Is There Systemic Racism in Appraising?
Brian Stevens of NREP questions why no evidence has been put forward to support systemic racism in appraising. He proposes that a comprehensive non-partisan study of the industry be conducted before labeling an entire industry with easy and cheap terms like “systemic”.
So we have all heard the story about systemic racism in residential appraising. There have been a handful of cases where it’s been determined that appraisers have brought appraisals in low based on the homeowner’s race. Now I don’t know if this is true and you don’t know if this is true. We don’t know the value, the comps, the adjustments, the neighborhood or the appraiser. So for me to chime in and say that these appraisals had an inherent racial bias would be foolish. I simply don’t know. It is one of two things right? Either they did or they didn’t.
Now here’s what I think. When we use words like systemic, that means that the entire residential appraisal profession has a racial bias. For me this is a fairly new topic. I haven’t heard about it in appraising as far as I can tell. A portion of our industry has decided that systemic racism and appraising exists based on three fairly well-known cases. Again I don’t know the details. My thinking is this though. I think it’s irresponsible to use words like “systemic” or make accusations about an entire industry where individuals who may be pure of heart are accused of deeds for which they are not guilty. Perhaps. Question: Were these bad appraisals? If they were, were they isolated or is this systemic? What about other appraisals that consumers, lenders or realtors disagree with of clients that are of other ethnicities? Do these bad appraisals carry an inherent bias or are they just bad appraisals or are they the right appraisal and you just don’t like the value? Again I don’t know and you don’t know.
My thinking is this. Before we pigeonhole an entire industry with easy and cheap terms like systemic, a word that is wildly misallocated under the circumstance, a word for which there is zero evidence to support, I would suggest that our industries start with a word like comprehensive. Is there systemic racism in appraising?
Let’s find out. Let’s conduct a comprehensive non-partisan study of the industry as a whole. Then and only then can we draw a conclusion and make the corrections if it is determined that they are needed in the first place. Until we use terms like comprehensive, casting judgment, making accusations feel more partisan and agenda driven than anything else. Again please hear what I’m saying. Keep the knives in your belt and out of my path. I’m just saying, let’s find out before we find fault.
- FHFA’s Appraisal Waivers Expansion - October 29, 2024
- Lack of Evidence, Appraiser Challenges Discrimination Claims - October 24, 2024
- NFHA’s False Narrative Undermines the Appraisal Industry - October 18, 2024
I have never experienced, seen, reviewed, heard second-hand or even heard a rumor of a racist appraisal in my 30-year career.
I have an idea. Have appraisers, or do it on our own, put a statement in every appraisal in which it pertains (mostly purchases) “I attest that I have not been made aware of the race of the borrowers for whom is the client for which this appraisal is being performed.”
Thank God for good sense!!!!
Is There Systemic Racism in Appraising? No
Since over 70% of appraisers are one person shops it doesn’t really give us an opportunity to conspire to be systematic on anything. For good or bad. So there. That’s the results of the “comprehensive study”.
As an appraiser (certified general-31 yrs) I was subject to this accusation earlier this year and received my first ever letter of doom (e-mail) from the state requiring my work file, copy of the appraisal and a reply/rebuttal. Part of the e-mail from the state (Michigan) contained the borrowers complaint and a copy of a 7 month old appraisal on another unit in the 5 unit (100year old) 3 story townhouse complex. It seems that the other unit was valued at $350,000 and my value was $290,000, and most important to my borrower was that the other owner was white and she was black-clear proof of racism in her mind. My response was that the earlier appraisal used comps 3-4 miles distant in a higher value downtown market and also included (and I believe gave significant consideration to) the a similar unit located across the street from my subject that was an active listing at $360,000. My appraisal used 2 sales within 1/3 of a mile, 1 sale 1.9 miles distant and most importantly used the same unit across the street that had just closed the week before (deed confirmed through the county) for $300,000. That and a history of working with minority banks over the years resulted in a response 6 weeks later that the state found no violation and were closing the file. It seems that in this day and age, guilt doesn’t matter-if I don’t get want I want, that that is proof of wrongdoing.
