What Is Property Appra💙isal and Valuation Equity (PA🦂VE)?

Property Appraisal and Valuation Equity (PAVE) is a set of guideli🎶nes for producing home appraisals that are free of racial, ethnic, or any other form of bias.

Historically, home appraisals have been skewed by biases that disproportionately harm homeowners in communities of color. This is one factor in theꦐ racial and ethnic wealth gap in the United States. It has al🔥so contributed to the disparities in the rates of homeownership between people of different races and ethnicities and in the financial rewards associated with owning a home.

Understanding Property Appraisal ♒and Val🔜uation Equity (PAVE)

The median White family holds almost four times the wealth of the typical Black family and five times the wealth of the typical Hispanic family, according to the most recent data from the Federal Reserve. Some of that disparity is due to bias in the home appraisals that are necessary every time a home is bought﷽, refinanced, or sold. The precise amount is impossible to pinpoint.

PAVE has been a concept and a goal for many years. However, it was only in 2021 that 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 remove it.

Why PAVE Matters

Whether you’re buying a home using a mortgage, refinancing an existing mortgage, or selling your home, a home ap♛praisal is a key component of the transactio✅n.

There are 澳洲𝕴幸运5官方开奖结果体彩网:different meth⛄ods for assessing value. Most appraisers use the Uniform Residential Appraisal Report from 澳洲幸运5官方开奖结果体彩网:Fannie Mae for single-family homes. The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby 澳洲幸运5官方开奖结果体彩网:comparable sales numbers. The appraiser then provides an analysis and conclusions about the property's value.

The home appraisal process inevitably involves subjective judgments, which can allow bias to affect a property's valuation.

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 its age or proximity to public transportation—don't explain the entire disparity.

More recent studies of the appraisal commentaries in the report suggest one reason for this. These commentaries are free-form narrative sections in which the appraiser details the reasoning behind the valuation. Government research has revealed that appraisers sometimes make racial and ethnic references and cite them to reduce a home's appraised value.

There are also anecdotal reports. 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 appraisal came in at about $500,000 higher.

The Impact of Property Appraisal and 🐷Valuat𝓰ion Equity

The home appraisal determines the maximum amount of money a𓆉 bank is willing to loan the applicant for a mortgage 𒆙on that property.

One of the many problems that can occur in cases of valuation bias is anꦚ inequitable appraisal. That is, the appraisal comes in at a price below the contract price agreed upon by the buyer and the seller.

When the appraisal comes in lower than the contract price, the buyer usually seeks to renegotiate the price or walks away from the deal. A determined buyer might go ahead with the original deal but could be required to pay a larger down payment.

Other Side Effects of Low Appraisals

Homeownership in the U.S. is a large part of wealth creation. Around 15% of the wealth of a typical American household is in home equity.

Families whose homes have been appraised too low have less wealth on paper. That can exclude them from a number of financial services associated with the equity they hold in their homes. For example🍨, a couple upgrading a kitchen might be forced to finance the project using a high-interest-rate credit card rather than a much cheaper line of credit based on their home equity.

The Wider Impact

Inequitable appraisals have knock-on effects across entire 𝄹communities. A🌳ppraisers 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 can significantly affect a community's property values and, hence, the accumulated wealth of its homeowners.

Bias and discrimination in property appraisal have been structural impediments to homeownership in the U.S. More than 50 years after the 澳洲幸运5官方开奖结果体彩网:Fair Housing Act’s passage, the racial homeownership gap is wider than ever: In 2021, the Black homeownership rate reached only 46%, while the White homeownership rate reached 73% and the Hispanic homeownership rate grew to 51%.

Although homeownership rates among minorities have improved in recent years, racial bias continues to be a factor in the racial wealth gap, according to the National Association of Realtors. The average net home value increased for White families from $150,000 in 2019 to $205,000 in 2022—a $55,000 increase—compared to a $48,000 increase for Black families and a $25,000 increase for Hispanic families over the same span.

The PAVE Task Force

On June 1, 2021, the centennial of the Tulsa Race Massacre, President Biden announced the creation of an interagency initiative called 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 represents the most serious attempt in decades to reduce home appraisal discrimination. The task force includes 13 federal agencies and offices and is chaired by Domestic Policy Advisor Ambassador Susan E. Rice and Adrianne Todman, Deputy Secretary Performing the Delegable Duties of the Secretary.

So far, PAVE has launched an inde𝔍pendent review of the Uniform Standards of Professional Appraisal Practice (USPAP) to understand potential barriers to entry for underrepresented communities.

Also, the 澳洲幸运🌌5官方开奖结果体彩网:Federal Housing Administ﷽ration (FHA) issued a Mortgagee Letter to clarify nondiscrimination requirements applicable to appraisers and lenders.

The Bottom Line

Researchers have observed a market value gap between majority-Black and majority-White neighborhoods for decades. Appraisal bias is one of the gap's causes.

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 neighborhood can affect the entire community's property values and reduce the accumulated wealth of all of the homeowners who live there.

The aim of Property Appraisal and Valuation Equity (PAVE) is to create a home appraisal process that is free of bias.