Appraisal Racism… Fact or Fiction?

The real estate community is aware of the recent onslaught of articles going around accusing real estate appraisers of racism and appraising homes for less than what the actual homeowner thinks the home is worth. It started with Abena Horton in Jacksonville, FL Additional accusations were made in Chicago, Denver, and Newark, NJ. Each article written accuses the appraiser of redlining and racism. However, not one single case has been presented to the state boards. Not one single point provides any evidence to the appraiser engaging in a racist act. All that has been presented is a claim, and a story which includes another appraisal done that is higher than the first one.

A couple of weeks ago, I wrote an article about Abena Horton and her husband in Jacksonville, FL. You can read it here.

Since then, a couple of other articles have come about claiming that the Appraiser undervalued the home due to racism. Undervalued according to whom? The borrower? The lender? Zillow? I mention Zillow, because every article mentions Zillow and their magical and unforgettable algorithm called a Zestimate. Per Zillow’s website “a Zestimate is our free estimated value for an individual home…It is not an appraisal.” A Zestimate can’t distinguish neighborhoods, actual livable area of a home, the school districts, the condition of the house, and well the external influences the house may have. Yep, it’s the same algorithm that includes multiple listing services and tax data that may be inaccurate, as well as input by the individual homeowner – talk about BIAS!

I’ll get this out of the way right now. The most recent article that came from Denver, CO may show something, but it’s not racism. It shows something else, and that may well very be geographical competency. Geographical competency is where an appraiser has established knowledge of the area. They know the market area and are considered to be an expert in it. According to the article, the first appraiser used sales from across a major roadway instead of sales south of it. The difference in these two areas is, as one local appraiser put it, “very different,”, leading to a valuation that most likely wasn’t accurate the first time. The second appraiser used sales in this southside area and thus created a higher valuation. I won’t lie. I have seen this happen many times in my area due to appraisers not being from the area or unaware of the neighborhood nuances. Is this racism? It is not. It’s just bad appraisal practice that happened due to not knowing the area. (I am only speculating here as I do not know the appraisers involved). I know what you’re asking yourself?? How can an appraiser who is NOT from the area do an appraisal if they aren’t geographically competent? I ask myself this question every day. The answer goes back to the advent of the appraisal management company or AMC. AMCs are companies established to put a barrier in between the appraiser and the lender due to so-called collusion before the 2008 housing crash. The lender no longer picks the appraiser, the AMC does. Unfortunately many AMCs but not all will choose the cheapest and fastest appraiser to perform the appraisal instead of the most qualified and competent one. Why is this, you say? There are numerous articles about how AMCs are paid and how they have to make money. Most AMCs take a cut of the actual total fee, leaving the AMC with a handful of appraisers who will do the appraisal cheap and fast.

Would the consumer pay more for an expert or pay less for someone who has limited to no knowledge of the area? Is the consumer aware that the fee they are paying for the appraisal is being sent to several appraisers who bid their assignment fee, and that some AMCs will choose the cheapest appraisal bid and pocket the difference between what the consumer thinks they are paying for and what the appraiser is actually receiving? The consumer may be paying for an appraiser who lives outside the market with limited market knowledge as opposed to the one with greater market knowledge and experience? Maybe the consumer is getting an appraiser who is newly licensed last week as opposed to the one that has been appraising for decades? Perhaps the consumers should be mad at the lender and their AMC and not the appraiser, since the lender and their AMC are the ones that choose the potentially unqualified appraiser.

Is there a history of redlining in the United States? Yes. It is historically documented, with many federal, state, and local government policies that were put in place in the 1930’s. Laws were changed in the 1960’s to protect those affected by redlining and other discriminatory practices, yet the practice may still exist in lending and in the buying and selling of real estate. The most recent case involves Redfin, who is accused of systematic racial discrimination by offering fewer services to homebuyers and sellers in minority communities. The lawsuit against Redfin was filed by several fair housing organizations who appear to have evidence to support their claim that they wouldn’t offer services unless the homes were listed for at least $400,000 in Chicago, but services were offered in the majority white populated, suburban, DuPage County with a minimum price of $275,000.

The list price of the property is one of the components to the Redfin lawsuit. For appraisers choosing comparable sales based on the list price or the sale price is unacceptable. There are other components we must consider, including location, the type and style of property, the number of bedrooms, and baths, the utility of the property, the condition of the property, and/or any upgrades or modernization of the property. Price is not one of the search criteria of a knowledgeable and competent appraiser. Using price as a search criteria indicates the appraiser has a predetermined opinion of value, which is an unacceptable practice by law and profession. Appraisers can and have lost their licenses for appraisal opinions based on price.

After Abena Horton went on her crusade to claim the appraisal profession was racist due to HER GUT FEELING of racism, she still has yet to produce any factual evidence to prove racism. No appraisal reports or actual evidence of racism has been produced by the accuser. Abena Horton is the Assistant General Counsel and Vice President of Labor and Employment with Black Knight Financial, a leading automated valuation model company whose products competes directly with the appraisal profession. The appraisal profession has been the subject of her claims which have NO factual evidence. The only claim from Abena Horton is her biased opinion as the homeowner, who is not a licensed appraiser, who has not taken the necessary education to become an appraiser, who is not licensed by their state, and is not regulated by Congress. Appraisers can lose their license and potentially go to jail by developing appraisal opinions based on race or any other protected class under the federal Fair Housing Act.

Appraisers are bound by ethics rules outlined in USPAP (Uniform Standards of Professional Appraisal Practice). Appraisers use the sales in your area, your neighborhood, etc., to determine the value. They use all the data or components they gather (stated above) assess your area, and determine a value based on the facts they have complied. One Data point they do not ever gather is RACE. Racism is real in this world in many areas; however, I find it hard to believe that an appraiser will appraise your home for less because of your race when the data they are gathering is from your immediate area. Appraisers cherish their license. It’s the thing they worked hard for in order to become an appraiser and to gain the knowledge needed to ensure the public trust. The mere thought of having a complaint against them is enough to cause mental and physical anguish. Are appraisers perfect? Absolutely NOT. Do they make mistakes just like you? They sure do and those mistakes can be pointed out with the right data and evidence.

There are procedures in place with all lenders that if a consumer disagrees with their home’s value, they can take action, like a Reconsideration of value (ROV). An ROV is where the consumer supplies information they believe the appraiser may have missed or that the consumer deems appropriate and they supply that to the lender to have the appraiser examine. The consumer can always get a second appraisal if they so choose to. There are systems in place. The consumer needs to use them.

If the consumer believes their home should be worth more money, is the cause automatically racism? If so, I hope there are facts to back any accusations. If we want to be mad because we think our home should be worth more and is not, maybe we should be mad at our neighbors who paid less for their property than we hoped our place is worth now. We can be mad at our county who has a history of systemic racism that is embedded into the algorithm of big data. We can also be mad at our elected officials, who seem to be kicking this problem into the future. We can’t be mad at the profession who is reflecting the market, which may be unpleasant news.

Racism is real. Racism is something that does need all of our attention; however, not everything is a result of racism.