The Appraisal Blog

According to Working RE Magazine, HUD has received 300 complaints alleging appraisal discrimination over the past 3 years.  No numbers were provided on how much of an increase this is over previous years, however the implication is that it is dramatic.  The increase is actually not surprising.  In early 2020 Joe Biden issued a Housing Plan to take aim at "racial bias" in the appraisal industry.  Since then states have followed suite by requiring Bias and Cultural Competency classes and AMC's have published lists of words not to be used in appraisals including such benign words as "affordable", "age", and "desirable"... and words that I have never seen in an appraisal like "queer", "slum", and "gay."  They are even banning words like "homogenous" and "gentrification" which are valid terms which would provide valuable information to a reader of an appraisal to understand the market.

Unfortunately, the complaints and lawsuits will continue for the foreseeable future.



https://www.workingre.com/fhfa-slows-bifurcated-appraisals/

My previous post was regarding an article in Working RE Magazine titled Appraiser Countersues Black Plaintiffs Who Alleged Discrimination.  And, as I have mentioned before, this topic strikes a chord with me.  So I wrote a response ... and they published it in their most recent Issue 62.

I promise to discuss the details in a future post ... but read the reader response for a preview.



https://issuu.com/workingre/docs/issue_62_workingre_final

This one is a no brainer.  The facts of the case will completely exonerate the appraisers and hopefully he will win his countersuite argument.

Basic Facts:
- Subject was appraised for $472,000 in June of 2021
- 7 months later it was appraised for $750,000 after "white washing"
 Subject is situated on a major roadway, Northern Parkway and suffers from negative external obsolesce.
- Property NEXT door to subject sold for $465,000 August of 2021 (2 months AFTER 1st appraisal) with superior kitchen improvements and a sunroom.
- Listing of property situated on same busy street, Northern Parkway, for $605,000.  It was on the market for 3 months, reduced to $550,000, and then to $510,000 before it went under contract.  The only reason seller's reduce their asking price is because the original asking price was TOO high!

The second appraisal at $750,000 was never provided to the attorneys... I wonder why?  But it does not appear to be in line with other sales with similar negative influence including the dwelling next door to the subject.



https://www.workingre.com/appraiser-counter-sues-black-plaintiffs-who-alleged-discrimination/

I just received a list of words from an AMC that I am not allowed to use in my reports anymore.  Truth be told I see only one or two words in this list that I occasionally use in my reports.  Desirable  ... in reference to the climate in San Diego, and Gentrification ... in reference to communities in which there is a trend towards remodeling and enlarging the homes in the community.  Oh ... and Indian ... as in the city of Indian Wells.

But the notion that we have become so sensitive to be offended by some of these words is disturbing.  

Long meeting to do with the (mostly) non-issue of bias in the appraisal industry.  Does it exist?  I would imagine it does ... just like in all facets of life.  If an appraiser discriminates against someone then he should be held liable for damages.  But having a house "white washed", in my opinion, does not prove that a crime has been committed.


https://www.youtube.com/watch?v=QW8ADw9vOSc

The Biden Foundation has established the Property Appraisal and Valuation Equity task force in an effort to " root out bias and discrimination in the appraisal profession."

The USPAP Ethics Rule states:
- must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value;

The appraisal forms also specifically ban race as a consideration in appraisal: 
- Note: Race and the racial composition of the neighborhood are not appraisal factors.
- I did not base, either partially or completely, my analysis and/or opinion of market value in this appraisal report on the race, color, religion, sex, age, marital status, handicap, familial status, or national origin of either the prospective owners or occupants of the subject property or of the present owners or occupants of the properties in the vicinity of the subject property or on any other basis prohibited by law.



https://appraisalfoundation.sharefile.com/share/view/s6c83e638485544608851b1d13dcb4c76

For the past several years a growing concern of appraisal bias towards people of color has been growing in the lending and appraisal industry.  It has grown so much that appraisers are now required to take a Bias and Cultural Competency (in CA) course as part of their basic and continuing education.

You've seen the new articles.  A black homeowner has an appraisal conducted by a white appraiser and the owner disagrees with the opinion of value.  So they "white wash" their house, have a white friend or agent stand in, and have the house re-appraised.  The second appraisal comes in significantly higher and the first appraiser is accused of racial discrimination.

Shocking, right?

Well maybe ... but maybe not.

I've been tracking this issue for several years.  There have been studies conducted claiming that houses in predominantly "black" neighborhoods are valued ~25% less than comparable "white" neighborhoods.  That appraisals in census tracts with primarily minorities are twice as likely to be appraised under the sales contract than other census tracts.  People point to the fact that 90% of appraisers are white as a basis for these inconsistencies.  And as a result, people of color are being robbed of American Dream, and that their children are being robbed of generational wealth.

I have some opinions about this.  I've looked at many of the specific accusations.  I've listened to some of the many hearings that have been conducted by the regulatory bodies that determine appraisal policy.  I've taken the racial bias classes.  I have some thoughts about what I consider the misconceptions about what people think an appraisal is, who it is for, and what impact it can have.

