Racial Bias Claims Without Proof or Logic

The Appraisal Institute just sent a letter to The Appraisal Foundation to address things that have been floating out in the ether for nearly two years. The November 2018 Brookings Institute report blames appraisers without proof or logic for lower property values in minority communities and then the June 2019 Congressional Hearing amplified the Brookings misrepresentation of the appraisal industry. It’s taken 14 months to send this letter?

Interestingly, the chairman of the Board of Trustees that Jeff is writing to is a personal property appraiser and not a real estate appraiser. Real property appraisal is the reason for TAF’s existence and it is the trade that AI represents. This is why personal property appraisers should not be commingled with real property appraisers on the boards of The Appraisal Foundation.

August 20, 2020

Ms. Leila Dunbar
Chair
Board of Trustees
The Appraisal Foundation
1155 15th Street NW, Suite 1111
Washington, DC 20005

Dear Chair Dunbar:

As you know, our nation is reflecting on important matters of racial justice and discrimination, and this dialogue includes matters involving real estate financing and economic development. Real estate appraisers play an undisputedly important role in real estate development and financing central to taxpayer protection, safety and soundness of financial institutions and the protection of consumers. In fact, these important roles are largely the reason why our organization helped form The Appraisal Foundation and have supported its role in appraisal standards development and minimum qualifications setting for appraisals prepared in real estate financing.

Recently, claims have been made by academic institutions and think tanks alleging racial bias in real estate appraisals. Each of these studies have taken different research approaches to evaluate appraisal (or valuation in general) – some have not included any level of appraisal review, but looked at “self-appraisals” (owner opinions of value) or sales information to draw inferences to real estate appraisal processes or procedures.

We take these claims seriously as they form part of our larger national debate, but, also because they raise questions about the objectivity and independence of appraisers. We see an ongoing need to educate the public and stakeholder organizations about the role of appraisals and appraisal processes and procedures. Differences between appraisal information and listing and sales information, or mass appraisal or assessment information, are two examples we frequently encounter. We also frequently receive questions about neighborhood and market analysis and location adjustments, which are covered concepts in the Basic Appraisal Principles and Basic Appraisal Procedures courses. Accurate valuations are fundamental to economic security for lenders, buyers, sellers and property owners, together with other stakeholders in property tax, income tax, and eminent domain.

Appraisers are already bound by strict ethics and anti-bias requirements in the Uniform Standards of Professional Appraisal Practice (USPAP), and lenders are also bound to collateral valuation guidelines (executed as contracts) that translate to appraisers in scope of service requests and through appraisal review processes. These include prohibitions against:

• • • Use of unsupported, descriptive comments or drawing unsupported conclusions from subjective observations. (These actions may have a discriminatory effect).
    • Use of unsupported assumptions, interjections of opinion, or perceptions about factors in the valuation process. (These actions may have a discriminatory effect and may or may not affect the use and value of a property).
    • Use of subjective terminology, including, but not limited to:
      • • “pride of ownership,” “no pride of ownership,” and “lack of pride of ownership”;
        • “poor neighborhood”;
        • “good neighborhood”;
        • “crime-ridden area”;
        • “desirable neighborhood or location”; or
        • “undesirable neighborhood or location”;
    • Use of subjective terminology that can result in erroneous conclusions;
    • Actions that may have a discriminatory effect or may affect the use and value of the property; or
    • Basing the analysis or opinion of market value (either partially or completely) on the race, color, religion, sex, handicap, familial status, or national origin, of either the prospective owners or occupants of the property being appraised or the present owners or occupants of the properties in the vicinity of that property. ¹

There is no doubt that racial discrimination in appraisal is strictly prohibited, broadly overseen and monitored, and subject to penalties, including the loss of license to practice.

That said, we believe we all have a role to play in reinforcing existing requirements and obligations to promote education and awareness by appraisers on these important topics. With this, we encourage the Board of Trustees and the Appraiser Qualifications Board to consider additional steps that could be taken to reinforce these points within the Real Property Appraiser Qualification Criteria. This request is timely considering the Criteria are currently under review and update.

Specifically, we believe the Criteria could be expanded to encourage development of education on bias and discrimination for appraisers, users of appraisal services and the real estate community for that matter. While the current Criteria clearly allows educational programming on bias and discrimination under allowances for “Ethics,” we believe the creditable topics list could be expanded with additional examples more direct to bias and discrimination. This would help stimulate additional education ideas amongst appraisal education developers and providers on this important topic. Additionally, at least two states – Ohio and New York – currently require real estate appraisers to take courses on fair housing and discrimination. The AQB could carry forward these requirements as part of the Criteria itself. Further, the required USPAP courses developed by The Appraisal Foundation and used to establish equivalency for other USPAP courses could be enhanced with additional illustrative material on bias and discrimination as it relates to standards. We would only ask that the AQB try to avoid duplication between USPAP education requirements and additional ethics course requirements. Lastly, we believe the Appraisal Standards Board could consider guidance (perhaps through an FAQ, for example) relative to the Ethics Rule of USPAP regarding matters of bias to include discrimination against protected classes.

Within the Appraisal Institute, we have several existing programs concentrating on this issue, including the Appraiser Diversity Pipeline Initiative (ADPI) with Fannie Mae and the National Urban League, and the Minorities and Women Course Scholarship Program from the Appraisal Institute Education and Relief Foundation. These initiatives are dedicated to promoting greater diversity within the real estate appraisal profession through direct outreach to interested individuals and financial assistance covering entry-level education and other support mechanisms. We are working to expand the ADPI program with our partner organizations through additional sponsorship arrangements starting this year.

