Federal plan aims to root out racial bias in home appraisals
The PAVE task force, a joint venture of HUD and other agencies, presented an action plan to address appraisal bias and increase diversity in the industry.
Key points:
- Recommendations introduced by the task force include developing new standards for automated valuation models and enabling consumers to take action against racial bias in home valuations.
- The task force is also urging states with more stringent standards to consider easing some requirements to become a certified appraiser.
- NAR applauded the plan, saying it protects the wealth-building benefits of homeownership.
The federal government is moving forward with a series of steps it believes will address racial bias in home valuations.
On June 1, the White House announced progress in the implementation of the action plan developed last year by a task force of 13 member agencies co-chaired by HUD Secretary Marcia Fudge and Domestic Policy Advisor Ambassador Susan Rice. The steps recommended by the Property Appraisal and Valuation Equity (PAVE) task force include developing new rules around automated valuation models, increasing transparency, broadening the appraiser pool and empowering consumers to take action when they spot racial bias.
The plan received a thumbs up from the National Association of Realtors, which met with the PAVE task force as the action plan was coming together over the past year.
"We are pleased to see the positive steps taken to improve the appraisal process and better protect the wealth-building benefits of homeownership for all Americans," said Kenny Parcell, president of NAR.
Racial bias remains a significant issue when it comes to estimating the value of home, particularly in majority-Black neighborhoods. Using newly released data from the Federal Housing Finance Agency, the Brookings Institute concluded that homes in Black neighborhoods are valued roughly 21% to 25% below similar homes in non-Black neighborhoods.
Other racial and ethnic groups did not appear to face the same biases. Neighborhoods with a majority of Latino/Hispanic, Asian American, or white residents were not subject to home price devaluation, according to the report.
"Our overall conclusion is that at least 10% of homes are at risk of under-appraisal in majority-Black neighborhoods, and this has a modest but meaningful effect on overall valuations and final sales prices — limiting wealth accumulation for homeowners in majority-Black neighborhoods," according to the report.
NAR appeared particularly pleased with the steps being taken to address the automated valuation models, which are used by financial institutions, mortgage originators and secondary-market issuers. The proposed rule would establish a quality control standard "to ensure greater confidence in valuation estimates, protect against data manipulation, avoid conflicts of interest, and conduct random sample testing and reviews."
"Historically, many groups have faced discriminatory policies that devalued their homes and neighborhoods, and addressing those wrongs is crucial in providing financial stability to homeowners and communities nationwide," NAR said in a statement.
One of PAVE's goals is to increase diversity in the industry. Data from the Bureau of Labor Statistics shows that near 93% of certified appraisers are while, and only 45.5% are women.
The task force noted that many states' certification standards, such as requiring a four-year college degree, go beyond federal requirements, making it more difficult for would-be appraisers to obtain certification in a timely manner compared to many other professions.
PAVE has set up a dashboard showing the certification requirements in each state, and those that exceed the federal standards are highlighted. The task force is urging state legislators to consider making changes that reduce the barrier to entry.