Firm claims it’s “blind” to appraisal bias

The AVM trend does offer good news as posited by the Urban Institute in that the models “…may reduce racial bias in home values appraisers have estimated,” Urban institute authors wrote in their paper. “Hypothetically, reducing human input should reduce racial disparities in property valuations,” the authors wrote. “But a previous paper we wrote suggested that AVMs can produce racially disparate home value outcomes.”

In that previous report – which compared majority-Black and majority-White census tracts in the Atlanta, Memphis and Washington, DC, core-based statistical areas, analysts did not find systematic evidence that AVMs undervalued sales prices in majority-Black neighborhoods or majority-White neighborhoods, according the the paper. Moreover, the absolute AVM error – measured as the absolute-value distance between the AVM estimate and sales price – was greater, on average in majority-White neighborhoods than in majority-Black ones, researchers found.

“But the percentage magnitude of AVM error, which measures the absolute difference as a share of the sales price, was greater in majority-Black neighborhoods,” Urban Institute analysts wrote. “This indicates that the degree of absolute AVM error in majority-Black neighborhoods is magnified by the significantly lower home prices in majority-Black neighborhoods. Yet, even after controlling for property differences, neighborhood conditions and turnover, a neighborhood’s majority race was still a significant determinant of the percentage magnitude of AVM error.”

The Veros findings are decidedly different. To evaluate the performance of VeroVALUE – the name of its proprietary AVM first developed 21 years ago – analysts focused on three measurements: The proportion of properties undervalued by the AVM by more than 15% (P15L), the proportion of properties undervalued by more than 15% (P15H) and the median absolute error (MAE.) Measurements were taken from December 2021 sales data for the same Chicago ZIP codes and VeroVALUE’s estimate of value for those properties immediately before their sale. The difference in these values, or errors, were used for the analyses.