Promoting False “Racist Appraiser” Narrative

Mary Cummins

Promoting the False Racist Appraiser Narrative. Some Lenders promoting false “racist appraiser” narrative to optimize profits via AVMs

Like most businesses lenders want to optimize their profits. One way to make more money besides charging more is to pay less in costs and fees. One way for the lender to do that is to pay the appraiser less or just get rid of them and use a free or very inexpensive Automated Valuation Method (AVM).

I personally don’t care if a lender or borrower wants to use an AVM. There is enough business out there for appraisers because not all appraisals are for loans and not all government insured loans allow AVMs. They generally don’t allow them in higher risk situations such as high loan to value (LTV) ratio, cash out, lower credit score …

My only issue with the use of AVMs instead of a full inspection appraisal has to do with the borrower. The borrower could get a lower value, resulting smaller loan and pay more for that loan due to higher LTV ratio i.e. risk, if the property is better than average for the neighborhood. AVMs are biased against properties that are anything other than average in every respect.

AVMs assume average condition, location, view, quality…  (Ref 1). If you’re buying a better than average home for the area, higher quality, fully remodeled, in a better location in the neighborhood with a great view, the value will come in lower than true market value with an AVM. If you’re buying a home priced less than most in the area in fair condition with no view or upgrades, an AVM will give you a higher value and a higher loan amount. You could end up upside down with no equity if you accept a higher loan.

My issue is with lenders and others who are using and promoting the false “racist white appraiser” narrative to market themselves and AVMs as less biased just to increase their profits. They are glomming onto misleading data and false media articles to use for their marketing purposes at the expense of the borrower and the reputation of appraisers. Yes, racist appraisers exist but not all valuations are based on racism and bias. Below are some quotes used by lenders and others to promote this false narrative.

House Canary. “HouseCanary hopes its tech can help solve appraisal bias.”

https://www.housingwire.com/articles/housecanary-hopes-its-tech-can-help-solve-appraisal-bias-can-it/

Their true agenda shines through in the article, “While a typical appraisal could cost $400 to $500 and take several weeks, HouseCanary says it can perform a “condition-informed evaluation” within one to four days, for $100.” Who cares if it costs the lender less. The lender doesn’t pass on these savings to the borrower. The lender will charge any fee they think they can get. I’ve had borrowers contact me and ask why their appraisal was $1,100. I only got paid $350. They also asked about the $300 charge for a review appraisal. There was no review appraisal. I’ve bought and sold properties. I’ve found plenty of junk fees that would have gone to the lender. Even if a lender tells you there are no points, appraisal fees, you are paying it in the rate. Nothing is free except maybe the AVM at least for the lender.

An inaccuracy in the article, “There’s nothing about an appraiser that’s better than someone you’ve literally trained (to inspect, measure, take photos of a home) for a few days.”

Appraisers bring years of experience to the table. I’ve appraised over 20,000 properties and have taken over 1,350 hours of education. We can see major defects and other things which would negatively affect value. Someone with only a few days of training will miss a cracked foundation, water damage in the basement or attic, uneven floors, tilting walls, mold, unpermitted addition, additions not done to code, additions that don’t meet basic health and safety code for the city, county, state; missing safety features, area which is not ANSI legal gross living area GLA, evidence of a meth house, manufactured house verses stick built, effect of nearby power station, industrial properties, within 500 feet of a freeway, flight path, a skim coated floor to cover uneven floors, evidence of asbestos… A licensed appraiser would probably call for inspection by a licensed expert for major issues if they saw it. This could save a buyer hundreds of thousands of dollars down the line if they read a full inspection appraisal report. There’s no inspection report to read in an AVM. If you had a hybrid appraisal with a non-appraiser inspecting it, you don’t get an inspection report that could tell you more about the true condition. The appraiser hasn’t seen the property, comparables or exact neighborhood in a hybrid appraisal.

Appraisers can also see items which add to value such as degree of view (180 degree ocean view, peek-a-boo canyon/tree view, view of the side of an apartment building), specific location in a tract development (on a hill, cul-de-sac, busy corner, near industrial), quality of construction, specific types of very good materials…

A typical appraisal generally doesn’t take several weeks unless you’re in some rural areas. This is another misnomer used to argue for cheaper AVMs. An AVM would still be faster unless you ordered a rush appraisal to be completed in 24-48 hours. A hybrid appraisal takes the same amount of time as a full appraisal. A wait of a few days for a full appraisal would be worth it to the buyer, borrower.

BetterMortgage. Better Mortgage uses race to sell loans and promote themselves as “diverse.” “Several studies have shown that people tend to subconsciously associate with their own race more positively, and 96.5% of all real estate appraisers are white. Between 2015 and 2020, appraisal gaps came up at a rate of 15.4% for Latino-majority neighborhoods, and 12.5% in areas with a majority of Black homeowners.

If an appraiser’s evaluation feels off, don’t be afraid to get a second appraisal. It also helps to work with companies that are committed to diversifying their team. Starting next month, Better will be hiring and training a pipeline of 120 in-house appraisers who are representative of the communities they serve.”

