Bill Prohibiting Discrimination in Appraisals…
A bill to amend Illinois’ appraiser and real estate licensing acts to address discrimination. With increased public attention on the issue, complaints alleging unlawful discrimination are emerging in the courts and before regulators in relation to appraisals.
In Illinois, a bill (HB 5862) has been introduced to amend the Illinois Real Estate Appraiser Licensing Act and the Real Estate License Act to expressly prohibit discrimination in appraisals, broker price opinions (BPOs) and comparative market analyses (CMAs) for residential real estate. The bill would amend each licensing act to state that an appraiser or real estate licensee engages in prohibited discrimination “when he or she considers the actual or perceived race, color, religion, or national origin of the owner of the real estate or the residents of the geographic area in which the real estate is located when determining the market value of the real estate.”
Significantly, HB 5862 would also amend both acts to provide for “a private right of action in the circuit court” – meaning that aggrieved parties could bring civil claims for damages against appraisers and real estate licensees for alleged violations of the discrimination prohibitions. Violations would also subject appraisers and real estate licensees to potential professional discipline.
The federal Fair Housing Act.
Even without such specific anti-discrimination provisions in Illinois’ current licensing laws or in other states’ similar licensing laws, however, it’s important for appraisers and agents/brokers to know that discriminatory practices are already illegal under a number of state and federal laws. In particular, the federal Fair Housing Act makes it “unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” 42 U.S.C. § 3605(a).
The Fair Housing Act (“FHA”) defines the term “residential real estate-related transaction” to include “the selling, brokering, or appraising of residential real property.” 42 U.S.C. § 3605(b)(2). In the past, both appraisers and agents/brokers have been sued for alleged violations of the FHA’s prohibitions.
Violation of the FHA does not require intentional discrimination.
It’s also very important for appraisers and other parties to know that violation of and liability under the FHA – and potentially the proposed prohibition in the Illinois licensing acts – do not require intentional discrimination. The U.S. Supreme Court confirmed in 2015 that the FHA can be violated without establishing that a defendant intended to or was motivated to discriminate based on one of the protected categories. (Tex. Dep’t of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, Inc., 135 S. Ct. 2507 (2015).) Thus, while the FHA clearly prohibits intentional discrimination, it also prohibits practices, policies and methodologies (potentially, appraisal practices and methodologies) that have been adopted without discriminatory intent when they have a disparate impact on members of protected categories (unless justified by legitimate rationale). The Supreme Court recognized in its decision that disparate-impact liability is consistent with the FHA’s “central purpose” of eradicating discriminatory practices in the housing sector. It further stated that permitting disparate-impact claims enables plaintiffs to counteract “unconscious prejudices and disguised animus.”
To prove disparate-impact discrimination claims, plaintiffs generally rely on statistical evidence to show that the challenged practice, policy or methodology negatively affects members of a protected group disproportionately.
New discrimination legal actions are beginning to emerge in relation to appraisals.
Coinciding with recent public and media attention regarding allegations of discrimination in property valuations, legal actions alleging unlawful discrimination in appraising have begun to emerge in small numbers in the courts, and complaints have been filed with appraiser licensing agencies as well. This is not just an issue in regard to single-family homes and residential appraisers. For example, in a civil lawsuit filed earlier this year, appraisers valuing a hotel that had been converted to temporary homeless housing in an East Coast city were alleged by the property’s owner to have violated non-federal anti-discrimination prohibitions similar to those in the Fair Housing Act, when the appraisers allegedly took into account certain protected categories (familial status, age and origin) of the residents in their valuation analysis. One of the alleged discriminatory practices was that the appraisers purportedly had reasoned in their valuation that the children of single mothers housed in the hotel/shelter would cause physical damage to the rooms and common areas, thereby decreasing the value of the hotel. A complaint to the state appraiser regulatory agency was also filed by the hotel owner.
With the increased public focus, cases such as this one — but more particularly cases filed directly by alleged victims of discrimination — are likely to become a more frequent occurrence in the future in relation to appraisal services.
