PAVE May Pave Over Appraisers
The blame game against appraisers is continuing the fast and furious start, evidenced by the PAVE report.
A synopsis is in the link: PAVE task force delivers plan on appraisal bias – Lexology
Key info from the PAVE report.
“Relevant agencies have also committed to addressing potential bias in the use of technology-based valuation tools through a rulemaking related to automated valuation models (AVMs), including the addition of a nondiscrimination quality control standard in the proposed rule.”
And,
“In the coming months, the Task Force will assess: (i) the “expanded use of alternatives to traditional appraisals as a means of reducing the prevalence and impact of appraisal bias”; (ii) the use of “range-of-value estimates instead of point estimates as a means of reducing the impact of racial or ethnic bias in appraisals”; (iii) the “potential use of alternatives and modifications to the sales comparison approach that may yield more accurate and equitable home valuation”; and (iv) “public sharing of a subset of historical appraisal data to foster development of unbiased valuation methods.”
Once again, government is shifting blame for the policies it created decades ago which directly affected property valuations to today’s most vulnerable and least protected valuation group, that being appraisers. Appraisers become the convenient scapegoat for the identity politics, which is what this initiative is really all about.
There seems to be beliefs among those on the PAVE panel that AVM’s are the cure-all to ‘right’ the decades of governmental policies that caused low value areas to be established in the first place. In addition to the lenders’ desires to eliminate appraisers from all phases of the mortgage lending transactions by using non-licensed ‘inspectors’ at the front end of the appraisal process, incorporating AVM’s as a primary component in property valuation will be just another nail in the coffin.
There seems to be another belief that real property is ‘static’, never changing, which we all know is foolish. AVM’s, by themselves, cannot differentiate when property changes happen unless someone actually examines the property and feeds revised data into the AVM’s.
‘We’ know that ‘we’ didn’t establish lending policies or cause certain individuals to be excluded from certain areas, or even forcefully moved to different lower value areas, which is what our governments (federal and local) did over many years, and still do. This has happened across all ethnic groups, not just the one receiving the most emphasis in the PAVE meetings and in the media.
Now, moving forward to modern times, when ‘we’ do our appraisals properly per the existing lending policies, ‘we’ get blamed for not producing “equitable home valuations.”
Re-read (ii) above. Then explain to me how providing a ‘range of value’ will “reduce the impact of racial or ethnic bias in appraisals.” Many appraisers believe that stating a ‘range’ is much more appropriate than a ‘point’ value, and it’s USPAP compliant. However, that’s not the way mortgage lending policies (and the forms) are written. But I fail to understand any logic in such an illogical statement in this PAVE report as to how bias will be prevented when reporting a range of value.
Another passage in the linked report says this:
“… steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.”
That means appraisers will continually have even bigger targets on their backs when someone with a financial and emotional tie to the property believes the value should be ‘way up here’ but the appraiser concludes, based on market evidence, that the value should not be that high. This happens now, of course.
If the PAVE process gets implemented in the draconian ways that it appears to be headed, without ‘us’ mounting a strong defense, appraisers are going to be smothered, and paved over.
Dave Towne on e-AppraisersDirectory.com
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I wrote my senator. Did you?
Great article and very great points Dave. Racial Bias has no business or place in our profession. But for PAVE and other with other agendas to state it is systemic to the appraisal process, is uneducated about the appraisal process. Are their gaps in various ethnic groups economically? of course, but these gaps have nothing to do with independent real estate appraiser opinions of value. Our opinions are derived from how buyers and sellers react in a particular marketplace, not from bias and not with predetermined notions. AVMs are not the answer and in my area Assessments/tax rates have more of a negative affect on values in certain areas than any race, color or income bracket. I wonder if anyone is questioning commercial valuations?
So on one side they want to end us and the other they say we need more appraisers. Who would want to get in a career that the government is trying to end?
All the more reason why I will probably retire after this year and after 49 years.
The hearing that occurred on 3/29, the AVM question was asked a lot. No one advised that this was the answer. Each of the “experts” suggested that was not going to be the best way to go. It appeared to be all a show. They have an agenda and they will see it through. It matters not what anyone else says.
This is literally introducing bias to combat bias that is almost non existent.
