Appraisers

Dated: 06/25/2019

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Appraisers don’t use race when valuing homes

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Last week in a congressional hearing on the future of the appraisal profession, some research was used to suggest appraisers are showing racial bias and essentially undervaluing black neighborhoods. I was not expecting the conversation to go that way during the hearing and I’ll admit I’m deeply concerned about the emerging narrative of appraisers being racists.

I know race is a polarizing topic, but I wanted to approach this today with humility to clarify a few things. Please join me in respectful conversation.

THREE THINGS:

1) Appraisers don’t use race: Appraisers cannot and do not use race as a factor when coming up with a value. This is 100% off limits – not to mention highly unethical and immoral. Race has absolutely nothing to do with value. Comps are never selected based on race or racial boundaries of any kind. Let me say that again. Race is NEVER considered during a valuation. 

2) Have appraisers “devalued” neighborhoods by $48,000? In the congressional hearing a panelist talked about a study that shows black neighborhoods are devalued by $48,000 compared to otherwise similar white neighborhoods. That’s alarming and society needs to have some serious discussion about this, but this study has NOTHING to do with appraisers actually devaluing properties (read it here). When we hear the word “devaluation” it sounds like we’re talking about something appraisers are doing, but the $48,000 price disparity comes from the author studying price trends from Zillow rather than analyzing the actions of appraisers. In other words, appraisers are NOT devaluing homes by $48,000. Yet when congress members heard “devaluation” and the speaker saying appraisers are part of the problem, the impression is that appraisers are clearly showing bias by devaluing properties based on race. This impression has certainly been passed on via social media too. You can watch the hearing here.

3) Appraisers reflect the market: One of my takeaways from the hearing is there’s a deep misunderstanding of what appraisers actually do, which is why it’s easy to place blame for this $48,000 price disparity on appraisers.

a) Not magicians: Appraisers aren’t magicians able to cause value to rise or fall. We certainly don’t have the power to make prices $48,000 higher or lower in one neighborhood compared to another.

b) The only role: An appraiser’s only role is to ensure the value of a home is measured accurately without bias. What would buyers reasonably pay for a specific home in a specific location? That’s always the question, and the best reflection of value is likely going to come from competitive sales in the neighborhood itself.

c) Locations aren’t the same: The market isn’t doing the same thing everywhere and buyers are not willing to pay the same prices everywhere either. This is why the appraised value can vary so widely – even if homes are identical in different neighborhoods. The speaker’s $48,000 price disparity between black and white neighborhoods is truly shocking, but frankly that’s not an appraisal issue. The appraiser’s job isn’t to ensure values are the same everywhere. Appraisers use neighborhood sales data to come up with value and it would be unethical to borrow “comps” from a higher-priced area to jack up prices in a lower-priced community (or vice versa).

d) Helping is not an option: Even if appraisers wanted to see certain areas emerge in glory after the ugly reality of redlining, it’s still not an appraiser’s professional role to make that happen. This might sound callous, but appraisers don’t make markets move. They only measure the market rather than act as a gas pedal or brake pedal for prices. This is exactly why the $48,000 example is so flawed. This price difference isn’t caused by appraisers doing their job. There are much bigger issues at the root.

As an appraiser I will NOT:

– Show bias against race
– Value a property any differently because of race
– Discuss race in any appraisal report
– Work with people who are known racists
– Treat any clients differently due to race
– Base any opinions in my appraisal on race
– Tolerate racism in real estate if I’m aware of it
– Use subjective language to say one neighborhood is better or worse

As an appraiser I will:

– Strive to be professional and kind to everyone
– Be unbiased in my approach to value
– Respect owners and renters of all backgrounds
– Let market data tell the story of value
– Have friendships with diverse members in the real estate community
– Say yes to speaking engagements with diverse groups
– Listen when people talk about racism in real estate
– Be open to findings in studies on racial bias in valuation
– Speak up when narratives like this emerge
– Clarify the role of appraisers

Why I wrote this: After watching the hearing last week I was deeply concerned that the neutral role appraisers play is being sorely misunderstood. I’m dismayed too that colleagues are being perceived as racists.

In Closing: We have a systemic problem of racial discrimination in our country and there is an ugly history of racism in real estate too. In fact, here’s a sobering presentation talking about redlining in Sacramento. This is exactly why we need to have conversation about the study showing price differences between black and white neighborhoods. This is real. But before running with the headline that appraisers are “devaluing” neighborhoods by race, let’s hit the pause button. The study quoted doesn’t support this claim. Is racism real though? Of course.

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