‘Preference Falsification’ – Why Licensees Parrot Notions They Know Are Untrue
Preference falsification has resulted in some appraisers parroting talking points they know to be untrue.
People who live under authoritarian regimes rarely reveal their true feelings. They get used to lying. Parroting the party line becomes second nature in oppressive societies. It’s not a reflection of one’s moral compass but a survival mechanism.
In his book “Private Truths, Public Lies,” Timur Kuran, an economist and political scientist at Duke University, writes about this disconnect, known as “preference falsification.”
Preference falsification is dangerous because it lends an air of permanence to structures that are brittle and susceptible to sudden collapse. Kuran believes that when the support of a policy, tradition or regime is contrived, a seemingly minor event will trigger massive, unanticipated change.
Preference falsification has had a hand in supporting the caste system in India and race-based college admissions in the United States. It has been found to corrupt the way people talk to their physicians, to muddy U.S. foreign policy and, now, to potentially inflate U.S. home valuations.
The phenomenon is making itself felt among the nation’s 80,000 licensed real property appraisers whose already weakened, overregulated profession has been targeted anew by the easy-money crowd – lobbies for groups and industries that want all gatekeeping functions removed from government-backed mortgage lending. Preference falsification has resulted in some appraisers parroting talking points they know to be untrue.
At issue is a caustic narrative that piggybacks on the culture wars playing out elsewhere in American life. The contrived controversy holds that a financial analyst’s skin color precludes the analyst from properly valuing an asset owned by someone of a different skin color. This new strawman – known as “appraiser bias” – holds that white appraisers hopelessly undervalue properties owned by African-Americans, despite findings to the contrary by the U.S. Federal Reserve and the American Enterprise Institute. HUD Secretary Marcia Fudge is one of the many government officials who have been peddling this poison. You can view the cabinet secretary’s remarks here. The narrative has been used to delegitimize the long-established economic principle of substitution – the bedrock of the sales comparison approach to value.
No appraiser seems to have ever encountered this white whale – the deranged colleague who appraises a building on a sliding scale in accordance with the skin color of its owner. It’s the boogeyman.
Experienced appraisers know that when bad actors have infiltrated the valuation process in mortgage lending, they have invariably acted as rubber stamps, inflating collateral values to make deals work. This is where the regulatory spotlight has been aimed in the past and where it needs to be aimed again.
But the sheer outlandishness of the narrative has not stopped sensible people from accepting this received wisdom. Under the onslaught, some appraisers now parrot the new orthodoxy knowing its core tenet is, in a word, nuts. In those cases, it’s pure preference falsification.
In the best of times, appraisers inhabit a scary, litigious world. Most run mom-and-pop businesses. As if it couldn’t get worse, they have now been set upon by agenda-driven nonprofits, disgruntled borrowers working with public-interest law firms, lenders looking to offload risk and pandering politicians and bureaucrats in two branches of the federal government. Those who inhabit the C-suites at Freddie and Fannie are also more than happy to promote this strawman as they circle the wagons around their bonuses.
“The notion of ’Appraiser bias’ is a canard that has been promoted to discredit and ultimately eliminate an important bulwark in the determination of collateral value,” said author Jeremy Bagott. “Appraisers have been buffeted by these claims since about 2018. They seemed to come out of the blue. The claims are based on a criticism no appraiser recognizes.”
Now, under social pressure, some appraisers have begun succumbing to the phenomenon of preference falsification as the thing has become weirdly normalized. It’s right out of Aesop’s Fables.
Sylvia Karasu M.D., a clinical professor of psychiatry at Weill Cornell Medicine in New York, looked at the effects of preference falsification in how patients respond to the standard pain-ranking question asked by physicians.
In a recent article in Psychology Today, Dr. Karasu cites the case of a woman suffering from the excruciating pain of cancer. When asked to provide a number between 1 and 10 to describe her level of pain, she carefully formulates her response each time — does she want to appear “wimpy” or “stoic”? Does she want to obtain more pain medication or keep the higher dose for later when the pain becomes unbearable? Should she rate the pain as less intense this week, as a morale-booster for her physician and to encourage the latter to not give up on her?
