The Other Side, Racism in Appraisals
…the other side of things, the appraiser profession side since no other news media and organizations are willing to do so…
Note: The following blog article is not to defend anyone or to place blame. It is simply a blog looking at this issue from the other side of things, the side that hasn’t been discussed in the media.
A couple weeks ago, I was privileged to speak on The National Real Estate Post about appraisal issues. One of the issues we discussed briefly was the ever-growing number of articles being written about allegations of racial discrimination in the appraisal profession. We have seen numerous claims being made in different parts of the country where a homeowner or borrower has claimed that an appraiser has deliberately engaged in undervaluing a home for a refinance or purchase, with the most recent one involving a woman of color in Indianapolis, Indiana.
Let me first state this. I am in no way advocating for anyone here. I am not saying that this didn’t happen in any of these instances. I am not trying to prove anyone wrong here. Suppose indeed any real estate appraiser conducted themselves in a manner that involved discrimination or racism. In that case, I support any efforts to have them removed from the profession I love and advocate so much for and personally apologize to the parties involved for these acts.
This blog attempts to put out information on the other side of this, the appraiser profession side since no other news media and organizations are willing to do so.
Let me start with what an appraisal is. As defined by the Uniform Standards Of Professional Appraisal Practice, or USPAP, an appraisal is the act or process of developing an OPINION of value. The opinion of value comes from gathering facts and information about the home such as its size, condition, style, location or neighborhood, and lot size, to name a few, and then compare that to other homes that have sold within the same area that have the most similar attributes as the subject property. To develop that opinion of value, the appraiser then compares all the features and by using methods such as paired sales, regression, cost guides, and more then make monetary adjustments for differences.
Appraisers are bound by many rules and regulations within the profession. The most important one being the Uniform Standards Of Professional Appraiser Practice or USPAP. Within USPAP, there is a section called the ETHICS RULE. The Ethics Rule States:
An appraiser must not agree to perform an assignment with bias or advocate the cause or interest of any party or issue. In addition, this rule states “must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value”.
On top of that appraiser must sign a certification within all reports that states,
“I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.”
To take it a step further, when appraisers are performing work for lenders or mortgage transactions, Fannie Mae states that appraisers must be prohibited from practices that include, among others; “actions that may have a discriminatory effect or may affect the use and value of the property; or basing the analysis or opinion of market value (either partially or completely) on race, color, religion, sex, handicap, familial status, or national origin, of either the prospective owners or occupants of the property being appraised or the present owners or occupants of the properties in the vicinity of that property.”
So what does this all mean? Well, it means that any appraiser found in violation of any of these practices can and most likely will lose their license, be fined, and ultimately lose their livelihood and career that they have put countless hours of training and more into.
Now that I have discussed this let’s dive into the other side of all this.
In all of these cases, we had a borrower have an appraisal done below what they thought their home was worth in the market. Each time the borrower went back to their lender to get a second appraisal done, that appraisal came in at close or above the value, they thought their home was worth. In the most recent case, the borrower had three appraisals done, two that were very similar in value ($125K and $110K) and a third one that was way above the previous two ($259K). In this claim and some others, the complaints stated that the higher values resulted from the borrower either taking down pictures etc., or having a white friend stand in for them, thus resulting in the claims that the lower previous appraisals were based on racism discrimination.
So what’s the other side of this, you ask? It seems pretty cut and dry, right?
Here is what we don’t know and what’s not being reported in the news. First off, no one has been entitled to see the appraisals that were done in any of these cases. No one has had an opportunity to take a look at or gather any information on them. The reports need to be analyzed by qualified and experienced people to determine the reports’ quality and analytical aspects to determine if any issues exist. Here are just some of the things that need to be examined within all reports:
- The appraiser’s knowledge of the Market area or geographical competency
- Who hired the appraiser, and did they hire the most experienced appraiser or just hire the cheapest appraiser. Was this an AMC (Appraiser Management Company or Direct Lender)
- What products were used. Meaning were any of these done by an AVM (Automated Valuation Model) or a Bifuricated appraisal where an unlicensed inspector gathers data and sends to the appraiser to complete the report.
- Was a proper analysis of the market area and neighborhood done?
- Were proper comparable sales selected from the subject’s market area or neighborhood area. Comparable selection is of utmost importance within an appraisal report.
