Another “You’re Biased” Story
This story, titled “Black homeowners allege appraisal bias in Prince George’s County” is published by a TV station based in Washington D.C. The homeowners who were interviewed live or lived in Prince George’s County, which is immediately east of Washington D.C. Roughly 863 thousand people live in that county, including some who are pretty wealthy.
An interesting twist on one of the TV story interviews is the homeowners’ incorrect assumption that just because they SPENT 1.3 Million Dollars building their ‘dream’ house, it would APPRAISE for that amount. A comment was (paraphrasing) “we spent all those dollars buying nails to build this place, so we don’t understand why it didn’t appraise for what we paid.”
That, of course, is a common misconception. It’s that way in large part because, “we” in this industry, have done a poor job explaining to the public what an appraisal is, how one is done, and the factors that are considered in stating an OPINION of value for the property. There’s a disjointed disconnect between public perception and our reality.
Frankly, before I became an appraiser, I had no clue about anything appraisers do.
Somewhat helpful though, in the story covered by the TV station, there is a video showing an appraiser explaining to the film crew how on-site observations for an appraisal are done (see video below). It’s the first time I’ve seen this presented this way in a story related to bias. Kudos to him for doing that!
The other emphasis of this presentation is the common theme: “We don’t like the value you stated, so you MUST be biased.” And most of these ‘bias themed’ stories we’ve seen over the past year never present the appraiser’s side, which is actually understandable, because appraisers are reluctant to discuss property appraisals with anyone other than their client. But one-sided stories are not the whole story.
On the other hand, what some of the interviewed homeowners in multiple presentations this past year have said is, basically the appraiser involved appeared incompetent or uncaring about specific details which do drive value, and when confronted with factual info after submitting the report, refuse to consider modifications to the report.
Or in other cases, the appraiser GREATLY increased the report value opinion after getting a ROV request. One story said the value change was $100,000! Say what??!
And other stories have revealed the same property being appraised by two appraisers, with resulting value opinions vastly different. I’ve had first-hand experience with this in my own local area.
These issues strike at the heart of limited competency and observational skills, coupled with questionable analysis, which lead to incorrect value opinions.
Unfortunately, it’s hard to know if the appraisers associated with all the stories we’ve seen really are racially biased, as are the claims, or if they actually have competency issues in how they do their assignments. About the only way to find out is to obtain the appraisals and have field reviews done by skilled review appraisers.
Now, let me find that bucket of nails to finish building my new dream house!
- Sale Price vs Appraised Value Disconnect - April 10, 2023
- Speed Regardless of Accuracy Under the Banner of Modernization - March 8, 2023
- Marin City Discrimination Case Settled - March 7, 2023
Market value is comparative not additive.
Seek the truth.
Race has become the weapon of choice to use in almost every aspect of life.
This needs to stop.
Every time people say racism is used as a weapon or stop using it as an excuse. Well unfortunately welcome to my world. One bad apple does spoil the whole batch.. ???
That reporter reported what he was told to, as an excuse to hob knob with millionaires. Poor planning in the McMansion zone. Price does not equal value. Perhaps the contractors took them for a ride? The story reads as an out of pocket expense, otherwise wouldn’t a construction project lender have ordered a pre appraisal? Someone sent them standard amc engagement terms and they made an appraisal activism website out of it. Remarkable.
Appraiser Bias is another Big Lie unsupported by fact.
I’ve wondered how could I, even if I wanted to, support and prove a bias adjustment? What methodology could I use? Would Regression work? How could I squeak a bias adjustment by a review appraiser or underwriter? How can I take hundreds of solds in a dataset and extract only those properties owned by a minority? What would the adjustment be for variances in ethnicity? If real estate is all about location, location, location, how can I support the use of a sold comp outside the subject’s marketing area to support and prove my bias?
I think all appraisers need to stand up and call this Appraiser Bias the bullsh%$ it is. It’s another Big Lie!!
And yet again David Towne does not mention “blockbusting” or “steering” in his latest rant. Those are key allegations made by those asserting racism in appraisals. Why does Towne conveniently avoid mentioning “blockbusting” or “steering” in his rants? Because just mentioning “blockbusting” or “steering” makes it clear that appraisers have culpability in the dissonant values between neighborhoods based on race. Appraisers are supposed to report the market in their report and would be obligated to report instances of “blockbusting” and “steering” in the report.
The National Association of Realtors (on July 10, 2020) mentions on their website that “steering” is still a problem among realtors. Appraisers would be obligated to report this in their reports. You won’t hear anything about “steering” from David Towne.
The Brooking Institute does not mention “critical races theory” in their report and David Towne himself has not mentioned it until recently when it has become a Fox News talking point. If David Town can show where in the Brooking Report it mentions “critical race theory”, I would like to see this.
That may not be as straightforward as it may seem. Purchasers often make their own decisions regardless of agent influence. Steering is also a common term for agents running borrowers toward a certain preferred lender whom may in turn give them kickbacks or referrals.
The fact that caution against steering practices goes towards realty agents is expected. Because it is the agents whom assist buyers in making their own open market purchasing decisions. Agents do have rules about unbiased representation. Individual purchasers are under no such restrictions, they buy when and where they want. Buyers ultimately drive the market in terms of real property relations to price, assisted by their agents, which sets the value measurement point.
