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HouseCanary: Study Shows Automated Appraisals Reduce Bias

David Krechevsky
Dec 07, 2021
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Says valuation technology continues to be fair even as the percentage of racial minorities in a locale increases.

KEY TAKEAWAYS
  • HouseCanary conducted study following September 2021 release of Fannie Mae report annie Mae’s report that found severe and systemic bias in property appraisals.

HouseCanary Inc., a national brokerage known for its real estate valuation technology and accuracy, today released the results of a study that it says shows automated valuation tools are significantly more effective at removing racial bias from appraisals.

The study, “Reducing Racial Bias in Home Appraisals Using Automated Valuation Technology,” was conducted following a Freddie Mac report published in September 2021 titled "Racial and Ethnic Valuation Gaps in Home Purchase Appraisals." Fannie Mae’s report found severe and systemic bias in property appraisals, concluding that — through the traditional appraisal process — racial minorities are more likely to receive an appraisal value that is lower than the price for which the property was sold.

HouseCanary, which has developed valuation technology, conducted a statistical study to measure the accuracy of its automated valuation model (AVM) and comparable property-selection tools in appraising homes in minority neighborhoods. In conducting  the study, HouseCanary sought to determine whether using its automated property valuation technology could mitigate the effects of appraisal bias.

The study came to the following conclusions:

  • AVMs are more reliable tools for providing a fair valuation compared to traditional appraisals. When sufficient data is available to support an AVM for a property, HouseCanary's research has found it is a more reliable tool for providing a fair valuation than a traditional appraisal.
  • No evidence of racial bias exists in HouseCanary's automated comp and AVM tools. This stands in stark contrast to the results of Freddie Mac’s examination of traditional appraisals, which found that "Black and Latino applicants receive lower appraisal values than the contract price more often than White applicants."
  • HouseCanary’s comp-based and AVM values are fair to homeowners when neighborhoods are more diverse. The company’s research found that its comp-based and AVM values tend to become more favorable to homeowners as the percentage of racial minorities in a tract increases. On the contrary, Freddie Mac found that in traditional appraisals, the discrepancy between appraisal value and sales price "increases as the percentage of Black or Latino people in the tract increases." For example, Freddie Mac’s report demonstrated how as the threshold of minorities increases (e.g., from 50% to 80%), traditional appraisal data becomes more unfair.

“Appraisal bias affects thousands of minority American families every year, resulting in the pervasive undervaluation of Black and Latino-owned homes, as Freddie Mac uncovered in its report on the traditional appraisal process earlier this year,” said Jeremy Sicklick, HouseCanary co-founder and CEO. “At HouseCanary, we have built and developed industry-leading valuation technology to provide highly accurate, objective property information for all.”

Sicklick said the results of the study “clearly demonstrate the effectiveness of automated valuation tools in reducing racial bias and discrimination compared to traditional appraisals. We believe this research is extremely promising for the future of the real estate industry, with the potential to catalyze systemic change and promote equality throughout the entire homeownership journey.”

Additional findings can be reviewed in the full study here.

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