The messenger. Psychology research easily points out our tendency to dislike the bearer of bad news. It’s also intuitive.
Bad news messengers do not smile when they bring the news. Sometimes they even look guilty. We humans can be really basic. We see a correlation between the bad news, the frown, and the messenger.
Appraisers are messengers. Why is their message so despicable? So biased?
In the entire real estate transaction, everyone wants to make a deal. Brokers want to make a commission. Lenders want interest and ‘points.’ Sellers want their price. Buyers want a loan to make the deal. That’s for a sale transaction. Once in the deal — everyone wants the “value” to be the agreed price. Except the appraiser.
For a refinance, the lender wants interest and points. The agent may be on a commission. The borrower wants the money. Everyone wants the “value” to be the needed price. Except the appraiser.
No one wants to be the messenger. Yet that is the job. Be unbiased. Explain your analysis. Support your opinion. Show your work.
So why would an appraiser “come in too low?” Three possible reasons.
- Carelessness or incompetence;
- Personal bias (conscious or unconscious);
- Good ethics and competence.
How can this be? We have heard about cases, several cases, where bias is the only possible reason. We have heard about whole neighborhoods priced “too low.” And worst of all, we have heard that the whole profession is distinctly biased. The whole profession! “Mis-Appraisals” run rampant!
Where is the proof?
Easy. Just look at those who call themselves “appraisers.” Just look at those who have been licensed, and note that they are bland in color. It must be clear that if the whole profession is not proportional to the distribution of color in our population. Then. It must be clear. Bias.
And what could have caused that? We have laws. We have ethics classes. We have data to follow, not color. We have neighborhoods. We have a history. A history of: red-lining, exclusionary zoning, deed covenants, FHA Handbook identifying “undesirable population,” and predatory lending. This can’t be! It must be the messenger!
Here’s the real problem:
To solve a problem of value, someone must be able to measure things. AVMs (Automated Valuation Models) can do this! Unfortunately, they are developed and programmed by – humans. Appraisers can do this. Unfortunately, some of them are biased. (Motive, or lack of motive is another thing.)
The real problem may be somewhere else. But it is much easier and more understandable to blame the messenger. Easier.
April 6, 2022 @ 3:01 am
When the ending to something in life is not as we expected we always look to blame someone; some people claim that someone was homophobic, some people claim someone was racist. What never gets the blame is the process a person took to get to the end result. Appraisal bias claims are such; the process an appraiser HAS to take in order to follow the rules imposed by several entities is the real culprit, not the person following the rules. As an appraiser of 17 years I can say that I am not racially motivated, I do not care who owns the home, who lives in the home, who is selling the home or who is buying the home, I am concerned with ONLY one thing, that being the home and what it will possibly sell for on the open market based on past performance of similar homes in a similar market. I have appraised a lakefront home for 2 million dollars and if you moved the same home just 100 feet off water the value drops by 75%. Does that make me biased? NO!! I am just following the rules. Like the caption says; “don’t shoot the messenger”! We have to somehow change the process that we use to arrive at the message, it’s a very complicated thought process and one that will take a very long time. There are way too many rules appraisers have to follow; federal rules, state rules, appraisal institute rules, FHA/HUD rules, FannieMae rules, FreddieMac rules. What we need is just one set of rules that everyone has to follow, not every entity making their own rules. That will not be easy, it will not be swift, and it certainly will not be welcome by all involved now. The federal rules should take precedent, the appraisal institute rules have NO teeth except when appraisers get bitten for not following them, that entity has NO power except over appraisers who have to follow all the other rules when no one else has to follow them.
April 6, 2022 @ 7:31 am
Rules? International Valuation Standards (IVS) as found in the Redbook from the Royal Institution of Chartered Surveyors, an organization whose role is to set and enforce standards that guarantee objectivity, accuracy, and truth in appraisal, building measurement, and land survey. Enough of these politics. the Watts neighborhood in Los Angeles lies in the approach flight path to LAX. It is populated by people of color. Why? Because that is all they can afford as their wages are 50% to 60% of the wage that white people are paid. So let’s hear it for effective demand as the determinant of the selling price and move on.
April 7, 2022 @ 5:24 am
Agree with the above. Bottom line is very simple. Everyone needs to look to the source of the issue not the end result (The Appraised value). We look at the buyers, yeah those people who are the MARKET and report what they are doing. Ask the buyers why they pay less in black and brown neighborhoods as opposed to white ones? Ask their Realtors, FIX those issues, be they financial, be they locational influences they don’t like, be they drugs and crime, be they how the properties are taken care of or how many homes are being rented and not owner occupied, be it lack of amenities nearby, shopping, places of worship, expressway access, be they road conditions, BAD SCHOOL SCORES. Low values (sales prices) has zero to do with bias. Why would it? Like you said, I could care less who owns the property. We appraise the homes not the people. What bothers me is NO ONE looked at the appraisal reports in those inflammatory media stories to see why 1 was so much higher when they thought a white person owned the home? Why is it that everyone automatically assumes that the higher appraised value is the CORRECT one! Gimme a break! Until we understand why those 2 appraisals were so different lets not all ASSUME it had to be bias just because they changed photos out in the home or had a white person meet the Appraiser. You know what it means to ASSUME right? (That is to make an Ass of our U and ME).
April 7, 2022 @ 2:15 pm
True; I can add that when I do an appraisal in the inner city areas there is invariably garbage strewn up and down the street, bottles, cans, trash, dilapidated porches, bad roofs, extra cars and appliances outside, the list goes on and on. How can one possible compare a home with all this going on with a home that has none of that? It’s more than just cosmetic, but the root of the problem lies with the federal programs allowing absentee owners to get away with just collecting rent and doing nothing to keep up their properties. It’s not the fault always of the people who live there and want to keep their home nice, it is the fault of the people in the area who feel it is not their responsibility to keep up the properties, it is up to the out of town landlord, so they just do whatever, the whole neighborhood suffers. But I have also seen new homes built in the inner city areas, personally appraised several when they were just completed and again 3 or 4 years later when they are being sold or refinanced, guess what? They usually look like crap; the usual junk laying around, interiors damaged, windows broken and taped up, so I am supposed to compare these homes with one of similar age, style, size in a suburban area where all the homes are maintained? If we all remember to appraiser the house not the people there will be no concrete grounds for any racial bias.
April 8, 2022 @ 1:21 pm
Joseph, you are correct with your identification of all the entities with rules and regulations. And then, of course, there is the client who may send you a fine-print page of 50 or 100 requirements. In my 45 some years of appraising, the rules haven’t changed much. Of course, there are biased appraisers, sloppy appraisers, and there are those who can’t, or won’t figure out answers to the problem, using experience, education and the extra mile to invoke credible judgement, when the property presents complex issues. My experienced approach is to learn what the typical buyer and seller would identify as reasons for what they do, and follow that trail. It takes a bit longer and more effort, but talking with the principals involved, and the experts in the neighborhood (buyers, sellers, realtors, other appraisers) can bring fresh insights, or galvanize existing understanding. But bias? I think that’s a long-lost notion in today’s appraisal profession.
Can Appraisers Protect Minorities? - George Dell, SRA, MAI, ASA, CRE
March 8, 2023 @ 1:16 am
[…] the flurry of blame-placing help resolve the problem? But something must be done! Many are involved. Everyone, […]