Property Appraisal and Valuation Equity (PAVE) describes the goal of having property appraisals free from racial, ethnic, or any other form of bias. In other words, access to property appraisals, and the property values reported through them, should be equitable.
Historically, home appraisals have been affected by inequalities, bias, and discrimination that have disproportionately impacted people in communities of color. This inequality in home appraisals has contributed to the racial and ethnic wealth gap in the United States: It has meant that there are significant disparities in the rates of homeownership between people of different races and ethnicities and in the financial returns associated with owning a home. In 2022, the median White family holds eight times the wealth of the typical Black family and five times the wealth of the typical Latino family.
PAVE has been a concept and a goal for many years. However, in 2021, President Joe Biden announced the creation of a task force to evaluate the causes, extent, and consequences of appraisal bias and to produce a set of recommendations to reduce racial and ethnic bias in home valuations.
- Property Appraisal and Valuation Equity (PAVE) says that property appraisals should be free of bias.
- Subjective judgments in the home appraisal process can allow bias to affect the valuation of a property. Researchers have observed a market value gap between majority-Black and majority-White neighborhoods over the decades.
- Unfairly undervalued appraisals can have an outsized impact because for many families, their property is the biggest single asset they hold.
- Systematic undervaluation of properties in a neighborhood can have a significant effect on property values and on the accumulated wealth of homeowners in that community.
- In 2021, President Joe Biden created the PAVE Task Force to reduce bias and discrimination in home appraisals.
Understanding Property Appraisal and Valuation Equity
PAVE describes a situation in which home appraisals and valuations are fairer than they are today.
Whether you’re buying a home using a mortgage, refinancing your existing mortgage, or selling your home to anyone other than an all-cash buyer, a home appraisal is a key component of the transaction. There are different methods for assessing value. Typically, appraisers use the Uniform Residential Appraisal Report from Fannie Mae for single-family homes. The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales. The appraiser then provides an analysis and conclusions about the property's value based on their observations.
The home appraisal process involves subjective judgments, and these can allow bias to affect the valuation of a property. Researchers have observed a market value gap between majority-Black and majority-White neighborhoods for decades. On average, homes in majority-Black neighborhoods are valued at less than half of those in majority-White neighborhoods. Objective measures of a property’s features—such as the age of the property or its proximity to public transportation—do not explain the entire disparity.
One of the reasons for this is suggested by more recent studies of the “appraisal commentary” that forms part of appraisal reports. This is a free-form narrative section in which the appraiser is able to detail their reasons for valuing a property as they have. Research has revealed that appraisers sometimes make racial and ethnic references and use these as a basis for reducing the appraised value of a home.
For example, according to a recent California lawsuit, when a Black family’s Bay area home appraisal came in surprisingly lower than expected, they asked a White friend to pose as the homeowner. The next appraisal came in at about $500,000 higher.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau (CFPB) or with the U.S. Department of Housing and Urban Development (HUD). Note that the home appraisal process is also subject to bias; push back if you think your home's price has been unfairly devalued.
The Impact of Property Appraisal and Valuation Equity
Inequitable appraisals—that is, a valuation of a property that is below the contract price—can have significant effects on both individuals and communities.
For individuals, an appraisal is an important part of the homebuying process because it establishes the value of the property for a home loan. A below-contract appraisal can sometimes result in a higher required down payment for the homebuyer, and this can cause a sale to fall through. In addition, homeownership in the United States is a large part of wealth creation, with estimates placing two-thirds of the wealth of a typical American household in home equity. An unfairly low valuation can bar families and individuals of color from a range of financial tools and products associated with the equity they hold in their homes.
Inequitable appraisals can have knock-on effects across entire communities as well. This is because appraisers look at purchase prices in a neighborhood as part of their valuations—and these purchase prices might also be informed by racial or ethnic bias. Each instance of a lower purchase price becomes a candidate for the next appraiser to choose as a comparable sale for the next appraisal in the community, carrying the impact of the lower value forward. Over time, even a slight imbalance of undervaluation can have a significant effect on the property values in a community and hence on the accumulated wealth of homeowners in that community.
Bias and discrimination in property appraisal have been structural impediments to homeownership in the U.S. More than 50 years after the Fair Housing Act’s passage, the racial homeownership gap is wider than ever: In 2021, the Black homeownership rate reached only 44%, while the White homeownership rate reached 74%.
Research also suggests that bias is becoming more pronounced. The racial composition of a neighborhood shaped home values more in 2015 than in 1980, which researchers identified as a key factor driving the growing racial wealth gap, according to U.S. Census Bureau data. Over that 35-year time span, homes in White neighborhoods had appreciated in value by about $200,000 more than similar homes in communities of color, the researchers found.
The PAVE Task Force
There have been a number of attempts to reduce bias and discrimination in home appraisals. However, on June 1, 2021 (the centennial of the Tulsa Race Massacre) President Biden announced the creation of an interagency initiative, the PAVE Task Force. The Task Force has been instructed to:
- Evaluate the causes, extent, and consequences of appraisal bias
- Establish a transformative set of recommendations to root out racial and ethnic bias in home valuations
PAVE is a first-of-its-kind interagency task force and represents the most serious attempt to reduce home appraisal discrimination in decades. The task force includes 13 federal agencies and offices and is chaired by Director of the Domestic Policy Council Ambassador Susan E. Rice and the U.S. Housing and Urban Development Secretary Marcia L. Fudge.
So far, PAVE has launched an independent review of the Uniform Standards of Professional Appraisal Practice (USPAP) to understand potential barriers to entry for underrepresented communities. Also, in November 2021, the Federal Housing Administration (FHA) issued a Mortgagee Letter to clarify nondiscrimination requirements applicable to appraisers and lenders.
Has Racial Discrimination Affected Home Appraisals?
Yes. Numerous studies have shown that homes in White neighborhoods receive higher valuations than those in minority communities and that the problem is growing, not shrinking.
What Solutions to Home Appraisal Inequities Have Been Proposed?
Proposed solutions include training in how to avoid unconscious racial bias, updating professional ethics and guidelines, and scholarships to increase diversity among home appraisers.
What Can I Do If I’m a Victim of Home Appraisal Bias?
If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau (CFPB) or with the U.S. Department of Housing and Urban Development (HUD).
The Bottom Line
Property Appraisal and Valuation Equity (PAVE) is the concept and aim that property appraisals should be free of bias. The home appraisal process involves subjective judgments, which can allow bias to affect the valuation of a property. Researchers have observed a market value gap between majority-Black and majority-White neighborhoods for decades.
Appraisals that unfairly undervalue a property can have significant effects. The single biggest asset for many families is their home. And systematic undervaluation of properties in a particular neighborhood can have a significant effect on that community's property values and hence on the accumulated wealth of homeowners who live there.