Update May 20, 2024
Posted below on April 15, 2024, I read over Cindy Chance’s letter which appears to have been a part of a three part letter. The Appraisal Institute has now published the full letter, which appears to be all three parts. This is no small moment. The Appraisal Institute is considered to be one of, if not, the most significant appraisal association in the world.
We have witnessed significant racial discrimination claims against appraisers and many other bodies backing these claims and yet none have been proven. How can this be? Appraisers have been treated guilty with no regard for innocence.
The Appraisal Institute is an association of and for appraisers however, they have clearly written codes of ethics in a 30 page document with nearly 600 lines and in the first paragraph on the 3rd line of text it states users of appraisals must have access to “services of individuals who provide unbiased opinions of value”.
While the institute may advocate for appraiser’s, they would be expected to follow reasonable expectations of the general public as they have stated such within the first and second paragraphs.
The Appraisal Instute is mostly known for the development of appraisal education and upholding compliance with designations which represent the level of education attained by its members.
I have no reason to believe the Appraisal Institute would risk its high public standing by speaking untruthfully about deeply senitive topics that may adversely affect any member of the public. So, when I read Cindy Chances letters, knowing what I know from following this topic for several years with a genuine intention to understand the truth, I am reasonably confident she speaks about the truth and with the best intentions for all of the general public in mind.
Read Cindy’s letter on their website here.
https://www.appraisalinstitute.org/insights-and-resources/insights/newsroom/ai-news-releases/2024-04-30-appraising-the-false-narrative-of-appraisal-bias
I’ve also archived a copy here.
Update April 15, 2024
Getting up to speed quickly. Even though I have tried to follow this issue closely, there have been a few other blogs, letters, and posts on the subject that I should have been aware of or shared. This post on https://appraisersblogs.com/ dated today provides links to those and references a recent letter by Cindy Chance, new CEO of the Appraisal Institute (AI). In the blog, they also provide links to a couple of articles I had not yet read but which align very much with my own findings. Findings reinforcing my *somewhat independently formed position that this is largely a narrative taken on by entities who seek to benefit.
Cindy’s letter From Cindy’s Desk appears to be quoted in full, starting about halfway down the page. She highlights the issue of cognitive bias, which impairs all humans and helps to explain why anyone would throw appraisers under the bus with no sound evidence. This really could be a perfect storm of forces highlighting the vulnerabilities of being the messenger.
*somewhat independent = acknowledging that I am human and an appraiser, so I could also be biased. I am doing my part to share facts supported by evidence.
Thanks for reading and helping shed light on this issue. The anti-appraisal sentiment may not always come in the form of racial discrimination. There is a slant by many valuation entities who see an appraisal as an impediment to fast, easy money. It’s not entirely their fault, as they may be suffering from the human condition of cognitive bias, as described by Kahneman and Tversky. Thanks Cindy Chance for shedding light!
Update April 13, 2024
After sharing my post, a fellow appraiser’s post came to my attention David A. Braun, MAI, SRA, AI-GRS shared this letter on a LinkedIn post. He has authorized me to also share that letter here.
In his post David asks appraisers to become more aware of the issue, and he asks appraisers to provide ideas on how to properly tackle this issue of actual or perceived appraiser racial discrimination.
David provides some additional insights and points to a number of sources, citing why the issue may be unfairly portrayed strictly as an appraiser problem.
Here is one idea that may help to resolve some of these issues. I propose that appraisers not be required or allowed to report a point value for lending assignments.
This almost ludicrous standard has caused many issues.
From people being declined a loan because the appraised value came a fraction of a percent below the purchase price, to the slippery slope created when appraisers “round the number” to the purchase price or even the EMV just to avoid conflicts.
That “hitting the number” has also been raised as an issue of appraiser incompetence and impartiality.
Allow the appraiser to report only the most probable range.
That is truly the only accurate answer. Properties are not worth an exact number. Prove me wrong!
I understand that in certain cases, such as divorce, a point value is required, and appraisers can make that determination if needed, but there is no need for a point value appraisal for lending assignments.
*Abolish the point value for lending.
*I don’t believe any one policy decision could resolve more issues. (edit April 15, 2024) The jury is out on this; I am having great discussions with some of my peers, considering the pros and cons. This is the beauty of being part of a community forum.) This is not likely to happen for various reasons. While it has some merit, the solutions are better found in supporting the appraisal profession and the ability of appraisers to remain impartial and independent without fear of reprisal for providing sound conclusions and supported opinions.