Those who study preference falsification as it relates to foreign policy are currently eyeing China and Iran, where widespread protests have recently erupted. Preference falsification has been the norm in these countries for decades. Will it reach critical mass this time? they ask themselves.
Kuran has examined preference falsification in the context of the fall of communism in Eastern Europe in the late 1980s. As it turned out, the countries of Eastern Europe were primed for open revolt, but it was impossible to know this so long as their citizens falsified their preferences. He also faults the phenomenon for sustaining India’s caste system and tamping down healthy debate on affirmative action in the United States.
Since appraisers are increasingly hesitant to speak up about what they know to be true, the thoughts remain impounded in the mind of each individual. An unintended consequence is likely an extreme reluctance to conclude a value that risks souring a transaction.
The Polish-born American psychologist Solomon Asch conducted experiments in the 1950s that demonstrated the tendency of members of a minority to yield to the majority, even when the majority is wrong. He found people were willing to ignore reality and give an incorrect answer in order to conform to the rest of the group.
In an August 2021 report, the U.S. Federal Reserve – an entity least likely to be captured by lobbyists for the banks, nonbank lenders, fintechs, homebuilders and Realtors – looked for signs of racial discrimination in mortgage approvals using new data. It found no signs of discrimination. Disparities in application rejections could be controlled for when socio-economic factors considered. But it did find Black and Hispanic applicants tended to have disproportionately greater loan debt – “leverage” in the report – than white or Asian applicants. There are many open questions associated with this finding, which cannot be properly ventilated so long as industry influencers engage in preference falsification.
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Excellent article!
fantastic article, pointed and well written
“People who live under authoritarian regimes rarely reveal their true feelings. They get used to lying. Parroting the party line becomes second nature in oppressive societies. It’s not a reflection of one’s moral compass but a survival mechanism.”
This one paragraph is worth the price of admission Jeremy. It is a profound truth, one that we are experiencing every day. Think about those involved in one way or another in the appraisal professional…and with that thought in mind I encourage all readers to now take this profound truth and begin applying the names of institutions, organizations, authors, “leaders”, and individuals to whom it applies…it isn’t that difficult to make those identifications. Finally, start identifying who or what groups have created the oppression that makes the statement so profound.
Outstanding article and perfectly insightful into what is happening in Washington with Maxine Waters and Secretary Marcia Fudge among others. They are perpetuating a false narrative that unfortunately is being adopted by all appraisal associations as well as state and federal regulatory agencies because, of course, no one wants to appear to be racist. This is no different than the video example provided. It is nonsensical that appraisers are perceived as racist when Realtors and town/city Assessors are not, given the fact they too render a probable selling price and assessment appraisals respectively. How can that be; the logic is simple, there is no pressure on the NAR due to their shear membership/PAC and the other being another government agency. Also, all the racist examples I have seen to date arise from refinances and not sales. Could it be parties are using racism as a basis for a low appraisal complaint because they are unable to borrower what they want? This in itself can be construed as “undue influence”. As stated in the article the US Federal Reserve finds no bias and, as well, the most recent NAR survey found a nationwide 2% “perceived” bias without description of what the actual bias was. This is truly a witch hunt being perpetuated by people with an agenda. To pick and choose who is going to be attacked they single out the lowly appraiser as has been our history. They know we play no real threat in the voting arena, and they are, in effect, representing special interest groups who want to remove the one true fail-safe to avoid another bank collapse. The accusation of racism is meant to disguise the real reason of greed. Now if someone in Washington would take the time to read this article perhaps it would help to enlighten them to the “smoke and mirrors” being promoted.
I totally agree. Great Article. people are too easily persuaded.
Tell a lie often enough and people believe it’s the truth, just like politics.