- LoanDepot Appraisal Discrimination Settlement - March 28, 2024
- Should Property Data Collectors Be Licensed? - February 29, 2024
- VA Appraisal Request Form at Heart of AIR Violation Class Action - May 23, 2023
So….what if you have a home that was constructed with Vashtu architecture that has greater market appeal to persons of that particular sect/religion- something that can be proven with factual market data? Do Illinois appraisers then have to ignore reality? There’s a difference between CONSIDERING a factor that is a factual basis for a valuation concern (and has a reasonable relation to the valuation) versus making an UNSUPPORTED racial/religious assumption. This will be yet another way borrowers can “weaponize” their disagreement with a valid appraisal conclusion – just cry “race” and suddenly they have a valid civil court action even if they weren’t the intended user of the appraisal. The sad part is, as pointed out in the article, all this was already completely illegal under a variety of laws. Making new laws based on popular news trends without basis in reality is bad public policy.
We eschew anything race related because of everything already on the books; I would point your attention to – (unless justified by legitimate rationale) – although the Vashtu would seem legitimate I would argue that based on the definitions for Market Value and HBU analysis (based on Legal Permeability, Physical Probability, Financial Feasibility, Most Probable), analysis on the market should be based on ‘many’ market participants not certain sects so they would probably ding you on that logic (if I’m thinking like them).
That said, just virtue signal back and read the room. As referenced above, there is a heavy amount of laws on the books baring discrimination. The loudest voices tend to have the least to say and in this case are furthering a damaging and false narrative.
Appraisal doesn’t happen in a vacuum, Peter, great article snippet on this.
It is my opinion that what is good for the goose, is good for the gander. Should frivolous suits be filed, the attorney and the claimant should be held liable for the same atrocity against the appraiser. Then fined and sanctioned. They must be able to think of the consequences and not just look for the gold.
I can’t wait until the focus turns to desktop underwriting.
Absolute BS. We do not need more laws, we just need enforcement of laws already in place.
https://www.nytimes.com/2020/10/06/business/hotels-transformation-offices-shelters-coronavirus.html
https://www.chicagotribune.com/coronavirus/ct-nw-nyt-homeless-hotels-liberal-neighborhood-new-york-20200818-5k5myysobngathfscstdotjs3e-story.html
https://abc7ny.com/upper-west-side-homeless-hotels-coronavirus-covid/6367038/
https://www.theatlantic.com/business/archive/2015/06/supreme-court-fair-housing-segregation/396860/
They just did school choice vouchers, finally. Let’s give that some time to work before we rush headlong demanding the government get more involved. As usual, when the government gets involved, it takes a challenging situation and makes it worse. I’m confident the buyers will recognize the market for what it is, and I’ll merely need to report on existing figures. Honk if I’m paying your 5 star hotel rent.
If I had not already stopped doing most transactional lending appraisals the ‘disparate impact’ findings alone would cause me to immediately cease doing ALL FHA appraisal work.
Disparate impact doesn’t require any direct evidence or proof. We can be found to be in violation based upon statistical analyses that have NOTHING TO DO WITH OUR APPRAISAL. “A court can find that residents of a certain area have values 10% to 15% lower than other areas and that this somehow constitutes discrimination.’ No wrongdoing by an appraiser required.
I’m DONE with all FHA appraising. Great job Illinois! As other states follow by jumping on this currently favorite PC issue and stupid regulatory micro-management even fewer of us are going to be willing to assume this unreasonable added risk.
I have never known an appraiser to perform with or express any racial bias in an appraisal. In creating a solution for a non-existent problem, Illinois has severely limited the number of (sensible) appraisers willing to risk their licenses and income to politically motivated courts and legislation.
I appraise a house a house regardless of who owns or occupies it. We appraisers have an uphill battle against the crazies like Biden, etc. who want to label us racist. What advice do you have for us Peter? My area is a very rural and white. I have appraised a handful of minority owned properties. I am extremely careful when I do. Usually I am unaware until I know on the door for the inspection. I treat it as any other appraisal I do, but know we appraisers have targets on our backs by Biden and the other craizies. If we do our jobs, obey “Fair Housing” standards, we should be fine. But should we just ask the borrower what their target value is to stay safe? What’s worse than being call a racist in today’s political correct climate.
Dave, Biden is not the President yet. This is being done under Trump. Problem is that neither of them know what we do and what the process is. They need to be educated…..over and over again until it sinks in.