The numbers above came from a Freddie Mac study that compared appraisals and the contract price. In some areas the appraisal values were lower than Freddie Mac’s own AVMs and contracts and in other areas they were higher. The Freddie Mac study stated they don’t know the cause of the differences. “First, our analysis has not yet determined the full root cause of the gap.” Danny Wiley of Freddie Mac stated “We have not reached any conclusion for cause of the gaps or correlation.” The gap could have many causes such as revitalizing areas and condition. AVMs assume average condition, average everything. Perhaps the homes appraised by appraisers over AVM values were in better condition than average, better than average location, better than average view, upgrades…

BetterMortgage never hired or trained those diverse appraisers. They instead soon after the press release fired 900 people then 3,000 more. It was all talk to drum up business and investors.

https://better.com/content/what-you-should-know-about-home-appraisals/

Urban League. Urban League is not a lender but they have been promoting the same false narratives and the misleading paper because it supports their beliefs. Racism and bias exist but not all appraisers, appraisals are biased. “AVMs could correct for racial bias from appraisers evaluating homes and the conditions in majority-Black neighborhoods.” “Automated valuation models, or AVMs, hold great promise for reducing the costs of and increasing the accuracy of home valuations. They allow financial institutions to estimate a home’s value with a reduced role for human opinion. By limiting the human element, estimating a home’s value should become less expensive and more accurate.” “Many housing experts believed that widespread appraisal bias contributed to the housing crisis. In-person appraisals are susceptible to charges of racial discrimination and human bias.”

Appraisal bias had nothing to do with the great recession. The great recession had to do with deregulation and a market bubble. Lenders offered no doc high risk loans to anyone and everyone. Some had low teaser rates which adjusted to high mortgage payments which people could not afford. After the bubble burst, values dumped and people let their homes go back to the bank. Appraisers get blamed for every financial crisis from the S&L crisis, great recession and now appraisal gaps. These issues have never been the fault of the appraiser. Appraisers don’t make values. We merely report them as the messenger.  We are just the usual scapegoat.

https://www.urban.org/sites/default/files/publication/103429/how-automated-valuation-models-can-disproportionately-affect-majority-black-neighborhoods_1.pdf

…the alleged research upon which the “racist appraiser” narrative is based is just a personal paper written by Andre Perry.One important issue here is the alleged research upon which the “racist appraiser” narrative is based. It’s just a personal paper written by Andre Perry. It was not published or peer reviewed independent research. The false summary of this paper is that most black owned homes are “appraised” for less than white owned homes by an average of $46,000 each. Appraisers and appraisals have allegedly “devalued,” “stolen money” from black homeowners which is totally false.

This data was based on AVMs and not valuations by appraisers. There were no appraisers involved in the research yet people are stating this proves appraisers are racist. On top of this the data came from failed inaccurate Zillow. Everyone knows the “a” in “Zillow” stands for accuracy. Zillow is probably the least accurate AVM out there. The data actually just shows that people with less money buy and own homes which cost and are worth less than people with more money. They buy what they can afford. They never adjusted for home location or income, net worth of homeowner in the data. Research has shown that whites make and have more money than black people, POC. Income equality is the real issue which must be solved not appraisers and home valuations. Whites also buy more expensive cars. Did appraisers and Kelly Blue Book‘s online AVM “steal” money from cars owned by POC? No. They buy less expensive cars to begin with.

Today’s political climate has clearly changed. “The country is in a time of racial reckoning, heightened by a summer of protests against systemic racism and police brutality following the death of George Floyd in police custody.” Floyd’s death “sparked the largest racial justice protests in the United States since the Civil Rights Movement.” “According to data from various sources, the Black Lives Matter movement is now the largest movement in US history.” While racism exists and must be banished from our nation the pendulum has now swung to the extreme side. In this new light anything and everything is automatically “racist” today before even looking at the facts. Some have even been weaponizing race and other issues for their own agenda.

The other misleading information about alleged “racist appraisers” comes from false media articles. One major one which finally made it to the courts is Austin v Miller. In this widely publicized media article and lawsuit the Plaintiffs argue that using similar homes which have sold in the same neighborhood as their home to value their home is “racist” and “biased.” Austins wanted the appraiser to use comps “in the whiter areas” over a mile away instead of the “black area.” These are exact quotes from the lawsuit linked above. Per law and the appraisal itself values are based on similar sales in the same neighborhood. The appraiser was not biased.

Here are a couple of other false and misleading case, Carlette Duffy in Indianapolis, Indiana and Cora Robinson in Oakland, California. Based on my research the second appraisals were incorrect and higher than market value. They used comps from superior areas much farther away from the subject.

Every appraisal value you don’t like is not the result of a racist appraiser intentionally low balling you because of your race, color, ethnicity…Every appraisal value you don’t like is not the result of a racist appraiser intentionally low balling you because of your race, color, ethnicity… Full inspection appraisals are not inherently racist or biased. AVMs are not racist but they are biased against any home other than an average home. Median and average home sold prices are built into the AVM formula, the algorithm.