How interesting Don, sorry that happened to you. Older properties provide unique challenges. There is higher probability of subjective value influence based on comparison selection criteria. Especially in old town, location may be of significant influence. Effective age considerations may be more important than anything else, best expressed in narrative. Costs to refurbish older housing can jump exponentially and provide for expanded EA adjustment wiggle room. History of working with minority banks should not even be considered, and if it was, there was bias on part of the investigators if they took that into consideration. Good defensive stance on the reduced sale price of the listing, which is why I try and avoid them, only using under contract units or will be willing to adjust an active down on speculation it’s over priced (often justified by considerations such as not getting traction, longer dom times, price chops, etc.)
The independent valuation market is working properly, we make well informed decisions regardless of interested party influence. Per the appraisal copy, that’s proprietary information which should have been validated before being considered. One should know if the lender accepted that appraisal, ran field reviews on it, or may have had conflicting internal avm indicators before giving any credit. For all you know, it could have been entirely fictitious or if it was legitimate, the board may have broken it’s own rules by accepting that as ‘evidence’ without further jurisprudence and validation of the documents using the boards own jurisdictional authority.
Interesting factoid; many boards may only investigate those complained against, and may ignore incompetent performance of evidentiary examples (unless someone files additional complaints based on the discovery later.) Sounds like the first borrower is now possibly $50k-$60k underwater. Counter complaints can be legitimate defense positions.
Appraisals are based on the most recent suitable substitutes, as close to your subject that are available. It is not based on skin color. The closest, most recent, most relevant sales available.
And more blah, blah, blah on racism this and racism that. My goodness people… the only reason racist comments are “thrown about” right now is certain entities in this country have nothing else to say. And this doesn’t help to unify this country. I must admit I thought that there is no way this could ever infiltrate our business. How wrong can I be?? AND who is going to be paid for doing this “study”???? AND by whom?? And then a study to study the validity of the study…and on and on….
They are most certainly forming committees. One ponders why, given the abhorrent track record of government systems management, that individuals would rather wait for and rely on government, rather than just ask for second opinions from the free market for immediate results. What exactly is wrong with lower pricing anyways? Many are adopting this notion that the entirety of our wealth should be tied up in real property. From bureaucrats perspective this is preferable, one may find themselves incapable of escaping an ever rising tax basis. This rising pricing narrative is already being exploited, have you heard of the tech giants such as amazon and google buying up thousands of properties to hold them as rentals later, year after year? Want to talk about restricting opportunity for American citizens? The narrative needs shifted to the power players and bureaucrats whom serve them, appraisers have nothing to do with wealth acquisition.
Values change for all kinds of reasons. Bulk purchases happen all the time: both higher priced and lower priced. Seller Incentives also influence the seller: prepaying the interest rate, the buyers’ expenses, who paid for the new carpet?
Late Fall markets are scary when buying into an unknown Spring with rapidly rising mortgage rates
Great remark Baggins!
Thanks Brian, for speaking some sanity. I’m not sure what the agenda is for these people but it is obviously nefarious (Wicked in the extreme; abominable; iniquitous; atrociously villainous; execrable; detestably vile.) against Appraisers and our duty to try and protect the public trust. Sorry, it’s the Eagle Scout in me. Give us some facts and let’s talk about it… as Brian wrote… “Now I don’t know if this is true and you don’t know if this is true. We don’t know the value, the comps, the adjustments, the neighborhood or the appraiser.”
One plausible agenda theory; Brookings institute wants to distribute reparations under color coded policies, and in doing so mirror JP Morgans EBT card program, raking approx 15% off the top.
https://www.thedailybeast.com/jp-morgans-food-stamp-empire
The notion that appraisers are to blame for the cumulative failure of many decades of government polices through the entire programs spectrum range, defies logic. There is no problem with the appraisal industry at large, neither the forms nor the policies need restructured. Audit and dissolve the Fed for real solutions for all Americans.
Responding to such absurd “woke” fabrications legitimizes their absurd arguements. Ignore and reject such nonsense. It is an effort to divide and destroy and seize control to perpetrate the same things that they accuse the innocent of doing.
Don’t waste another second on those comminists.
Well, across the street sold for this and one down the road sold for that, there’s your market.
Who’s the one asking that when photographs or paintings, or persons show up in photos, their images be blocked?