- Was there any Undue influence put on any of the appraisers, or was there a violation of appraiser independence
- What if any involvement did the lenders have in having a second or third appraisal result in a much higher value ( I state this because we do not know if the lender may have supplied an appraiser with information that, well they absolutely shouldn’t have)
- What was the dialogue between the lender and the borrower once a complaint was made.
- What were the sources of the data the appraisers used ( We are only as good as the data services and data supplied by realtors, tax assessors etc. and if the data is baked with poor information, than the results can be wrong as well)
- What were the factors that had the borrower determine their value estimate (Zillow, Redfin, a private appraisal, realtor or something else). These online estimates often use inferior data and are not accurate themselves.
Again, If this is an act of Racism or discrimination, then it’s not to be taken lightly; however, until all information is presented properly, the allegations against others are just that. I would hope that the experts in the profession and other organizations would be willing to contribute their time to bring resolution to this issue. The last allegation named appraisers, their businesses as well as lenders, who without an actual deep dive into their work and reports are now in peril to the public court of opinion. I am all for creating solutions to the issues at hand. I am all for doing the right thing for everyone. I am all for being a human being. However, if people continue to put out insufficient information, don’t understand the laws and regulations, and don’t understand how an appraisal is developed, how can fundamental changes be made? Many cite the Andre Perry study, however his data is flawed based upon using Zillow and the tax assessors appraiser (the tax assessor uses an entirely different method to value real estate) as his main points of reference as well as his inexperience, his lack of knowledge as an appraiser and no appraiser education at all.
So what is the solution? How does this narrative change? I’m not sure. In my opinion it needs to start at the very top, the very beginning and from the results of past poor decision making. What I do know is this. Allegations are being made, and they are becoming more common. Investigations from HUD and others are happening; however, not one thing has been done to this day. Isn’t it time to gather all the information and determine what is happening? The blame these days is on the appraiser, however appraisers didn’t create the past data. Appraisers didn’t create the long past issues of redlining. Appraisers are just reporting and examine the data they have in front of them from the past and present to develop their opinion of value. The issues that remain today are a result of past injustices that are baked into the very data we appraisers, Realtors, and yes AVMS (Automated Valuation Models) use everyday.
- Look in the Mirror - February 27, 2023
- AMCs Take a Sizable Cut of the Appraisal Fee - October 5, 2022
- Proposed Rule to Eliminate C&R Fee Tabled - July 21, 2022
Thank you!
Well said Mark! Thank you for being vocal about this issue.
Under the current system the majority or appraisals are originated by way of the larger lending institutions through 3rd party Appraisal Management Companies (AMC’s). The model focuses on finding the “fastest and cheapest appraiser” via blast emails instructing the appraiser to submit their best “fee and turn time”. This practice totally ignores the appraiser’s geographical competence, market knowledge, and industry experience beyond simply being certified in the state in which the subject property is located. AMC’s are incentivized to find the cheapest appraiser as their fee is typically the difference between what the consumer pays and what they pay the appraiser. It is also common practice for lenders to have their own multi-page engagement letter outlining what the appraiser can and cannot do in their supposed “unbiased and independent” appraisal. Furthermore, CU and other Automated Valuation Management (AVM) systems actually influence and encourage appraisers and underwriters to conform to the bounds of data models which have been proven to be flawed. In short, the engagement system and push to data modeling is flawed. In my opinion, (1) Consumers should once again have the ability to interview and engage the appraiser of their choice; (2) Standard engagement letters should be based on the development and reporting standards currently outlined in the Uniform Standards of Professional Appraisal Practice (USPAP); (3) We should encourage banks to manage their own appraisal work flow with staff appraisers as opposed to the current plausible deniability found in pushing the liability off on 3rd party AMC’s; (4) Appraisal reviews by local certified appraisers should also be used with greater frequency.
Thank you! Now if we could only get these appraisals reviewed by seasoned appraisers.
Great points New Era, but managing ones own appraisal panel is not a substitute for intelligence. Just this week, I had a VP of Real Estate contact me directly asking about why my adjustments didn’t match those that were reflected within the collateral underwriter (he sent me a copy!). Does it matter that we are prohibited from seeing a copy or displays of the CU findings, that lenders are prohibited from, making demands of, or providing instruction to appraisers based solely on the CU automated output, or using CU to interfere with the independent judgement of the appraiser, etc., of course not. Even after providing him will this knowledge (Did he not know, scary, or knew but didn’t care, scarier), he still pushed for an explanation about why the single line adjustment for GLA was not equal to the sales price per sf.