In David’s letter, he describes a “hypothetical” scenario in which Jill, a white appraiser, lowballs a value because she is concerned about risk.
Firstly, Jill should not be concerned about borrower risk; even so, had Jill been allowed to report a range of values, she could have eliminated or reduced the risk component out of her considerations, which would have helped relieve her bias. In this case, her bias was partly caused by a type of discrimination but also by her own lack of confidence and competence, leading to fear of increased risk. True, an appraiser should be concerned about risk but not the applicant’s risk factors.
David’s scenario is very specific; what about more generalized and more frequent cases where the market data is limited, and the appraiser’s confidence is low based on their inability to identify an exact value? That may or may not be a competence issue, but the result could often create a risk concern and a bias in favor of a more conservative value for fear of being sued for loss.
While most appraisal standards do not require a loss to occur for an appraisal to be deemed defective either by ethics, competency or compliance standards, surely the additional fear of direct loss places additional pressure on the appraiser’s psyche.
Thanks again, David Braun, for your contributions to the profession.
DRAFT updated March 29, 2024, *The main purpose of this post is to shed light on the potentially questionable motives of some of those speaking against appraisers and the unintended consequences that may fall out of knee jerk reactions or misrepresentations of data or information.
This issue has been on my radar since 2020. I should repeat since “ONLY” 2020. I understand many of my peers and community members have been dealing with racial bias and discrimination issues far longer and for some, generations. I have always understood, from my professional training, the importance of impartiality, but racial bias was never an issue I was faced with in the markets I served. If I have overstepped or misinterpreted, please reach out to me or provide alternate information. I am committed to doing my part to remain as impartial as possible. I am a critical thinker and I do my absolute best to remain impartial, while seeking to discover the truth. Most of this discussion will be based on bias issues in the US, however, we also have bias and discrimination issues we are working to resolve north of the border. Through this analysis, I hope to gain further insight, which may serve as a guide for when I have the opportunity to help reconcile or resolve discrimination issues.
What about ongoing descrimination in government policies? Are underserved areas obtaining the same levels of funding for ammenities that increase value? Is government pushing this onto the backs of appraisers. I recall Appraisal Institute President Craig Steinley, MAI, SRA, AI-GRS, AI-RRS, giving testimony at the the Appraisal Subcommittee Hearing on Appraisal Bias January 24, 2023 where he referenced “Restorative Value”. Here is his written testimony and a link to the video recording. This link starts at the point where Mr. Steinley speaks to Restorative Value at about 1hr18m his evidence begins at about the 1h16m mark in response to questioning from Director Sandra Thompson.
Earlier in that hearing is the Tenisha Tate-Austin and Paul Austin testimony at about the 34m mark. It should be noted that their case was never fully argued prior to them providing this testimony. The second appraisal they got reportedly used comps from outside of the Marin City area in nearby Mill valley and the lines are very blurry as to whether or not there was any specific value loss due to descrimination.
Interestingly, to my knowledge the second appraisal was never submitted for evidence. The original appraiser was forced to settle before the evedience could be fully explored. I find it incredible that this type of evidence could be allowed in this type of hearing. Here is a pdf copy of Mary Cummins blog on the subject. She was not directly involved but followed the case.
In many markets the values will vary significantly from one street to the next, or even across the road, let alone different neighbourhoods. Throughout this hearing, I continue to hear the evidence pointing to disparities in the values of neighbourhoods, which is reasonable to expect, but it is not reasonable to expect appraisers attempting to identify market value to ignore neighbourhoods or locational differences.
Are these neighbourhoods transitional? Transitional meaning that the highest and best use may be transitioning away from the current use. These are questions that need to be asked and answered, and the Highest and Best Use question often can be very complex, requiring greater analysis. With decades of downward pressure on appraisal fees, could this be a part of the confounding issues?
This entire post may remain in draft form as information becomes more clear and I hope to keep it up to date.
Original post by Paul Rayburn, March 1, 2024
There are numerous forms of Bias. One of the most pressing issues is racial discrimination. While the topic is a matter of discussion on both sides of the Canada/US border, it has been the subject of significant recent claims against individual appraisers in the USA, none of which have been proven in court as of today’s writing to my knowledge.
