Government announces new plan to eliminate appraisal bias

A White House task force has presented a plan that it says will root out racial and ethnic bias in home appraisals.

The five-step action plan announced by the Property Appraisal and Valuation Equity task force last week is designed to increase accountability and oversight, and includes steps for both home buyers and homeowners to take when they receive a lower-than-expected valuation.

“Historically, many groups have faced unfair home undervaluation,” Leslie Rouda Smith, president of the National Association of Realtors, said in a statement following the task force’s release of its report. “Addressing those wrongs is key to providing financial stability to not only homeowners, but entire communities, and benefits the nation as a whole.”

A recent report from Freddie Mac showed that appraisals for home purchases in majority Black and majority Latino neighborhoods were about twice as likely to result in a value below the actual contract price compared to appraisals in predominantly white neighborhoods.

A home appraisal is a critical element of the homebuying and lending process. “But bias in home valuations limits the ability of Black and Brown families to enjoy the financial returns associated with homeownership, thereby contributing to the already sprawling racial wealth gap,” the White House said in an announcement. The task force is co-chaired by Marcia L. Fudge, U.S. Department of Housing and Urban Development secretary, and Susan Rice, domestic policy advisor.

The PAVE Action Plan aims to make the appraisal industry more accountable. The plan outlines steps to increase oversight and accountability of the appraisal industry. It calls on federal agencies to create a legislative proposal to modernize the appraisal industry’s governance structure and improve coordination and collaboration between federal enforcement agencies to help identify discrimination in appraisals.

Next, the plan will empower consumers with information and assistance. The plan offers steps homeowners and buyers can take when a valuation comes in lower than they expected. Federal agencies are urged to issue guidance and add new policies to improve the process for reconsidering a valuation.

There will also be efforts to prevent automated algorithmic bias. The task force plan calls for federal agencies to include a nondiscrimination quality control standard to establish standards on automated valuation models. The task force said it's important to ensure that AVMs do not rely on biased data that could replicate past discrimination.

In addition, the plans aims to cultivate a more inclusive appraiser profession. The report cites statistics that show the appraiser and assessor professions are about 97% white. The plan calls on actions to remove “unnecessary educational and experience requirements that make it difficult for underrepresented groups to access the profession and to strengthen anti-bias, fair housing, and fair lending training of existing appraisers.”

Finally, the plan calls for the industry to leverage more federal data and expertise. It includes a proposal for the development of a database of federal appraisal data to help better study, understand, and address appraisal bias. It also called for the development of a working group consisting of subject matter experts to develop a research agenda on appraisal bias.