Not only that – they believe what they want to believe. The most dangerous things we know are those things we know to be true that aren’t!
I believe appraisers would love to deep dive these “Breaking news” bias stories but even if we did, we too would likely be likely labeled as biased. We will always be at the bottom of the totem pole. We are unfortunately a necessary evil to the lending process and an easy target
I agree, however the way things are going all or most real life appraisers will be replaced by computers. George Orwell was way ahead of his time LOL.
In my opinion, the worst of the worst are the appraisers who know the truth, but in putting profits before principles, have no issue leading others to professional destruction. Follow me as I coach you to success and help you build your business around using AMC’s. Be carful, as some want you to believe they are a boots on the ground appraiser, but in reality they are a W2 employee for an AMC wannabe. Snake oil salesman they are.
Seek the truth.
You should check out the company called RSDS appraisal Diversity. They are pumping out appraisers like crazy and I’m sure they are not doing it to the laws and regulations of each state they are in. Their one trainer is a pompous fool and he boasts of his 13 years of crappy appraisals, on LinkedIn. Another worthless company but they get away with it
Sure, why not.
https://www.linkedin.com/company/rsds?trk=public_profile_topcard-current-company
https://rsdsllc.com/
“The industry is trying to solve the problem with technology solutions, appraisal waivers, and bifurcated products. The RSDS solution is to aggressively hire and train the next generation of professional appraisers and creating high paying careers”
All the income destroying ‘innovations’ like hybrids, in the same sentence as; high paying careers.
Does not compute.
It’s another Joan Trice Collateral Risk Network endeavor, obviously in conjunction with the appraisal management industry. With all the familiar talk that actual appraisers don’t want to hear, and most do not personally promote. Nothing says this is where I want to land, like ‘low fees’, and ‘3 day turn times’. Also clearly following along and profiteering from the ongoing preference falsification. Ummm, no.
https://appraisersforum.com/forums/threads/anyone-heard-of-this-amc-rsds-llc.225133/
Oh, there it is, the fourth party with their hand in the pie. A staffing agency for amc’s. Or is that a fifth party… How times have changed when the appraisers fee, was reserved 100% for the appraiser. Nope, now the appraiser fee funds third and fourth and fifth party order handlers, their electric bills, their janitors, their lawyers, their corporate investors, etc., etc. Amc’s are predatory companies taxing us to death in a private sector. Clearly, taxation without representation as well as usurpation of representative governance. The appraisal industry trade groups should reject this model, instead they sell out to it for personal gain. Where is our vote? The vast majority of licensed appraisers, for who’s left at least, having shed over half of our working populace due to these predatory amc companies, we do not accept the amc industry as legitimate or necessary.
An ‘industry’ that after 20 years, is still unable to define their own service fees, and charge for their services separately. Amc’s are predatory companies whom profiteer and plunder, having destroyed and abolished the careers of quite literally 140,000 or more appraisers whom are no longer licensed, being responsible for the absence of nearly all new trainees, which could represent another 100,000 appraisers whom simply never materialized. The appraisal management company model is the root cause why there is lack of servicing, yet in their typical predatory fashion, would sell themselves as the solution, despite being the cause of nearly all the appraisal industries current shortcomings.
I suppose, drone on some more about how improperly co mingled fees are the root cause for this nonsense and monopolization of corporate interests whom run the entire show around exploiting 1099 independent appraisers. We have no representation. TAF is derelict in it’s duties, for failing to demand separated fees for separate services. This amc loophole needs to end, their billing model is criminal and would clearly be felonious activity if a similar model would be applied by any other participating entity within the mortgage lending stream, appropriately defined by FHA as ‘unearned fee raking’, or via mortgage lending as junk fee billing. Deceptive billing. Deceptive consumer disclosures. Deceptive practices. And now the amc industry is moving into exploiting minorities under the guise of diversity hires.
https://rsdsllc.com/contactus/
Observe that for states listed without physical addresses, there is a common phone number reused. This number leads back to an appraisal firm.