When VP’s of real estate / upper management don’t know the basics of appraising a property, what hope do we have when the borrower calls to complain about the appraiser (racist)? Do you think upper management would squash the complaint by explaining to the borrower the do’s and don’ts and the guidelines of the appraisal? Of course not, under the bus the appraiser goes.
Seek the truth.
All great comments!!
Keep it up for the truth will come out sooner or later.
Where did the uproar go regarding redlining by lenders?
Where did the “steering and redlining go regarding Realtors?
Well said!!!…Good article!!!
I just saw this…..I tried to find a link….It would be interesting to see what are the thoughts from another attorney…..
[Racial bias/discrimination in appraising; a legal viewpoint
The issue of racial bias and discrimination in the appraisal profession continues to strike a nerve amongst those in the business. Valuation Review, which has addressed this topic before, now gives a different viewpoint as seen through the eyes of an attorney. We spoke with Franklin, Greenswag, Channon & Capilla, LLC attorney Craig Capilla for his thoughts.]
Here is a link to article mentioned by Julio E Sune – however you must be a paid subscriber to see it.
https://www.valuationreview.com/VR/ArticlesVR/Racial-biasdiscrimination-in-appraising-a-legal-vi-82439.aspx
Thank you Mark Skapinetz for defending our Profession!
While no appraiser is saying racism does not exist, and no one is saying these cases aren’t real…Everyone is perplexed that there has been no official Appraisal Board complaint filed, nor have any details of these conflicting reports been revealed. How can we sincerely address this issue without those things happening?
And in the meantime, the narrative is spreading across the internet with no signs of stopping. Until we can establish independently that these appraisals were deliberately biased, and hold the individual appraisers accountable, this effort is doing nothing productive.
The public needs to be informed and be aware that there are those that will use anything they can to remove the independent Professional Appraiser from the lending equation and that these efforts have been in the works for years…way before this recent issue arose. Those people consider the Appraiser to be a hindrance to their ability to continue their predatory lending practices that take advantage of borrowers, especially first time borrowers.
Can we say “Countrywide”?
People have been on about appraisers not giving them what they personally think their home should be worth for a long time. It’s nothing new. Appraisers only analyze local data at hand. Who said the higher number was always the better number, certainly not the buyer.
Why haven’t these reports been sent to the state boards?
Well said – thank you!
While no one is trying to say that these claims are not real, (we don’t actually know yet because no independent reviews have been made), the beauty of promoting this narrative is that no one will step up and speak out against it for fear of being labeled a racist. So there will be no open honest discussion offering any genuine constructive ideas.
With all that appraisers have been through over the previous 15 years, this will be what the AMCs lobby to use to remove Appraisers from the process and put the FOX completely in charge of the HEN HOUSE.
Be careful what you wish for…once the Professional Appraiser is out, there will be NO ONE to protect the public trust.
I would have no idea how to perform a racially biased appraisal. Comps from the same well defined neighborhood eliminate any bias or racism.
I am an investigator and do not agree with this blog today. My main disagreement is central to appraisers opine; opinions are rife with bias. If you have ever had a value reduced, been put into QC, or been placed on an Exclusionary List – you were put there by a colleague who was biased against your opinion. I think where the discussion is fruitful is at the point of specific guidelines or to identify the various individuals who would/could have a differing opinion than the appraiser. Bias and discrimination are “blind study” types of situations because of Equal Housing; you either comply with EH or you don’t. To say, I wasn’t paid enough, the Realtor gave me crappy comps, or the AMC wants it back in 48 hours are not explanations as to why your work product smells like discrimination, they are cause to say you discriminated because you perceived some obstacle that prevented you from doing your job; except you are a professional and those issues don’t matter under EH. What is proposed in this blog is very shortsighted and speaks in terms of “prove it”, but that isn’t necessary when the entire job is to opine. Opining is bias! A Pattern & Practice, Willful Blindness, and other egregious acts don’t require the perpetrator to know anything about the victim; all that matters is that work product violates the law/regulation, then the practice is deemed “discriminatory” by the law because it discriminates against somebody down the line. Today’s blog misses the point of discrimination completely and attempts to lay groundwork to “not argue” about whether it exists or not in the daily lives of appraisers, but sidesteps the very essence of the issue. Appraisers play the role of the “hench(wo)men” in the industry; appraisers are not employees of the lender and therefore are the target of blame when the lender crosses the line, but that is not what is in today’s blog. Bias exists at the point of opining, it becomes a toxic cocktail the second somebody questions the appraiser, or another appraiser