Appraisers provide a measurement and are not the constructor of market happenings. If dealing with GSE systems, appraisers are brought in after the fact to analyze collateral value. Appraisers are not culpable for other peoples decisions. The valuation service should not be confused with a guarantee or an indemnity. One would not blame a contractor whom measured fault in the previous contractors service, for merely measuring and identifying what was already there. Same concept.
To quote from the National Association Of Realtors: “Steering” is the practice of influencing a buyer’s choice of communities based upon one of the protected characteristics under the Fair Housing Act…”
Contrary to your assertion, “steering” does not apply to other circumstances such as showing a preference for one lender over another as that would not violate The Fair Housing Act.
And contrary to your assertion, the appraiser’s job is not to provide “measurements” but to analyze and report the market. This would include “blockbusting”, “steering” (as defined above), “white flight”, etc. if those impact the value of the subject property. We are obligated to report anything that impacts the value of the subject property. If a murder occurred on the subject property and that impacts the value, we are obligated to report it and analyze its effects on value. I know there are appraisers who will say “I’m not a police detective” (or something like that) and that is why they did not do the proper analysis or reporting but they are just making an excuse for a professional failure.
Analyzing involves measuring. To observe something and make judgments upon data is to apply some form of measurement. Every application of data filtration is application of a varied measurement standard. Even though the decisions may be flexible, credible valuation results are the constant end goal.
Buyers know where they are at. Reporting on crime and ethnicity is outside of typical guidelines and peer standard expectations. Caveat emptor. Those are not value measurement items because they are conditions which already exist and the assumption is they have already influenced existing market prices which value is derived from. An appraisers job usually does not include forecasting, certain forms of speculation, or racial influence analysis. In fact those may be prohibited talking points under said guidelines pertaining to the sow.
There are many varied volumes of lender guidelines to follow. Many are primarily mirrored with varied minor differences. The themes however are constant. Worth the time to read these now and then. I just picked one randomly and it had exactly what I was looking for.
A number of federal, state, and local laws prohibit discrimination in the appraisal of housing. Fannie Mae expects professional appraisers to fully understand that discriminatory valuation and appraisal reporting practices are not only illegal, but also unethical. Unintentional discrimination can occur as the result of what an appraiser states, or fails to state, in his or her appraisal report. CMS and the appraiser must ensure that the integrity of the loan decision is not influenced by subjective, racial, or stereotypical terms, phrases or comments in the appraisal report.
Prohibited practices include:
– 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 personal 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:
o “pride of ownership,” “no pride of ownership,” and “lack of pride of ownership”;
o “poor neighborhood”;
o “good neighborhood”;
o “crime-ridden area”;
o “desirable neighborhood or location”; or
o “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.
Mr. Baggins, I only ask that you are pithy in your responses.
You are incorrect that appraisers only do “measuring”. Appraisers report on the 1004 if the sellers and buyers are “typically motivated”. This requires interviewing the listing and buyer’s agent, no “measuring” involved. If the listing agent reveals that the seller is selling because the neighbors are “undesirable” (such as black), that is to be reported and analyzed.
And contrary to your assertion, crime rates would be reported in the Neighborhood Section of the 1004 if they are noteworthy and impact value.
Lastly, this tired excuse (that has appeared here numerous times on this blog site) that there are ethical rules that prohibit discrimination so this is proof that there is no discrimination in the profession is nonsense. There are laws against driving through red lights so no one ever drives through a red light, right? Right?
The individual lender client guidelines and the selling guides dictate what should and should not be included in report language. Departure from guidelines carries substantial risk.
The invisible hand is always present, always active. Appraisers are not biased but our value measurements may indeed be reflective of systemic issues which are outside of our control. The appraiser is the messenger. Don’t blame the messenger.
FNMA selling guide. Use Control+F to seek out any given key word. Click arrows next to the search box to scroll through all instances. I searched; ‘crime’.
Part B, Origination Through Closing
Subpart B 4, Underwriting Property
Chapter B 4-1, Appraisal Requirements
Section B 4-1.1, General Appraisal Requirements
Prohibited practices include:
• 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 personal 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
Reporting Unfavorable Conditions
The lender must ensure that appraiser comments regarding unfavorable conditions, such as the existence of an adverse environmental or economic factor, also discuss how the condition affects the value or marketability of the property being appraised and explain how the condition was taken into consideration in the valuation process. In such cases, the appraiser’s
analysis must reflect and include comparable sales that are similarly affected whenever possible.
Local comps and limit the reporting to economic and environmental. Best not to make reporting more complicated than it needs to be.
This is interesting.
It’s important to consider that reform proposals represent a cumulative effort which has nothing to do with the appraisal industry and everything to do with private corporations continuing to wield excess power only capable through federal programs. Shifting the balance of power will not stop abuse of the systems, but merely redirect the favor. It may be better to wind down the GSE’s entirely and let the free market finally work again. Home owners pushing the individual experience story may not fully understand the breadth, scope, and potential of GSE influence. What one guy said to another guy or what happens with one loan is rather inconsequential from the federal perspective.