Racism is very real. Some people are absolutely racist and express that in their behavior. We all must fight racism. Wasting time on a non-racist issues takes away from real issues of racism and bias. Using the false “racist biased appraiser” narrative to promote AVMs, hybrids to make money at the expense of other people is wrong.

I read the below article published the day after I wrote this article. People are noticing the anti-appraiser agenda. Jeremy Bagott, Certified General Real Estate Appraiser at Bender Rosenthal Inc., former newspaper man.

https://appraisersblogs.com/anti-appraiser-agenda-follow-the-money

References

Ref 1 Corelogic, “AVMs assume all properties are in similar average market value. condition. They cannot adjust values down for disrepair or damage. Similarly, they cannot adjust values up for good upkeep or cosmetic upgrades, such as new carpet or paint. The AVM has no knowledge of the condition of a particular property.”

https://www.corelogic.com/wp-content/uploads/sites/4/downloadable-docs/about-automated-valuation-models.pdf

Mary Cummins

Mary Cummins

Mary is a certified residential appraiser and has been in real estate since 1983. She is licensed by the California Office of Real Estate Appraisers. She was an agent and broker licensed with the California Department of Real Estate selling residential income, commercial buildings, raw land and homes for Merrill Lynch Realty in Beverly Hills and Westside Properties in Los Angeles before concentrating on appraisals.

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8 Responses

  1. Avatar CJK says:

    In my market we have a very good Public Record system. However, some of the information is dated. If the property has a new addition without a permit the assessor would not know. If the basement was finished without a permit or if major updating was completed the assessor would not know. So, the AVM’s are using incorrect information. Does the AVM know if the subject is located next to an adult book store, or if the subject in within a flood area, or if the subject was built over old abounded coal mines?

    If a person insists that the property is worth $400,000 because his brother in another city sold his property for that much, but the AVM comes in at $340,000, would the AVM be considered racists? Would the 22 year old who is not licenses, not insured nor regulated by the state with a criminal background check, but is generating the AVM be considered the racists? Or would it be the owner of the company? Who would the racists be with no appraiser to complain about.

    If the AVMs are using dated information from the Public Record, is this not a case of “bad information in, bad information out”. I have had a few satiations when the client wanted me to consider some “comps” just to find out that the “comps” were nothing more than higher end sales (they were just looking for a higher #) that looked nothing like the subject. They cannot seem to comprehend that a ranch on a slab is not comparable to a two story with a finished basement. It is becoming more and more difficult for me to work with people who have no idea what the hell they are taking about (I just tolerate these buffoons) all they want to do is close loans and get the check. 3 more years and I am done with all of this the nonsense. If the market crashes again who will the new scape goat be?

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  2. Avatar koma says:

    Hey, How come no one (public/government) is discussing what happened to Zillow’s iBuying program? Did that not run off of their AVM system? What did they pay too much for a house (7,000) and went to flip it and lost money….SHOCKING….not!

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    • Avatar CJK says:

      Because it would expose the bogus narrative that they are trying to advance. I find it very interesting that it is the appraisers who can see this for what it is. It could be because of our years of experience and training. That is why they want to get rid of us. If they can remove the safeguard, they will be able to run wild. In the end it is the taxpayers who will pay for it. No one really cares anymore.

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  3. Kimberly Pugh DeFilippis on Facebook Kimberly Pugh DeFilippis on Facebook says:

    Excellent article rebutting appraiser racism

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  4. Avatar Pat Turner says:

    Thanks for the in-depth review of this false narrative

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  5. Avatar Eric Kennedy says:

    Agreed!! And the Fed will be the cause of the coming cliff dive. Housing prices are exploding due to the Fed keeping rates at historic lows for far too long and then being 2 years too late to start raising them has set us up again on the edge of a monsterous cliff. I’m not sure we will survive the next fall, if we do it’s going to hurt worse than 2008. But that’s just my opinion, I could be wrong.

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  6. Avatar JDGarth says:

    WHY do these NOT get publicized in “ANY” Main News Streams?
    Thanks for your time.

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  7. Baggins Baggins says:

    Updated FNMA information claims that separating the appraiser from the inspection will relieve unconscious bias. Also, undervaluation in a sales situation is good, but not providing enough value in a refinance transaction is bad. They’ll be checking your results against avm conclusions to measure your competency. However, they have never to date demanded any analytical or modeling data from avm providers to see if there may be racial components in their analysis methods. They don’t have jurisdiction over avm’s which are presumed highly reliable so a perceived bias must be attributable to an appraiser. If ANSI causes material misrepresentation in relation to comparables, appraisers shall not let this influence value, but likewise can not use the exception code for these scenarios. Clown world.

    https://www.fanniemae.com/media/42541/display

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Promoting False “Racist Appraiser” Narrative

by Mary Cummins time to read: 9 min
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