I am not stating that there is no potential for racial discrimination. Within the entire population of appraisers, there is bound to be a percentage of cases where an individual may have acted with varying degrees of prejudice. It is not news that there was a time when there was intentional and overt racial discrimination in lending (not just appraisals), often referred to as Redlining read more here Wikipedia or here US Federal Reserve History However, since 1968, there has been ongoing efforts to resolve the issues including the Fair Housing Act of 1968 and for as long as I can recall the Uniform Standards of Professional Appraisal Practice (USPAP) has required appraisers to include certifications that they have no bias and the Ethics Rule states, in part, that An appraiser; 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 latest version of USPAP 2024 provides further guidance on the issue by expanding the Ethics Rule with a Nondiscrimination section and making a few additional amendments to clarify the matter.
Appraisers are often caught in the middle, being the messenger, and appear to have been generally “thrown under the bus.” One explanation seems to revolve around other industry players, those who offer alternatives to valuations ordinarily provided by appraisers. Some of these players have jumped on the bandwagon, touting their alternatives as superior products without risk of bias while simultaneously and frequently mentioning appraiser bias.
One of the first such claims thrust into the media was made by Abena and Alex Horton, of Jacksonville Florida in a story August 25, 2020, or here September 23, 2020, as well as a host of reported social media posts and articles started or facilitated by Abena Horton. One thing not disclosed in any of those initial “news” stories was that Abena Horton was the Vice President of Black Night, a supplier of Automated Values, a replacement for the standard appraiser. Not a single one of those initial stories mentions or attempts to resolve this potential conflicting motivation. I have subsequently noted, over the past few years increasingly, those that provide or promote other Automated Value Models (AVM) or other appraiser alternatives frequently site the issue of appraiser bias based on these claims. Following the original stories, a host of other cases were brought forward. In many cases, the evidence supporting the conclusions was suspect; as stated, none have been proven.
A couple of months ago, I decided to search the term Appraisal Bias in Google news articles since 2008. Interestingly, I found none prior to the 2020 story by the Hortons. Here is an image of those results. There were 5 pages and many results with racial bias from the current on page 1 to page 5, but you can see on page 5 the dates prior to 2020 there were none, and that was all of the results. Bias in lending had been an ongoing discussion, but in early 2020, the current US administration made public comments about a study conducted by the Brookings Institute, a study which is under scrutiny for, among other things, using Zillow, famous for a big data business model failure as one of its sources.
Near that time in 2018, Zillow was in the midst of building its model, which failures were first brought to the media in 2021. At the time of the Brookings Institute study, significant issues still remained with automated computer modelling of human behaviour and real estate markets.
I have a hunch that it was not the computer; rather, it was a sort of developer confirmation bias and a lack of truly reserved contemplation of the forces at hand. Remind me to post my opinions about that HERE, but in Zillows case, they forgot there were humans involved. They set out their I-buyer model to make offers to sellers based on their algorithm, which may have done a reasonable job, absent reasonable humans. What they missed was that many homeowners and investors have a reasonable understanding of the value of their properties. Those that received offers lower than their perception of value largely declined, and those that were notably higher, well, honey, “start the car.”
The topic of bias in data is another issue. The concept that an AVM or other appraisal alternatives are free of any type of bias is also a significant misrepresentation. That is a very in depth topic which I won’t cover in detail here but it should be noted that there are differences in the types of valuations. One of the major discussions will revolve around property tax assessments often confused as an appraisal. These are Ad Valorem tax values most often done using Mass Appraisal standards. In short they are approximate representations of value derived by large computer data models based on minimal, often unverified individual property characteristics. The bias in these computer models can be based on how neighbourhoods are identified and segregated in the models. These can lead to issues of both undervaluing and overvaluing, including over-taxation. This is a bit off-topic, but here is a YouTube video presentation of how outdated assessment models can be improved using R-Studio (my preferred analysis tool) to resolve an issue of over-taxation. There are numerous issues with these types of valuations, but they are not specific to the individual appraiser and specific cases of identifiable appraiser bias.
One of the issues appraisers must resolve is that they have not been in the driver’s seat of their profession for nearly two decades. A situation brought on or exaggerated by the unintended consequences of the HVCC and, ultimately, Dodd-Frank.