Great article. Tobias Peter and AEI’s research showed that the research upon which the PAVE report relied was false and misleading. Andre Perry and Freddie Mac’s papers were not published or peer reviewed research. The true research shows that property values are not related to race. Property values correlate with socio-economic factors. People of all races, colors buy the homes they can afford in the areas they can afford. To blame appraisers for “under” valuing these homes is reckless and irresponsible. Below is AEI’s research debunking the PAVE report.
https://www.aei.org/research-products/report/comments-on-the-pave-report/
The government refuses to recognize the real cause of the wealth gap which is the income gap. Instead they help people with less income and less money take on more debt which they can’t easily afford. This can cause these people to lose their homes and be worse off financially in the event of any family emergency or a change in the economy.
The PAVE report and Federal government worked directly with private parties who have an agenda. They worked with Jillian White of Better.com Mortgage and Lisa Rice of the private non-profit Fair Housing Alliance. These people have promoted the false narrative of the “racist white appraiser” for their own agendas of respectively procuring business and grants.
The PAVE report and Federal government are also working directly with businesses who would benefit from the lower cost of AVMs. The cost benefits aren’t passed onto the borrower but pocketed as profits for business. We all know AVMs only are somewhat accurate with the absolute average home. AVMs don’t see condition, upgrades, actual current size, actual current bed/bath count, view, specific location in a neighborhood… because they don’t have that information. It’s GIGO, Garbage In Garbage Out. Homes with full views that are fully remodeled will be under appraised with AVMs while homes in fair C4-C6 condition with negative location factors and no view will be over appraised.
The government needs to look at real data from unbiased sources in order to help people. They need to stop blaming appraisers for differences caused by other factors. It makes them look totally incompetent.
AVMs (including the “comparables” sent to you by Fannie) utilize proximity over everything. So…….
Location/proximity is the #1 important part of value; hence land value/location.
Location, location, location!
I always was taught comps should be within 1 mile or less of the subject, if you had to look elseware it should be in a comparable neighborhood, with similar properties. Location, location, location.
Of course location matters (well we all thought it did before Maxine got involved). We have situations here that involve an older improvement on a canal that leads to a river that gives access to the Gulf of Mexico. FANNIE’s algo will send sales 20 years newer in a gated community within 1 mile with no access to the waterways. Not at all the same thing! I was always taught I should utilize the rule of substitution when selecting comparables. Just being proximal does not mean comparable. I can show you areas where the values range from 200k – 2,000k – within a mile of each other. I do every Appraisal as though I was going to buy the real estate. Which others would I consider and why. What is driving the buyer? What are the major marketing points? Just going to the same shopping center does not make a comparable. Good luck out there!
All your comments are correct from an appraisal point of view. The problem is that truth and reliability is an appraisal goal and the goal of PAVE is social engineering. I guess the powers to be think if you artificially increase the value of homes and the resulting loan amounts in a given neighborhood then the average income in that neighborhood will also rise to meet the higher payments. Seems to me that is what happened between 2000 and 2012 and how did that turn out.
This is pure lunacy.
“steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.”
This is akin to giving a drunk 16 year old the keys to Ferrari. I’d just rather they’d be honest and say “if you dont appraise ant contract price, you’ll be turned into your state board, sued, fined, or all the above.
One more nail in the coffin….
This is a little like the government saying “the way to combat cancer is to stop allowing doctors to render a cancer diagnosis”. As appraisers we report the results of governmental policy and as the saying goes, “don’t blame the messenger”.
What Bias????????????????????
Unfortunately, the issue is much deeper than just the misplaced blame on the appraiser. Our bloated deeply corrupt mover and shaker elites do not like (no they actually hate) small business because they can not fully control it to their satisfaction. They will exploit this contrived issue to achieve their true motives. Appraisers will be eliminated, or at least become employees of the collective. And of course, appraisers who care, are moral, and desire to do what is right will find themselves unemployed. But the crap appraisers who are ignorant, immoral, clueless and don’t give a ____ will be gainfully employed as long as they follow the ever changing PC edicts. Good is bad, and bad is good – more and more everyday! This is so sad for the appraiser’s that have worked their rear ends off for decades, and no-nothings with power come along to crush-kill-destroy us.
empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.” Oh, so a predetermined value is A-Ok? Why bother having an appraisal then. Go fund it with no one on the hook.
empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.” Oh, so a predetermined value is A-Ok? Why bother having an appraisal then. Go find it with no one on the hook.
Elections matter. This is what you get when a left wing identity politics group takes over the Federal Government. Sorry but Facts Are Stubborn Things.