Alleged Systemic Racism in Appraisal Myth
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In virtually every single case of alleged racism to hit the media recently, admitted staged events were in play.
One could argue staging was necessary to identify if a valuation difference resulted from perceptions of what race the occupants are. Fair enough.
Provided that the staging itself does not alter the value scenarios. Provided that the results are being honestly reported. I’m skeptical. I’ve researched each case as far as can reasonably be done from the information provided.
The American Guild of Appraisers has also offered (repeatedly) to conduct thorough reviews of each and every appraisal involved in the reported instances to date. So far there have been no takers.
Without exception, each new instance (or articles on them) cite the thoroughly debunked Brookings Institute Studies on the topic.
Also, without exception as far as has been reported not one case was submitted to state appraisal regulators for analysis and review. Instead, even on non-FHA transactions, complaints were made to HUD alleging Fair Housing Act violations. In one instance I have seen the email correspondence back and forth between the HUD “investigator” and the appraiser. I also read the appraisal. No sign of a smoking gun. No sign of racism in my extensive conversations with the appraiser (over several hours). He seems like a well-trained, thoroughly conscientious appraiser with more than 20 years of experience. He has never had a complaint filed against him before. He is only interested in performing to the best of his ability and feeding his family.
HUD refused to cite the specific authority they are operating under in demanding to see his work file as well as all the appraisals he has performed over the past six months. His attorney suggested HUD MAY have such authority under the Fair Housing Act(s). Any reasonable person knows it’s a fishing exercise.
In doing my own research it appears that the concept of “disparate Impact” is or will be applied. That’s a concept where even if he has done NOTHING wrong, he can still be held liable for the ‘disparate impact’ of ALL OTHER appraisals done by all appraisers in the complainants ‘area’ if they show black area appraisals are lower than white area appraisals. Yes. He CAN be sanctioned (fined) or charged with violations of federal laws.
Market location preferences be damned.
Of course, HOW that area is determined to be relevant is not disclosed. Defined neighborhood? Competitive market area? Adjacent census tracts? Also, what value definition will be applied? The one used by virtually all loan transaction appraisers, or some Department of Justice, HUD, or Treasury Department variation such as “FMV” wherein exposure time is not a factor?
Recently, I watched a YouTube report citing yet another of this alleged race-based disparity in appraisal claims. from Canadian ABC TV.
It starts off with an alleged “valued $65,000 lower” than subsequent appraisal claims. It strongly inferred that there really was no difference at all except the appraisers and the race-reflective staged interiors.
(1) Three appraisals were obtained with no disclosure as to how they came to be ordered or by who. By lenders? By AMCs? By the owner direct?
(2) The stage-owners or residents were Black, Asian (Indian), and White. Interior decor was modified between each appraisal to reflect pictures and possibly other cultural or racial identifiers of undefined descriptions.
(3) EACH appraiser involved an exterior-only inspection by the three different appraisers. Some certainly seemed more detailed and attentive than others. As is normal. Each appraiser measured the exterior. The resulting GLA each calculated was never reported. Nor was the standard to which the measurements conformed. ANSI? Some Canadian standard?
(4) Interior conditions of the property were provided solely by the alleged (staged) owners by pictures of their composition and choosing.
(5) Not one of the appraisals is reported to have been subjected to independent professional peer review. They are instead tried in the court of public opinion. By people with no appraisal knowledge. By people that MAY have ulterior motives.
The appraised values were: $1,450,000; $1,415,000 and $1,385,000 (a variance of 4.48% from high to low or 4.69% low to high).
LESS THAN 5% variation between each appraised value. ALL three values would reconcile with each other.
To have a less than 5% variance between all three values of an over a million-dollar property based on an exterior observation is indicative of GOOD APPRAISAL WORK by all three appraisers!
ABC failed to identify normal appraisal variation ranges. Especially normal variances in over million-dollar properties.
The entire article was couched and presented to infer racial bias caused a Black Homeowner to be deprived of $65,000 in equity.
Admittedly it’s Canada. That historic hotbed of racial discrimination going back to its founding. Where blacks, Asian-Indians, indigenous Indians, French, and so many others have been racially profiled and repressed for so many centuries. The Canada where racism was so rampant that they had to fight a civil war over it. [sarcasm for those unsure]
Where there IS no Fair Housing Act and appraisers don’t have to follow American USPAP rules.
A variance of less than 4.7%. On a property transaction range where multiple appraisals are the norm rather than the exception because it is common for there to be some variance.
In the end, we are left with the impression that clearly hidden racism accounted for the differences. Rather than normal human perceptions or OPINIONS. Or differences in measured living areas.
I know of no systemic racism practiced by any appraiser. I have never observed it. Not in 35 years of appraising. I HAVE heard (read) where certain Automated Valuation Models (algorithms) are weighted based upon demographics.
Demographics required to be reported under Fair Housing Laws via census tract numbers to facilitate monitoring.
Census tract numbers prominently cite racial mixes of the populations within the census tract.
IF there is ‘systemic racism’ then I’d urge our regulators to look to the probable source of it rather than innocent professionals. That source is the Federal Government.
Census tract numbers are the ONLY place in an appraisal report where the specifics of race and a whole host of other prohibited demographic considerations are (indirectly) identified in any appraisal.
Keep promoting the false narrative of systemic bias in real estate appraisal, and eventually, real bias MAY result.
How many appraisers will decline or withdraw from appraising black-owned houses completely rather than risking frivolous but crushing HUD investigations? How many appraisers will suddenly realize they ‘lack competency’ due to ‘observed complexities’ at the subject property? USPAP demands that they withdraw if at any point they realize they cannot complete an assignment due to its complexity being beyond their expertise.
…alleged systemic racism in appraisal myth…I’m not suggesting this will happen. Merely that it might. Most appraisers are professionals and have not bought into this alleged systemic racism in appraisal myth yet.
Another side of the same coin is that if “these” imaginary racist appraisers truly hated other races, then wouldn’t it just be (hypothetically) easier to conclude whatever value is being sought? Avoid the risk AND set the oppressed up to become overburdened by debt?
OR appraisers MAY just start suing originators of the false claims. Or the deep pockets media that keep hyping the narrative.