The U.S. Department of Housing and Urban Development (HUD) has unveiled its roadmap for addressing racial bias in the home appraisal process.
HUD and the Biden Administration released its Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan on March 23, along with an in-depth analysis of how the government and participating agencies can advance equity and root out discrimination in the valuation of minority-owned homes.
“For generations, millions of Black and brown Americans have had their homes valued for less than their white counterparts simply because of the color of their skin or the racial makeup of the neighborhood,” said HUD Secretary, Marcia L. Fudge, in a statement. “Black and brown homeowners in communities just like mine have not felt that they have had a voice or that the Federal government was doing enough to redress the issue of racial bias in the appraisal process.”
Fudge and White House Domestic Policy Advisor, Susan Rice, co-chaired the PAVE Task Force, which set out to evaluate the causes, extent and consequences of appraisal bias and produce a transformative set of actionable reforms to dismantle racial and ethnic discrimination in home valuations.
According to a HUD statement, the PAVE Task Force engaged more than 150 stakeholder groups as part of their six-month research and engagement efforts while putting the plan together.
“We have a long way to go, but the steps laid out in this Action Plan will help our country reduce bias in home valuations, narrow the racial wealth gap, and deliver a stronger and more equitable future for all Americans,” said Rice in a statement.
Dismantling Historic Bias
The PAVE Task Force highlights the historical role of racism in residential property valuation within the Action Plan (report) while also exploring different forms of bias present in appraisal practices.
“Throughout the 20th century, people of color were denied equitable access to housing as federal, state and local governments systematically implemented discriminatory policies that led to housing segregation,” the report reads. “These policies contributed to a gap between the values of homes in communities of color and predominantly white neighborhoods.”
While legislation like the Fair Housing Act was passed to make homeownership more equitable, the report acknowledges that market value disparities still contribute to the “sprawling racial wealth gap” in the U.S.
According to a statement from HUD, the median white family holds eight times the wealth of the average Black family and five times the wealth of the average Latino family.
Part of the report cited a 2021 Freddie Mac study that corroborated national articles that brought renewed attention to the impacts of appraisal bias that homeowners of color had suffered in recent years.
The Freddie Mac report found that homes in Black neighborhoods are about 70% more likely to appraise lower than the sales price for homes in white areas—12.5% compared to 7.4%. Homes in Latino communities were more than twice as likely to appraise lower, at 15.4%.
According to the Action Plan, an appraisal below the contract price in a home sale can sometimes result in a higher required down payment for a home buyer.
“This unexpected, out-of-pocket increase can often cause a sale to fall through, potentially preventing a prospective buyer from purchasing a home,” the report states.
The impact could also result in a downward price renegotiation, which the report’s authors claimed reduces the seller’s financial gain and possibly hinders that family from purchasing their next home.
“A widespread pattern of undervaluation in communities of color can impact an entire neighborhood,” read the report.
Actionable Points
The Action Plan outlines a series of reforms under five points that the PAVE Task Force committed to addressing, including increased accountability and diversity in the appraisal industry while preventing algorithmic bias in home valuations.
It also aims to empower consumers to take steps when they believe they’ve experienced a biased valuation.
The task force calls for a mix of actions including, updates to anti-discrimination obligations, policies and procedures within the appraisal industry.
It also urges the federal government to develop a legislative proposal that modernizes the governance structure of the appraisal industry. The aim is to improve transparency and public participation in the establishment of appraisal standards and qualification criteria, and to advance diversity in the profession.
According to the Department of Labor’s Bureau of Labor Statistics, the appraiser/assessor profession is roughly 97% white, making it one of the least-diverse professions in the country.
To remedy that, the Action Plan also seeks to “lower barriers to entry in the appraiser profession” that make it difficult for underrepresented groups to access the profession and strengthen anti-bias, fair housing and fair lending training of existing appraisers.
Another noteworthy proposal is the development of an aggregated database of federal appraisal data to better study, understand, and address appraisal bias, complemented by a working group composed of subject matter experts from stakeholder agencies to develop a research agenda on appraisal bias.
What the Industry Says
Real estate industry trade groups and federal agencies have already begun praising the newly released action plan.
FHFA acting director, Sandra Thompson, applauded the report, stating that it “affirms the persistence of bias in the housing finance system” and provides a roadmap for the federal government to collaborate with federal and industry stakeholders “to take meaningful steps against” against racial bias in appraisals.
In a statement from the National Association of REALTORS® (NAR), President Leslie Rouda Smith asserted that the association’s 1.6 million members are committed to upholding fair housing laws in all real estate activities, including appraisals.
“Historically, many groups have faced unfair home undervaluation,” Rouda Smith said. “Addressing those wrongs is key to providing financial stability to not only homeowners, but entire communities, and benefits the nation as a whole.”
The Mortgage Bankers Association (MBA) echoed similar sentiments, and added that the organization and its members are committed to working with policymakers and other stakeholders, including appraisers, “to develop solutions that ensure borrowers receive a fair and accurate estimate of the value of their homes.”
The MBA represents more than 2,000 real estate finance companies, including independent mortgage banks and brokers.
“Many of the initiatives announced today can be an important step in the fight toward eliminating biases, improving appraisal accuracy, and opening access to more affordable, sustainable homeownership opportunities for minority borrowers,” said MBA president and CEO, Bob Broeksmit, CMB, in a statement.
While the report notes that many of the reforms can be implemented under existing authorities, Broeksmit said it will be necessary for Task Force agencies to “provide ample notice and comment opportunities for stakeholders during the implementation process.”
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