Researching this group is difficult, with various other search efforts, just non stop amc industry references and the appraisers whom work with them. But yeah, it’s easy to see how this could be a work around or another amc industry loop hole for appraisers to bypass the 3 trainee limit or somehow be re instituting the proverbial appraiser puppy mill. Joy and pain, nice dig.
In the course of research I also identified a website called docplayer.net. Fascinating, all those slideshows and docs companies furnished, often only internally, unbeknownst to them were scraped by autobots similar to how the wayback machine works, still available. Sort of unrelated and off topic but quite interesting to review, the correlations, the historical, and it’s all auto extracted somehow to pure text. The site is intentionally difficult to navigate but going to keep looking later, see if I can find a secret do not use list or something, ha. Life in the cloud, not quite as secure as people presume. It’s like a non profit pirate bay for cloud based business presentations, or, er, something like that. As Spock would say; Fascinating.
https://docplayer.net/13828649-New-laws-affecting-appraisal-management-companies-fnc-briefing-june-2-2009-updated-december-2009.html
https://docplayer.net/227119832-11-16-2021-desktop-appraisals-course-objectives-participants-introduction-polling-question.html
A well written article that affirms that the article in and of itself should never had even been written. The principle of substitution knows no color – it is what it is – always has been. All of these accusations on the news, and in documentaries on you tube etc all presume that the higher valuation is the correct appraisal – we have not seen any real reports or legitimate reviews of any of these reports. The process is in place for a reason, and has been successful because it works.
The appraisal profession is probably the most regulated area in lending, if its full of racism and bias why aren’t they looking at the regulators and those who write the regulations? The lender denies the loans, why aren’t they looking at the lenders for bias/racist practices? after all the Feds and Banks came up with Redlining. The only bank that got into any trouble due to the 2008-09 housing crash was Abacus Federal . . . an ethnic lender . . . coincidence? The big banks and federal government have killed the regional banks, I guess that’s the appraiser’s fault too.
Presentation means a lot. This is a small sample of a bunch of lies. The qualifications, the presentation is addressed to US to interpret or to Ignore.
Sometimes there is Ignorance is truth.
We are bound to verify data, not BS
I think it’s obvious at this point; a special interest group take over of the valuation services industry. Several different competing special interests, point in fact. Apologizing and pandering to the false accusations only accelerates the demise.
Book intro; A common effect of preference falsification is the preservation of widely disliked structures. Another is the conferment of an aura of stability on structures vulnerable to sudden collapse. When the support of a policy, tradition, or regime is largely contrived, a minor event may activate a bandwagon that generates massive yet unanticipated change.
In distorting public opinion, preference falsification also corrupts public discourse and, hence, human knowledge. So structures held in place by preference falsification may, if the condition lasts long enough, achieve increasingly genuine acceptance. The book demonstrates how human knowledge and social structures co-evolve in complex and imperfectly predictable ways, without any guarantee of social efficiency.
Mr Bagott continues to impress. We’re in the middle of multiple mass formation psychosis events perpetrated on a generally ignorant public, all coalescing at once. Welcome to globalism.
Ain’t there a law against lying? Isn’t Foreclosure, loss of capital & reputation a deterrent.
Aren’t appraisals the only protection capitalists have in this litigious society. If Laws can’t protect us, then we will have to insure, and then they can decline insurance. What a circuitous route
As amazing as it may sound, appraisers are actually being exposed to only a ‘light version’ of this sort of ongoing critical race theory. Hear what they’re saying in colleges, within counseling offices, cycles of peer pressure with unyielding bias.
Jeremy great Article Thank you. Preference falsification is the act of misrepresenting a preference under perceived public pressure. It involves the selection of a publicly expressed preference that differs from the underlying privately held preference (or simply, a public preference at odds with one’s private preference
OK, I found a good read For those who in college did not take Pysch 101
https://digitalcommons.carleton.edu/cgi/viewcontent.cgi?article=1011&context=econ_repec