This has reduced direct investment in training and technology, which would support appraisers in ensuring they can defend their reports unequivocally. Cases do arise where appraisers need to explain or defend their decisions to resolve bias or competency concerns. Unfortunately, the quality of work is diminished due to the constant downward pressure on appraiser fees, combined with pressure for increasingly faster turnaround times. While some entities wish to promote resilience and the ability to adapt to these pressures, they can never ignore the fact that the downward pressure on capital diminishes the quality of work. One of the most common points brought forward in these bias claims was the staggering range of values reported between appraisers. While the racial discrimination component has yet to be determined, the lack of consistency is unsettling. Without going into great depth about the roots and ongoing causes, we can defer to one of the appraiser’s greatest allies in this regard, the National Association of Realtors (NAR). In statements recently released, there are a few key points.
The NAR has spoken strongly in support of appraisers and demanded transparency and action on the actual racial bias cases. Ultimately, this begins to drill down on what I, and I am sure many others, have been saying for years: that the current model is diminishing appraisers’ value. Here are a few highlights.
“NAR has actively advocated for solutions that will increase diversity, reduce bias and maintain the public trust in the appraisal profession. Among those solutions are legal clarity from HUD regarding claims of appraisal discrimination as well as transparency and accountability in appraiser compensation.“
“A predicate for an accurate and credible appraisal is the competency of the appraiser in both the knowledge and experience of real property valuation and the process of developing and communicating an appraisal. The manner of appraiser selection and retention must prioritize competency, suggesting a stronger market-wide vetting and quality control process for appraisers would be helpful. Appropriate compensation is critical to attracting appraisers of high quality as well as enabling them to invest in their own skills and education.”
Read the full letter below.
Like many professions in the US and Canada, the appraisal industry also has disparities in ethnicity and gender diversity. While that is not specifically a reason to cry foul, it does need to be addressed. Historically, the appraisal industry has been a hands-on, in-field training based on a mentorship model due to the complexity and unique nature of the real estate market. This often leads to working relationships formed by personal and family connections over generations, resulting in an overall reasonably unintentional lack of diversity. Many organizations are promoting diversity, which should help resolve the perceptions of bias. I can say that I have begun, over the past several years, making intentional efforts to promote appraiser ethnic and gender diversity, particularly on social media, where I have more of those opportunities. I believe many of my peers are doing the same, and we hope that we can do our part to close these gaps.
One of the other critical areas that have come to light as a result of these discussions was the way in which lenders or their agents often referred to as Appraisal Management Companies (AMCs) were handling, not just bias disputes but also, value disputes. There are mechanisms in place, particularly in the US, for resolving issues and disputed appraisals; however, it has come to light that there was a lack of applications to the process, and “offending” appraisers were simply removed from the AMC/ lender panels. That results in two major and unacceptable outcomes. Firstly, the opportunity to determine if the dispute was valid or not is lost, allowing the narrative that there was some kind of infraction to continue. Secondly, as most disputes are a result of low values, this potentially favours appraisers who more regularly come in at or above value and not necessarily more credible appraisals. This is a known issue, so typically, appraisers who report below value only do so when they have found credible evidence to the best of their ability. Of course, there are always exceptions to the rule; however, in general, this slippery slope works against appraiser independence and impartiality.
Here is an excerpt from Maureen Sweeney’s SRA, AI-RRS, RAA, and CDEI written testimony in the Office of the Comptroller of the Currency (OCC) public hearing of the Appraisal Subcommittee (ASC) on appraisal bias held on February 13, 2024. Edit September 9, 2024 It seems that link is now broken. But the wayback machine has a copy. https://web.archive.org/web/20240519075956/https://www.occ.gov/news-events/events/files/event-other-event-occ-hearing-appraisal-bias.html
“Rather than report potential problems to the regulatory agencies, financial institutions and AMCs fire or refuse to work with appraisers, who have no idea they were rejected by the AMC. I saw very few complaints in Illinois from the banking organizations regulated by the agencies making up the Federal Financial Institutions Examination Council (FFIEC). The FFIEC consists of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), which has 4,135 banks; the National Credit Union Administration (NCUA), which has 4,712 credit unions; the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB). Since 1991, complaints filed in Illinois on appraisers from the FRB were zero, the FDIC was 11, the NCUA were zero, the OCC were zero, and the CFPB were zero.”
Read the full testimony below.
I hope this post helps shed more light on the issues surrounding racial bias and claims made against appraisers. It is a complex issue, and there is no simple answer. The biggest takeaway for me in all of this is that appraisers need to be supported to build upon their expertise and maintain their ability to remain the independent, unbiased, and impartial party when it comes to real estate valuations. With improved access to data and technological advancements, issues such as racial bias, appraiser independence, and defendable reporting will be resolved, leading to improved public trust and securing the future of the profession.