comes on scene. I just had a case in my office where the lender threatened “exclusion” on a national basis, that is a lot of mutual clients for my client, so, why argue about your opinion of value when the lender’s guidelines caused the cloud. Who knew the cloud would be created? The lender did. Why would they do that? Because they don’t have a full appetite to fund home loans, particularly any home with a unique attribute, as their charters require them to comply with EH, so they hide behind biased guidelines directing and laying blame on the person who doesn’t work for them – the appraiser. They do this so when the regulators come calling, they can tell them: here is what happened, we were so confused, but we terminated that appraiser because they did terrible work, look at all these appraisers that agree with us. There you have the reason for Joe Biden saying what he said. Appraisers did it to themselves by taking work on the cheap and accepting regulations that do not promulgate ending this appraisal bias “key stone cop” routine on every appraisal. Instead of blogging here, you should be creating letters to paper the ASB and NAR to remedy the problem for you! They are your “Agency” and, for good reason you have no faith in them because they rewrite USPAP now-and-again while not doing anything to improve the work environment for the appraiser, so relying on them is difficult. I applaud appraisers for their work and feel their pain because they have no representation, not to mention when times get tough, appraisers get blamed regardless that the FDIC, OTS, OCC, State Consumer Finance Agencies, State Real Estate Departments, FNMA, FHLMC, HUD, the SEC, etc regulated their way into the last real estate meltdown and blamed who? You! If the ASB created a solution, you would have to read the EH laws and sign off you knew about it; get wise, take on the lender and discover exactly what they did and how to respond as to combat EH violations in real time. I told my last client, you can curl up in a ball, or you can fight back – they fought back and when the lender learned of how many regulatory agencies would be notified, dealing with local law enforcement for elder abuse, appraisal boards in two states, and a State Bar complaint were enough to say “we’re good”. Now my client just declines the work from the lender when an AMC sends it over and the point is made loud and clear – my client cut the lender off. Yes we still filed the regulatory complaints, but that is because my client got an advocate – which appraisers desperately need. In the words of my credit mentor from 1990, when there is an mortgage application, “All Rise” is the phrase – Equal Housing is on the stand. Respect it or get out of the industry. So ask yourself how you can work together to end this negative perception of appraisers, not tip toe around it! All the best!
You honestly make some valid points, but the way in which you communicate your message just rubs me the wrong way.
Glad some of that made sense … Sorry if my words are flat and static, there is a real person behind those comments who works in your industry everyday. I am an investigator speaking and not an active appraiser. So keeping that in mind, understand my opinion (bias) is coming from the victim’s perspective and that shouldn’t be comfortable for anyone. I believe appraisers should take steps to protect themselves and not let an industry make it easier to scapegoat them.
Im interested in your perspective.
However my eyes couldn’t take your format any longer.
There is a huge difference between personal bias or preferences, and bias that is racism.
PS- paragraphs! Or at least periodic line spacing. This isnt a cheap shot. I really wanted to read what you posted.
LOL … I put in paragraphs, but when I copied them in, it just all ran together! Sorry about that.
There are huge differences while we speak, but take an appraisal into court and that is no longer true because there is only one discussion and that revolves around Equal Housing; USPAP isn’t debatable in court because it isn’t law or regulation. So all the variations of bias have one thing in common – bias.
When any of those biases are detected they can have merit behind them, for instance documented by “paired analysis” or “bracketing” seems benign, but when another appraiser comes to the same discussion and used different sales to make that assessment, what exactly happens to bias? It explodes like a toxic cocktail of opinions. Now lenders can say they are confused because the appraisers are not coming to a simple, one value answer.
The next move in the process is to decide which value to use, or maybe to decline the loan all together. The feuding of opinions is therefore a weapon of “get me out of this loan” used by the lender. This is why appraisers are perceived this way. Lenders blame you. Realtors blame you. Borrowers blame you. But all you were trying to do was the right thing, and so was the second appraiser, but the lender, they knew the secondary market could make this same argument and don’t want to repurchase the loan and argue for a third party (appraiser); so they declined the loan and said “inadequate collateral”.
The only way to remedy this is to get a mouthpiece and start running on it! How did lenders get away with 2008 and not a single arrest? They blamed you and the appraisers response is locked in history on the ASB/NAR websites … scary to think about it, but they stood silent and there are no comments from them protecting appraisers.
It is 13 years later and the President of the United States is saying what the industry said in 2008 – it was the appraiser!