Grace, Trump is not creating appraisal policy in Illinois. What a state does during a Presidents administration has little, to nothing, to do with the current President. Biden has, on this own website, attacked the appraisal industry with accusations of racism.
Per joebiden.com/housing
“Tackle racial bias that leads to homes in communities of color being assessed by appraisers below their fair value. Housing in communities primarily comprised of people of color is valued at tens of thousands of dollars below majority-white communities even when all other factors are the same, contributing to the racial wealth gap. To counteract this racial bias, Biden will establish a national standard for housing appraisals that ensures appraisers have adequate training and a full appreciation for neighborhoods and do not hold implicit biases because of a lack of community understanding. An objective national standard for appraisals will also make it harder for financial institutions to put pressure on appraisers to their benefit.”
Trump is not calling us racist. Joe Biden, Andre Perry, and like-minded leftist activist are.
Andre Perry and the Brookings Institute are incorrect, as is Biden. They don’t get what goes into doing an appraisal, the process and how value is derived. I watched the hearing on this. It’s ignorance on their psrt to make the assertion. And ignorance requires education . Biden is open to being educated. We need to let the public know how what we do, and how, to change public opinion…..via tv ads, via newspaper articles. We do not discriminate. Are there any appraisers that do? In rare occasions, maybe. But rarity does not mean we all do. And allegations that we are biased in any way is so contrary to how we are taught to value that it is negligent on their part to asset that we are.
Don’t hold out very much hope that the politicians at the top have any clue regarding the differences of fact vs fiction. This is a remarkable episode… If Biden can be this wrong on health policy, imagine what direction lending regulation can take…
Helen,
With all due respect, Biden has had the last 47+ years to listen and learn/make amends for (his previously supported/implemented) disastrous policies that have directly disenfranchised many. His party pushed a platform this past election on identity politics and they lost house seats for it for a variety of reasons.
There’s no altruism or honest search to be educated. Surely that’s not what politicians are interested in….if they were, they wouldn’t be politicians. It’s a simple saying but I think it applies. When you start pointing a finger at others don’t forget the three pointing back at you.
A market-based economy functions best when capital is allocated efficiently. Developers, lenders, investors, buyers, sellers, etc. seek to earn the highest rate of return possible. This basic principle applies regardless of one’s race. Those that fail will not last long in a competitive marketplace. Appraisers merely measure the actions of these participants using one of several definitions of market value. Should we develop some other definition of value that would equalize some of the alleged bias? What is the responsibility of the GSE’s in this regard? Will they securitize loans based on valuations conducted to some other definition of value? If the aim here is to eliminate discrimination it seems appraisers will be required to, in fact, discriminate when selecting market data.
When appraisers value a property under rent-control, we discriminate against current market rate sales or properties that are exempt. When we value affordable housing, we discriminate against market based sales. When we value tax advantaged properties (Mills Act, for example), we discriminate against properties taxed at market value. All of these involve pre-existing conditions that distort the market imposed by a governmental authority for a societal benefit (presumably). It would naturally follow then, that we will have to invoke a quota system in selecting market data under a new push to eliminate racial discrimination in appraisals. Moreover, we will have to overlook the fact that market participants themselves . . . discriminate.
Absolutely correct. However, I don’t think the proponents of the current trend of ‘equity’ demands are concerned with market efficiency or investor requirements.
Im unwilling to concede even a tongue in cheek concession of replacing a non existent, alleged discrimination with actual discrimination.
Social “Justice” Warriors (SJWs) aren’t looking for justice at all. If they were they wouldn’t be relying on feel good euphemisms in lieu of facts. Nor would they believe that an entire race of people are incapable of competing on an equal footing…despite extensive proof to the contrary.
SJWs are looking for control. They want penalties against one race for no other reason than that race is different than their own. In itself, that defines their own racism.
No one achieves equality by penalizing other innocents. Certainly no one gains respect that way.
I’m proud of my profession. I’m proud of our ethical standards too. I have never seen or heard of racism affecting how a property is appraised. Not in over 34 years.
I know we will collectively continue to be unbiased as appraisers with or without new laws.
Accordingly I will not lend credibility to any of the unsubstantiated appraisal-racism claims. Nor will I treat them as meriting serious concern or remediation.