Further, the Appraisal Institute will expand upon these initiatives by enhancing our required Business Practices and Ethics course for Designated members, candidates and affiliates to devote a module of the course to bias and discrimination issues. Additionally, some of our chapters already offer stand-alone seminars on this subject, and we will encourage Appraisal Institute chapters to offer or develop similar programs across the country.

In closing, we are pleased that our organizations have formed a stronger relationship in recent years, working collaboratively to address issues of great importance to appraisers and the public. We both know that the issues under discussion here involve parties and issues greater than appraisal itself. To that end, we look forward to expanding this collaboration by working on additional public policy solutions where other stakeholders are involved and appraisal is one of many larger components.

Thank you for your leadership and consideration of our suggestions above in upcoming deliberations.

Sincerely,

Jefferson L. Sherman, MAI, AI-GRS
President

CC: Mr. David Bunton, President
Mr. Mark A. Lewis, Chair, Appraiser Qualification Board
Mr. Wayne R. Miller, Chair, Appraisal Standards Board
Ms. Kelly Davids, Senior Vice President
Mr. Jim Park, Executive Director, Appraisal Subcommittee

---

Footnote:

• ¹ Fannie Mae Selling Guide – B4-1.1-02, Lender Responsibilities (09/04/2018). Available at https://selling-guide.fanniemae.com/sel/b4-1.1-02/lender-responsibilities

Better late than never I suppose. Also, it was nice to see Jeff Sherman, president of AI, to extend an olive branch to TAF.

Is there racism in the U.S.? Of course, a lot of it and to me feels like its getting worse or just more overt. In fact, the American housing dream was built on racist neighborhood policies by government institutions in the depression era including awful things like deed restrictions.

The problem with this topic is that The Brookings Institute November 2018 The devaluation of assets in black neighborhoods showed a stunning lack of understanding about the very industry it was attacking despite a well-considered write up about the disparity between the value of homes in neighborhoods of black and white residents of selected U.S. cities.

They don’t connect the appraisal industry with the earlier presentation in the report. The methodology was clear: they looked at Zillow and homeowners’ self-estimated values (two wildly questionable sources I might add). They realized that since they generated some housing numbers and – a lightbulb goes off – appraisers work with housing numbers so…appraisers are the problem! That’s called a credibility leap. There is no actual connection to appraisers in all the fogging being presented in the report discussed at the hearing.

The report authors have demonstrated they do not understand what an appraiser does. A credible white paper would have gone through that process to build an understanding of the presentation for the reader. Doesn’t Brookings have a review process on white paper research or were they hoping for a controversial piece to garner attention and not really care? I co-authored a white paper on a completely different housing topic and understand the presentation process – peer review is a big part of the process.

You can see their misunderstanding of what appraisers actually do just by watching the hearing and listening to the logic presented by anyone in attendance who is not actually an appraiser. To appraisers, the lack of understanding of what an appraiser does is a painful listen, I can assure you.

Here’s what one of the authors of the Brookings report who spoke at the hearing said in a recent New York Times article (what I assume it prompted the AI letter to TAF):

That’s a stunning indictment of every single appraiser in America, from the author of a report that demonstrates they do not understand what appraisers actually do. It is reckless and dishonest.

In that same article, my good friend says it better than I ever could:

“Is there a problem with poor and underserved communities in the United States? Yes. Is it the appraisal profession’s fault? No,” wrote Maureen Sweeney, a Chicago-based appraiser in a letter to the house subcommittee following the hearing. “It’s like blaming the canary for the bad air in the coal mine, or blaming the mirror for your bad hair day. Appraisers reflect the market; we do not create it.”

Incidentally, the New York Times piece reported evidence of potential bias because of the racial composition of the homeowner. The difference between these examples presented in the NYT piece and the Brookings piece is that Brookings posits that the reason for lower-priced neighborhoods is because all appraisers value all properties lower in those neighborhoods because they are minority-largely owned.

The amazing takeaway from the Brookings study is that they believe real estate appraisers determine market value when they simply opine on it using empirical evidence. That opinion is based on comparing similar properties nearby.

Brookings assumes that appraisers literally walk into a home and bless it with its value. This shows a stunning lack of understanding of what appraisers do. As Maureen said earlier, we don’t create the value, we reflect it.

We compare the subject property to other sales nearby that are similar in size, condition, configuration, etc. We try to stick to the same neighborhood, same town, same township, same subdivision, same property type, same lot size, same square footage, etc. because the comparable sales are subject to the same external influences, such as proximity to amenities such as schools and transportation. A comparable sale is a sale that a buyer would consider as a reasonable alternative to the property being appraised. In most cases that report is reviewed by someone else at the lending institution who doesn’t know the racial makeup of the borrower or the appraiser.

Are some appraisers racist? Of course! Our society is full of racism, both subtle and overt. But the Brookings Report itself makes no connection between the act of doing an appraisal and lower housing prices in minority neighborhoods. None. And that gave them license to be reckless in their statements after the report was issued. Brookings needs to revisit the topic but this time provide a credible empirical approach to why housing prices are lower in certain areas than others.

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Jonathan Miller

President & CEO at Miller Samuel Inc.

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.

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