduce legislation that requires appraisers to go through fair housing training. State agencies such as the Pennsylvania Human Relations Commission and the Attorney General’s Office should help educate the public about appraisal bias and investigate and address discrimination in appraisals, the group said.

The state imposes stricter training requirements for appraisers than federal requirements. That limits who enters the workforce. The task force recommended that the State Board of Certified Real Estate Appraisers eliminate requirements that are barriers to entry but do not improve the profession.

The task force recommended that the federal government require the disclosure of appraisal information just as it requires lenders to disclose mortgage information, so regulators can examine patterns and identify good and bad actors.

The federal government should offer financial incentives for supervisors in the appraisal field to train a diverse pool of students and make it easier to take on trainees, the report said.

The federal government, the task force said, should examine the practices of appraisal management companies, businesses that supply appraisers for lenders. The task force said they tend to seek the least expensive appraiser, not the one most qualified or knowledgeable about a location.

The task force also urged the federal government to support other cities in doing the work Philadelphia has done.

Wednesday’s report “goes beyond identifying problems but offering solutions that seek to improve appraiser awareness in the present while building a diverse workforce in the city of Philadelphia going forward,” White said. “Overall, the task force deserves credit for not just listening to broad perspectives but incorporating them into the final report.”

The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.