When Jillian White’s parents decided years ago to refinance their home in Westchester County, N.Y., they chose not to hide family photos, books, and other evidence they are Black ahead of the appraiser’s visit, despite knowing that appraisers’ racial bias has sometimes translated into lower home valuations. White, who runs the appraisal department at the New York-based Better Mortgage Corp., testified at a Philadelphia City Council committee hearing Monday that the appraiser undervalued the family’s house by $100,000, which she attributes to racial bias.
Nationally, homes in primarily Black neighborhoods are worth $46,000 less on average than comparable homes in mostly white neighborhoods, a result of decades of racist housing policies and structures, disinvestment in Black neighborhoods, and bias from real estate professionals and lenders, according to a report this month from Redfin.
Redfin analyzed value estimates for more than seven million homes listed and sold from 2013 through February nationwide. It controlled for factors such as home size and condition, neighborhood amenities, walkability, school ratings, and in cities such as Philadelphia with enough data, crime rates.
Philadelphia City Council members said they plan to study solutions to individual and systemic bias in home appraisals, which contribute to the undervaluation of homes, which, in turn, contributes to racial wealth gaps. The less equity families have in their homes, the more challenging it can be for them to afford higher education, entrepreneurship, and unexpected expenses.
Homes in Black neighborhoods are undervalued by 53% in New York City, 45% in Baltimore, and 40% in Chicago. In Philadelphia, homes in primarily Black neighborhoods are undervalued by roughly $26,000, or 27%, on average. Not adjusting for differences in homes and neighborhoods, the median sale price of homes in primarily Black areas of Philadelphia is about $96,600, compared with $162,600 in primarily white areas.
“I am in no way surprised by this finding,” said Corinne O’Connell, chief executive officer at Habitat for Humanity Philadelphia. “The valuation gap is a direct result of decades of purposeful, sustained segregation by the government — federal, state, local.”
A home buyer looking for a three-bedroom rowhouse would expect to pay different prices in Chestnut Hill vs. Mount Airy vs. Oxford Circle, for example, because of differences in neighborhood makeup and amenities, said Ira Goldstein, the Philadelphia-based president of policy solutions at Reinvestment Fund, the community investment group.
“What’s most troubling about the findings is that even after taking account of those things, there still is this race effect,” he said. The challenge, Goldstein added, is figuring out how to eliminate it.
Since the Redfin report’s authors defined primarily Black neighborhoods as having 50% or more Black residents, the undervaluation of houses in those areas also affects residents of other races.
“It really is a problem that affects everybody,” Goldstein said. “And I think that is one of the many fundamental reasons — other than it’s just wrong — that we all should be concerned about it.”
He speculated that the reasons the valuation gap in Philadelphia isn’t as large as in some other cities include the early examples of integrated, prosperous neighborhoods such as Mount Airy; local groups that tried to get lenders to meet their neighborhoods’ credit needs under the federal Community Reinvestment Act; and an effort by some area banks in the mid-’70s to find ways to approve more home loans, including looking at alternative ways of evaluating creditworthiness.
» READ MORE: When race plays a role in home appraisals
More diverse areas where Black residents make up a larger share of the population have more equitable home valuations than regions that historically have not been diverse or are highly segregated, said Reginald Edwards, a senior economist at Redfin who led the study. And, he said, in areas where prices have skyrocketed, such as New York, “disparities in valuations have increased as the valuations themselves increased.”
Systemic reasons for undervaluation
“Philadelphia, like many major cities, is still feeling the leftover impacts of redlining,” said Chelsea Barrish, vice president of program impact at Clarifi, the Philadelphia-based financial counseling nonprofit.
In the 1930s, the federal Home Owners’ Loan Corp., created to help homeowners avoid foreclosure, produced a color-coded map of cities assessing the risk for mortgage lending by neighborhood. The “highest risk” areas — shaded red — were deemed those with the largest Black populations or those adjacent to Black neighborhoods. This historical practice of redlining contributes to current neighborhood segregation and valuation disparities. Today, Black families nationwide are almost five times more likely to live in a formerly redlined neighborhood than a former “greenlined,” or most desirable, one, according to Redfin.
For decades, Philadelphia also consciously stopped investing in neighborhoods deemed undesirable, Barrish said. Historically Black neighborhoods are more likely to have higher density homes and industrial complexes and less likely to have parks and other amenities that increase property values, Barrish said.
Now, many longtime residents of historically Black neighborhoods are getting priced out as developers take interest, so established residents often don’t reap the benefits of increasing property values, she said. Clarifi clients trying to repair and keep their homes sometimes face contractors who don’t want to work in certain neighborhoods and the unaffordable costs of some fixes, while investors hound them to sell.
“There’s an increased pressure to turn over these properties because the values are increasing so quickly,” she said.
Meanwhile, Black home buyers have a harder time accessing home loans. In the Philadelphia region, about 17% of Black people who apply for mortgages are denied, compared with about 6% of white applicants, according to a Redfin report based on 2019 Home Mortgage Disclosure Act data. The median property value in 2019 on these loans was $165,000 for Black applicants and $295,000 for white applicants. In explaining denials, lenders cite low credit scores, debt, and insufficient cash more often for Black people compared with white people, another sign of the effects of systemic racism.
Without loans, applicants are more likely to buy homes that don’t stand to appreciate significantly.
Real estate agents also can play a role in the undervaluation of properties if they steer buyers away or toward certain properties, according to the Redfin report.
The National Fair Housing Alliance sued Redfin last year, alleging that the real estate company’s policy on minimum home prices discriminates against buyers and sellers in communities of color. Redfin’s leadership has said the company complies with the Fair Housing Act. The dispute is ongoing.
Part of the challenge of addressing undervaluation is that home buyers often want to live in neighborhoods with people similar to them. So Black people tend to buy in areas that are majority Black or people of color — neighborhoods where homes are more likely to be undervalued.
Formal agreements among white homeowners not to sell to Black home buyers historically helped keep Black families out of desirable neighborhoods. Those types of agreements became illegal with the passage of the Fair Housing Act in 1968, but they have contributed to segregated neighborhoods and home valuation gaps in the present day.
“When you’re dealing with these systemic issues, it takes a lot to try to correct the ship,” Barrish of Clarifi said.
Since vacant properties caused by foreclosures and evictions can depress property values of whole blocks or neighborhoods, programs that prevent them, such as the city’s Mortgage Foreclosure Diversion Program and the Eviction Diversion Program, are important, Barrish said. She also wants city officials to expand programs such as the Restore, Repair, Renew program and Basic Systems Repair Program that offer loans and grants to help homeowners with property maintenance.
At the City Council committee hearing Monday that highlighted the role of appraisals in the undervaluation of homes, experts who testified proposed expanding training for appraisers on unconscious bias, changing the way appraisals are performed, educating homeowners on how to challenge incorrect appraisals, and recruiting and retaining appraisers of color. In Philadelphia, 95% of appraisers are white.
The American Society of Appraisers offers unconscious bias training, and John Russell, the organization’s strategic partnership officer, told Council members that both education and diversification of the industry will be critical in helping correct the problem of undervaluation.
Redfin researchers said closing the valuation gap between Black and white neighborhoods will require changes in government policies, the behavior of real estate professionals and home buyers, and “substantial time and effort” from the public and private sectors. The Biden administration’s housing plan calls for ending discriminatory housing policies and providing financial assistance to home buyers.
This story has been updated to correct the national average undervaluation. It’s $46,000.