In my world, it is the guideline and then the responsiveness to it by the lender. In my last case, a guideline was assigned to values, values are irrelevant and in one MSA could be the highest sale and in another MSA be the lowest sale. That is why guidelines are the problem and not appraisers. Lenders are smart enough to put in guidelines where “known risks occur” so they get kicked out of the underwriting process and “reviewed”. Then the lender can say “decline” if they want to.
I hope this is helpful to the appraisers because I came here to help, not be a jerk. My opinion comes from years of working with FinCEN, HUD, DOJ, Secret Service and regulatory agencies and always reminding them “we aren’t here to look at the lender as much as we are here to advocate for the victims”. Banks are victims too …
All the best!
Well you know what they say, pick your clients carefully. They can manage both manual underwriting and default dispositions quite differently. “From the shoes of a buyer, and a seller at the same time.” Principal of substitution, the only non advocate involved, all of that.
The language is being steered. Discerning values through informed judgment calls is not an implicit unavoidable bias, but rather is an action of well informed market measurements using sound logic, which is acquired by having thorough understanding of what drives market participants decisions. Be it the material quality, effective age, surrounding economic and demographic factors, location and amenity. Thankfully for residential appraisers we only review local examples so extrapolating basic measurements from market data is usually simple and non-complex.
If the argument is home values differentials from distant locations, that is guided by the local market participants navigation of the economic and location considerations, which fall under economy and governance, someone elses department. One tends to lean towards quick analysis such as crime and income comparisons for simple explanations of disparity, but city management, taxes, and the over all balance of area amenity are also measurable driving forces.
Appraisers just measure and report the activity which is existing and ongoing in a specific location. The outsiders can call measured market disparities racism if they want, but that does not mean it’s true. Even if it were true, the appraiser did not create that difference, but merely applied a measurement to market data, to form a specific and well informed home value conclusion. The accusation is however helpful in furthering expansion of taxpayer funded private partnership engagements in the mortgage sector. We can see the dollar signs lighting up in their eyes from way over here.
Been there-done that re paragraphs. I really appreciate your taking the time to revise it.
As for bias, there is permissible human bias versus impermissible bias or advocacy. My bias suggests to me that all other factors being equal, oceanfront property is going to sell more than one that is inland across the street from a municipal sewage treatment plant.
We attempt to qualify or quantify these subjective biases. If we can’t, then we should not be adjusting for them.
The larger issue is one of alleged systemic racism. Outside of census tract, locational algorithm-powered AVMs, I’ve never seen it by appraisers. I HAVE seen it from private lenders. I suspect it may exist among some GSEs as well but I cannot prove it. Suspicion does not equate to fact.
The racist appraisal meme started by one borrower who had suspect apparent ulterior motives. HER company is currently trying out Hybrid AAV’s in New England. Look up Black Knight and their SCOUT program.
It’s an unfortunate coincidence that the meme fits into a political party’s agenda that broad-spectrum racism is alive and well in America today. It may or may not be, but in the appraisal, BY appraisers, it is non-existent in my 35 years of experience.
There may be prejudiced appraisers (of all races) but none are so ignorant as to ever let it interfere with their professional work, or show it before their fellow appraisers.
AGA can’t speak for the other appraisal organizations, but as far as WE are concerned, we will fight back against unsubstantiated allegations. Our standing offer remains:
At no charge to any party, AGA will volunteer to perform comparative appraisal reviews or analyses of appraisals in any of these cases where before and after ‘white washing’ racist based values are alleged.
If state coalitions or other peer professional associations want to join us in this we welcome their collaboration.
I would love the opportunity to speak with you.. even if you want to conceal your real name and more. I’m intrigued by your comments and while I’ll stand by my blog post, I’m always up for great discussion and more. Let me know if you’d like to discuss sometime. My email is wiwapp@gmail.com. Thanks for taking the time to write what you did.
While I disagreed, your points are very valid and they vent the frustration of being professional and then hearing a “politician” say appraisers are … It got me reading these boards. It isn’t fair.
I will reach out.
Good dialogue beats a bad argument every time.
Please keep it up! Proud of y’all!
Mark, I spoke with him. He does have some valid points. He and I disagree vehemently about some of the specifics, but he does have a lot of background. He has more of a macro view inside government systems rather than our isolated agencies or political influence focus in dealing with individual claims and issues..
It would be interesting to see how or IF bulk consolidated complaints could be addressed. If I understood him correctly, its targetting the lenders (primarily).
name tag correction