Bias against minorities has been “proven” against property value message measurers – at least once. It has also been “proven” that the undervaluation is as much as $500, on average. Something must be done! Let’s blame the appraisers! They keep on “determining” values too low!
Does the flurry of blame-placing help resolve the problem? But something must be done! Many are involved. Everyone, regulators, legislators, lenders, agents, and others vested in loan-making, must at least appear to be working at this glaring problem of “obvious” appraiser bias. They need to take action, some action.
And the originators of the bias-awareness project also turn out right. Minorities do possess less property assets (from past generational wealth). And appraisers are an easy target. They are the front-door face of the value of my home. My eyes are on the back of that appraiser walking away from my home. But if we want to go beyond placing blame . . . If we genuinely want to find some solution, some fairness . . . can we look other places?
Does the problem reside in:
- Personal appraiser bias;
- Appraisal ‘Bias: Personal or Analytic?;
- Lender pressure on appraisers;
- AMC pressure on appraisers;
- Data collection bias;
- Agent listing price bias;
- Agent expectation bias;
- Buyer/seller personal bias;
- Buyer/seller prudence/knowledgeability;
- Buyer/seller motivational mindset;
- External stimulus.
Or could it be a ‘continuation’ of prior prejudice, policy, or prohibitive redlining?
No problem. It must be the appraiser. It must be. At worst it must be systemic in the very appraisal process itself. Is it possible that the vintage appraisal ‘process’ is outdated, and vulnerable to bias?
In prior Analogue Blog issues, we have asked whether racial bias might be aggravated by what appraisers are required to do:
- Appraisers must do as their peers do. Believability, (not justice), is the standard (per USPAP);
- Appraisers must do what their clients expect (per USPAP);
- Appraisers must report the market, not set value.
Appraisers are the carriers of the message of any real or imagined racial bias. We could kill the messenger. Or we can revise the appraisal process to reflect modern analytics, modern data selection, and interface to the expert brain. Can we provide a context from which the issue of bias (in all its forms) is clearly presented and visible?
Only by integrating the potential of data science with appraiser knowledge and market familiarity can we measure and reform what has gone wrong. “Pick comps and make adjustments” has to be put to history. We have the data. We have the tools. We can do better. We can protect minorities as well as the economic public trust.
Good public policy comes from good measurement of the problem. It will not come from more browbeating of the carrier of the message – the appraiser.
March 8, 2023 @ 7:24 am
It has been my experience that minorities are often preyed upon my members of their own affinity group, be it based on race, creed, religion, or lifestyle orientation.
This is especially true for low equity buyers who often get Packed into Property at sales prices that are inflated to cover the cost of closing the loan at the very least. And, when there is a disparity between the FHA rate and Conventional financing, the point differential gets packed into sales prices.
Low equity buyers and buyers with blemished credit are the easiest to be preyed upon by real estate agents an lenders.
Example, in a conforming tract neighborhood where the homes are pretty similar, sales that were 90%-97& financed, are higher in general than those that were 80% of less financed.
Appraisers could be the buyers best friend in a sale transaction when the Sales Price is Propped up by the Stilts of Concessions.
March 8, 2023 @ 10:20 am
Location? I’m of the opinion that “bias,” “blame,” and “location” seem to be interwoven.
I was “raised” to follow AI’s Dictionary of Real Estates definition of LOCATION; it is the relative position of a property to competitive properties and other value influences in its market area; the time-distance relationships, or linkages, between a property or neighborhood and all other possible origins and destinations of people, going or coming from a property or neighborhood. There is an entire chapter in AI’s Appraisal of Real Estate.
Would a typical market participant consider the subject property when seeking to buy a home in this market area?
And how about all the principles AI taught us; the Principle of Conformity states that maximum value is realized when a reasonable degree of architectural homogeneity exists and land uses are compatible. Its premise is that a home is more likely to increase in value when it conforms to other houses in the neighborhood. A better home (massively improved or even over-improved homes) in a neighborhood of inferior homes (much less improved homes or those in poor condition) will not fare as well as a better home in a neighborhood of similar better (more improved) homes.
And the Principle of Regression relates to the impact on the subject property that a neighborhood with poor (property conditions or low conformity) will have on value. Homeowners who make excessive improvements, not in line with their community are likely to have their property valued for less and may be unable to sell their property for enough to cover their improvement costs.
Hiring an appraiser before listing a property or making extensive renovations will reduce the risk of not selling a property for an unsupported value. Is the listing price justified?
March 8, 2023 @ 2:17 pm
Reform what’s going on with data science, really! Bias against ANYONE, is insidious and hidden in most cases. Like a cancer. Past generational wealth is passed down. We all know that people of Color could NOT own property in MOST states, including my beautiful California. Proven, no mystery. How can you pass something down that does not exist? The lenders for years would NOT give loans to minorities. It does not matter what the appraised value come in at. The appraiser is just a scapegoat. I have worked in Oakland Ca. Hunter’s point in San Francisco. Areas where women were afraid to go into as an appraiser. I have worked with people of color as an appraiser. Our values were similar. Of course there are biased appraisers. There is always a bad apple in every profession. An appraiser can be held accountable, there is no accountability for an algorithm. Blame goes to the lenders who denied loans to these market areas. Yes we need more appraisers of color. To make a generational difference, we need to lower underwriting standards to allow everyone who can AFFORD the monthly payment to own a home. How about FHA sell REO homes with no down payments. No credit checks. Income only! 12 months rental payments on time converts to a purchase. It’s not a mystery. Wait, Willie McCovey and Juan Marachel (excuse my spelling) were all great Americans of color who played baseball. Their books are banned in some states today!!! go figure! Some things never change.