I just read a headline today that said “Appraisals not keeping up with the market”. Guess it was written by someone born after 2008. How many times did we hear in 2006 “you don’t know what you are doing and you don’t know the value of my home” only to see the same person crying in 2010 and saying “my home was over valued and I can’t even sell it for the mortgage balance”. Deja vu all over again to quote Yogi Berra.
With such rapid price rises we’re now seeing realty agents price and offer based on projection and forecasting, not bonafide sales data. The mechanism for legitimate market rises comes from cash over contributions. Value follows bonafide closed sales price data.
Especially in heated market conditions, buyers may be eager to push the purchase price up to their prequalified amounts. If there is limited elbow room, they may also take a step down in housing price, operating under the assumption their prequalification amount is their maximum offer thresh hold for any given property. By stepping down they perceive themselves as having better purchasing power and the ability to beat market competition for the buy.
What they fail to understand is that the lending amount is limited to the real property, not their qualified purchase limits. “But I am the market, I am prequalified, and I offered more than the other guy!” Sorry, the appraisal process defines the limit of reasonable collateral valuation worth, and does not take into account purchasing power based on borrower prequalification from the lender. You’ll need to bring cash over the appraised amount, to prove your idea of higher housing worth. aka an appraisal gap clause.
The appraisal valuation system is working as intended, defining reasonable lending thresh holds based on existing data. Price is for the seller, they walk with the stack of cash. Monthly payment affordability is the primary buyer concern, not price. Buying cost is relative to the cost of money, aka the lending rate. These are difficult concepts for people to grasp.
They’re burying QE in real estate but it can’t stay there forever. It’s time to raise the rate and decrease the purchasing power, dampen this spiraling inflation. That can’t happen as long as the printing press continues to run day and night. Economic planners have backed themselves into a corner. ‘The market’.
The foreclosure deferments have been continued. We’re all waiting for the dynamic shift but the plunge protection team apparently never sleeps. Guess what happens when supply finally catches up to demand…
I posted this on a related article, but think it appropriate for this conversation as well. The USA has led the world in eliminating social bias related to immutable physical characteristics such as race, especially where it concerns financial dealings, over the past century. This ideal is not even a consideration of populations living in most African and Asian countries as they typically believe that the established culture of the majority race, which was developed over centuries for the population that developed it, is self-evidently biased towards the native population. Western European countries have followed the lead of the USA in this area more so than any other region. Further, the appraisal profession has been a leading light in this conscious, purposeful social transformation. Thus, the reason that racial minorities have found a forum of sympathetic hearings for accusations of “racism” is the centrality of this “colorblind” ideal that has evolved to be at the modern core of both Western Civilization and acceptable appraisal practices. Unfortunately, this ideal has been corrupted by minority “leaders” that have conditioned their followers to use it as a handy excuse for any perceived slight attributable to either individual white people or, when that is not evident, to “systems” of social interaction developed by Western European cultures over millennia.
The reason Jussie Smollett had to fake his race hoax in Chicago was that there were no real-world examples of whites roaming the streets with nooses and bleach looking for black men to abuse. That this was so obviously a hoax yet immediately accepted as “truth”, then publicized and promoted as an example “of where we are in America today” by nearly every media personality and politician in the country (local, state, national and international) with no due diligence, much less an open-minded inquiry seeking the real truth. The most damning aspect of this farce is that even after the irrefutable evidence of fraud was finally, begrudgingly, exposed for public consumption by a few media outlets, the mainstream/legacy media, politicians, and other promoters of this race hoax ignored it instead of apologizing to the public and informing them of the truth in the matter, much less revising their racist worldviews where all whites are irredeemable racists who oppress minorities everywhere all the time.
Finally, it has become fashionable of late to condemn the ideal of being “colorblind”, that is judging individuals based on their character and not the color of their skin, as a “racist” concept. The undermining of this ideal will have disastrous social consequences. It is time to have an honest, real conversation that recognizes the importance of maintaining and seeking to realize the universal ideal of judging individuals based on the color of skin is wrong, no matter what that color may be. The path that we are currently on (emphasizing group identity over individual merit) leads to white people being forced into a corner where they do the same thing as a coping mechanism for defensive purposes, which will set us back 100 years in race relations. And nobody should want that.
The only way to make race a non-issue is to stop making it an issue.