CFPB Proposes Rule To Prevent Discrimination In Automated Home Valuation Models (AVMs)

CFPB Proposes Rule To Prevent Discrimination in Automated Home Valuation Models (AVMs)

The Consumer Financial Protection Bureau (CFPB) has outlined a proposal for a new rule that would help to prevent discrimination in auatomated home valuation models (AVMs). This proposal, which would involve joint rulemaking with a number of other relevant agencies, would look at the complex issue of how AVMs are used to estimate home prices, and the potential implications for fair housing laws. This, in turn, could help prevent cases where biases within AVMs effectively result in housing discrimination against marginalized home buyers.

What Are AVMs?

    Automated home valuation models (AVMs) are a type of software used by real estate agents, brokers, and mortgage lenders to determine the estimated value of a property. Rather than hiring an appraiser to determine the value of a property, people can use AVMs to determine the value of a home. The information generated by AVMs is then used by brokers, agents, and lenders to determine who they can sell a particular property to.

Why Do People Use AVMs?

    Many companies, including real estate professionals of all types, have increasingly used AVMs as a cheaper and faster alternative to professional appraisers. This facilitates the process of selling homes and obtaining financing for those sales, making the overall process easier for everyone involved. And because these tools are software rather than living human beings, they are often seen as more unbiased than an appraiser would be.

Why is the CFPB Looking to Regulate AVMs?

    The CFPB, along with a variety of other federal agencies, want to regulate AVMs due to the high risk they pose when dealing with fair housing issues. While they may be theoretically less biased than human beings, the fact of the matter is that AVMs are created by human beings, and often carry the same biases their creators carry. Moreover, the data that AVMs draw from may also carry biases, creating unwitting discrimination against marginalized home buyers.

How Could This Affect Real Estate Buyers and Sellers?

    Should this regulation be implemented in something resembling its current proposed form, it will likely have little obvious impact on buyers and sellers. However, companies that provide AVMs will need to re-evaluate the algorithms they use for these models to determine they are compliant with fair housing standards, and do not discriminate against marginalized groups. In addition, it could affect real estate brokers and mortgage lenders who use AVMs regularly, who may need to alter their own practices to avoid potential fair housing violations.

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