And, yes, I've been accused of racial bias in my appraisal work.  (I'll share that story another time)

I hope to shed some light on what we appraisers do.  Our work process.  What lending guidelines we have to follow.  What happens on the inside between the lender, the appraiser, the agents, and sometimes the seller and the buyer.  Who reviews the appraisal.  Who signs off on an appraisal.  What impact an appraisal can have on the buyer or seller.  And, importantly, what impact it does and does NOT not have on a homeowner or a borrower.

This is not to say that there are no issues of racial bias.  I would imagine that there is.  Just like in any industry, any profession, any group.  It is an unfortunate reality of life.

But is it systemic?  Are there hoards of appraisers under appraising the houses of black and brown people because ... because why?

I wholehearted reject that notion.  Stay tuned for why .... 

Over the past several weeks I've discussed specific examples of bias in the appraisal industry.  The default opinion of the main stream media, activists, and now the general public, is that anytime a homeowner feels their house has been undervalued, it is due to racial bias.  There can be no other explanation.

As an appraiser this doesn't feel right to me.  The appraiser isn't the be all end all in the process.  There are guidelines we follow, there is typically a review by the AMC, and then another by underwriting.  And sometimes the market value isn't cut and dry.  Not all properties are equal, not all adjustments are obvious.  The appraisal is, after all an opinion.

Edward Pinion and Tobias Peter have analyzed some of the data and are offering alternative explanations to the ubiquitous narrative that all "low" appraisals are due to racial bias.  These include: misplace focus on purchase transactions, differences in buyer characteristics, the presence of seller concessions, the severity of the under valuations, and even the notion that under-valuation may actually benefit homebuyers.

Please read and let me know what you think.



https://www.aei.org/research-products/report/exploring-alternative-explanations-for-appraisal-under-valuation/

Lawsuits against appraisers who have conducted appraisal services for lenders are beginning to occur.  In this case, the lawsuit was settled by the Appraisal management company AMC Links.  The terms of the settlement were not disclosed other than that the appraiser had to watch a documentary called: "Our America: Lowballed."  The AMC "denied any wrongdoing" and the appraiser did not admit to engaging in "unlawful discrimination."

I was able to locate the subject doing a public record data search.  The subject is located in is Marin City just north of San Francisco.  It was a 1,720 sf 4/2 built in 1963 on a 9,600 sf lot.  They paid $550,000 in 2016, conducted a lower level add on sometime between 2019 and 2022.

The first appraiser placed the value of the subject at $995,000 January of 2020.  The second appraisal place the value at $1,482,000 5 weeks later, or 49% higher.  Obviously someone was wrong.  But who?  The default opinion seems to always be the higher appraisal was correct.  But was it?

The first appraiser used 2 sales in Marin City and 1 in Sausalito.  The second appraiser used 2 sales in Marin City and SIX in Sausalito.  Marin City is a small enclave of attached and detached homes, condominiums and businesses just north of Sausalito.  Have you heard of Sausalito, the ritzy community just north of the Golden Gate Bridge from San Francisco?  Of course you have.  Have you heard of Marin City?  Me neither.

Without getting to deep into the analysis each appraiser conducted, I took a look at Zillow ... which will allow you to look at the value of a property over time:

01/2020: $892,000
02/2020: $1,100,000
03/2020: $1,200,000
Current: $1,250,000

And here are some actual comps another local appraiser provided in one of the on-line forums:

50 Buckelew sold for $899,000 on 08/19.  1700 sf 3 bedroom w/ and ADU, remodeled kitchen and baths.
21 Buckelew sold for $1,100,000 on 05/21 (15 months after the 1st appraisal) 1590 sf 4/3 remodel.  Property sold higher than the 1st appraisal, which is to be expected, the market was appreciating, and WELL below the second.

I am not an appraiser in this area.  However the fact that properties sold well below the second appraisal after the original valuations is telling.  And it is curious that the second appraiser utilized so many sales in Sausalito versus Marin City.

I wonder how homeowners in Sausalito would feel about an appraiser going to Marin City for sales data to value their home?

Thoughts?

https://abc7news.com/home-appraisal-lawsuit-settlement-our-america-lowballed-systemic-inequities-in-racial-bias/12921112/

Appraiser bias has been a hot topic in the appraisal industry for a few years now.  The stories of black homeowners who have had a "low" appraisal only to have it reappraised higher after the house is "white washed" sound shocking.

I've been following several of these stories including this one.  My general observation is that there seems to be some fairly large misunderstandings about what an appraisal is, who it is for, and what impact it can and can not have.  In some cases I've actually researched the specific property and did my own analysis comparing the two appraisal.  Many times it appears that the second, higher, appraisal is actually the one in error.  Others it is not so clear.

It this video I could not identify the specific property, however I do take exception to some of the statements made by NBC and the homeowner.  

1) An appraisal does not have ANY impact on property taxes.  That is factually wrong.
2) An appraisal does not have ANY impact on insurance rates.  That is factually wrong.
3) An appraisal does not dictate what a house will sell for.  It may affect how much an owner or buyer can borrow for the property.  But you can sell your house for whatever you want.  And yes, appraisals cut the value of sales contract all the time.  It is not a rubber stamp.  They also, by the way, come in higher than contract prices too.

I'll have more to say about these claims as they come up.  Stay tuned ...



https://www.nbcnews.com/nightly-news/video/does-race-impact-home-appraisals-163040837806