Disparities in Appraised Values and Contract Sales Prices in the Philadelphia Metropolitan Area

In the Spring of 2022, the Philadelphia Home Appraisal Bias Task Force, that Reinvestment Fund Chaired on behalf of then Philadelphia City Council Majority Leader and Councilmember for the 9^th Councilmanic District Cherelle L. Parker, released a report documenting racial bias in home appraisal practices nationwide and in Philadelphia. But outside of a few lawsuits and national analyses by Fannie Mae and Freddie Mac, systematically quantifying the extent of bias in Philadelphia neighborhoods represented a major challenge. Not surprisingly, among the recommendations in the Philadelphia report was a call for far greater disclosure of appraisal practices and greater transparency in the industry. Late in 2022, the Federal Housing Finance Agency (FHFA) which regulates Fannie and Freddie, released aggregated information from tens of millions of appraisals for single family homes conducted in major cities for the period 2013 through 2021.

An examination of Philadelphia’s census tracts (neighborhoods) divided into three groups–under 20% Black, 20%-80% Black and greater than 80% Black–shows that in 2020 the average predominantly white neighborhood had 4.8% of the appraisals come in less than the contract sales price. In racially mixed areas, the average tract had 8.3% below the sale price, and in predominantly Black tracts, 8.6% were below the price. While this difference may not seem large, those living in Black and mixed-race neighborhoods experienced under-appraisals almost twice as frequently as those in white neighborhoods. We also examined the degree to which appraisals came in under sales prices in Philadelphia neighborhoods differentiated by average home sale prices in 2019 and 2020. In the city’s lowest price areas (average home sale prices under $150,000) 9.5% of appraisals were undervalued compared to 9% in modest priced areas (between $150,000 and $224,999), 5.4% in middle priced areas (between $225,000 and $449,999) and 3% in the city’s highest priced areas ($450,000 and over). The degree to which appraisals may understate value, as evidenced by home sale prices, is greater in lower priced areas than higher priced areas.

The GSE’s public release of data falls far short of the transparency needed to truly address appraisal bias. First, there is substantial data suppression that excludes many of Philadelphia’s racially mixed and Black neighborhoods from the database. Second, you can’t know who/what did the appraisal. Third, all you know is that an appraisal is above/below/equal to the contract sale price. But an appraisal could be a little below or a lot below, and that makes a difference. This Brief renews the Task Force’s call for a HMDA-like release of appraisal data so that communities, the industry, advocates and regulators have an opportunity to understand when and where appraisal issues occur.