Who REALLY is being biased in the Appraisal Profession? It’s not the Appraiser..

So today I was on the CFPB webinar with the ASC about bias in the appraisal profession, and let me just say this. I would rather have been on the golf course or dealing with an irate homeowner than listening to many people discuss something they obviously know nothing about. While I’m all for positive changes in any aspect of life, this webinar, as well as past ones, aren’t about positive change. They are about saving face, blaming others and continuing to spew out more and more political agendas than one can handle.

I am a proud real estate appraiser, I did my education, my apprenticeship and more to start my career. As time went on I continued to develop my skills and built a good business I am proud of today. One built on the principals of USPAP and appraisal guidelines. Yet here I am today listening to several people with a specific agenda, using poor data, poorly done studies, and only one thing on their mind… That’s to change the profession I proudly serve in to meet their agendas and put themselves on the map for better gain.

This blog is to explain to the consumer and others the facts. The facts that no one wants to explain to you all. The facts that matter vs. the narrative that others WANT you to believe.

Before I go any further, I want to say this. Racism or bias is not acceptable anywhere especially in the appraisal profession. I fully support the termination of an appraiser if they are basing values on race. I also understand that we all as human beings have biases, whether they be conscious or unconscious and that they can creep up at any time. However the government and some others, believe that appraisers are purposely undervaluing properties in minority neighborhoods based off a narrative they created using limited data, poorly done studies, complaints and testimonies by others who have no knowledge at all of the appraisal profession.

So, now let’s dive into what is really true, what no one is actually telling the public and why these things matter.

First up. The Appraisal Institute.

I’m sure I’ll get some backlash for this but since no one else seems to want to say it, I will.

It’s being stated all over that the AI represents appraisers. This is absolutely false. They do not represent ALL appraisers. They for sure don’t represent me. The AI is the largest organization for appraisers offering them designations based off the education and resources they provide, however they are not the gate keepers of the appraisal profession. Before the internet, having a designation was important and showed that you took more classes and training. They would give you a designation of SRA, MAI among others. However, you need to pay to play. Meaning, the only way you keep these designations is to continue to pay them. Over the past 10 years many AI members decided not to renew their memberships, Why? Well, because the AI isn’t representing residential appraisers properly which was once again seen today in the hearing. While the AI offers good education, opportunities and what I call, fraternity benefits, they offer little to nothing else and keep playing the game to keep their friends in higher places.

The consensus among appraisers is that the AI is just for themselves, unless you are a member of the AI to which you will defend them regardless of what they do. In the hearing today, it was once again proven today by now president Steinley. While he did offer some good points, with regards to the reconsideration of value process, in which he stated that we should be using the VA model of Tidewater, it was also very obvious he was skirting some of issues at hand, Why? Well, it’s in my personal belief as well as other appraisers around the country that it is because AI is made up of not only appraisers but also AMC (Appraisal management company) members as well as TAF (The Appraisal Foundation Members) and more. They have to protect their organization at all costs and not allow the powers at bay to infiltrate the organization to possibly uncover the demons that lie within. A perfect example of this was when the Deputy Commissioner of the CFPB called out Mr. Steinley for the grants they received from their buddies at The Appraisal Foundation and made it a point that they need to investigate more. Oops.. Not a good way to start off the year for AI. So what does this have to do with what they aren’t telling you, you ask?

The AI brings in money from their education, which is probably some of the best out there for appraisers. They also bring in money from their members as well as from the relationships they have with AI members that own AMCS, Own other valuation products and more. With that in mind, who do you think they will be fighting for first and foremost? Not the independent appraisers or the real estate appraisal profession as a whole, but rather their members and donors. It’s better to keep them happy and allow them to have influence rather than do what’s right for the appraisal profession as a whole. Let me once again make this perfectly clear… The Appraisal Institute DOES NOT REPRESENT ALL APPRAISERS, rather they represent their members. PERIOD

So, what does this mean? It means that these hearings they are having on bias are falsely represented by organizations that only want to save face, not tell everyone the facts, not have the stones to step up and tell people they are wrong, and not do what’s right for the profession. Instead they like others have reversed course to protect themselves, all while trying pretend to be the leaders that everyone thinks they are. Again.. They aren’t leaders, not in my eyes or many others. Leaders don’t back down, they don’t pretend and they sure as hell don’t allow others to dictate the narrative Other than the Reconsideration of value suggestion given, the AI president did nothing other than throw the profession under the bus to protect himself and the organization he runs. I get it, this is what they believe needs to be done, however every time an opportunity presents itself to have a discussion on the real issues, they once again fail. I have a suggestion to HUD, CFPB and others… Stop inviting the people you think represent appraisers and do your research to find the ones that actually do. Appraisers from what I know, if like me, are unbiased and report the facts.

Now we get to the next example. Appraisal management companies or AMC’s. I’ve written all about Amcs before and you can read other articles I have posted here in my blog. Here though we will discuss how they alone have not helped the profession but instead harmed it in multiple ways.

Appraisal Management Companies

From new scanners, to hybrids, to staff appraisers to keeping their clients happy. AMC’s have since day one done little to nothing to help protect the public trust. Instead, they have created narratives of a shortage of appraisers to developing their own technologies that they continue to push without any regards to how they will hurt the consumers.

AMCs, What to say. Just read my previous blogs on them, and you will feel a major distrust in the system. The system we appraisers have to work with. What’s important about all of this, is the narratives of bias, shortages, and the misconception that these AMC’s are really appraisal companies. Allow me to explain further.

First, I want to once again give you an example of how these entities work. AMCs will charge you the borrower $650 for an appraisal, but bid it out to the person that can do it faster and cheaper. So, you see, you my not be getting that expert in your area that you rightly deserve. It can be an appraiser just licensed or a staff appraiser or someone with experience; however, I doubt the last one.

Let’s talk about Staff appraisers. When HVCC (Home Valuation code of conduct) came out in 2009, it set forth to put a barrier between the appraisers and the lenders so that lenders could not talk to appraisers directly and influence them. Enter the Appraisal Management Companies. Their sole job was to provide a service that would manage the order for their clients the lenders by selecting the appraiser, doing quality control, relay any conversations to the lender from the appraiser and then send the order to their client. They were to be the barrier to allow for Appraiser Independence. Simple right? Not so fast. Over the years, these companies have started to hire their appraisers to work for them as Staff Appraisers. These appraisers get assigned orders from their company to perform like any other appraiser. But here is the issue with this. How can a staff appraiser remain impartial and do their job correctly when they are first paid by the AMC they work for as an employee, and secondly how is this not a conflict of interest? Lenders are placing orders to this AMC to have them locate and assign to an appraiser, to obtain an unbiased opinion of value. The AMC in turn is now assigning these orders to their staff appraisers, and those appraisers have to answer to their employer. Independent appraisers like myself do not have to answer to anyone, as we are not employees. So what’s the issue? The issue is this, AMC’s have to sell their services to lenders to obtain their business. If they don’t perform for them, they lose that contract, and it can be thousands of orders over the course of the year. Staff appraisers must do what their employer says or well they get the boot. See where this is going? Another advantage for the AMC’s to hire staff appraisers besides controlling them, is that they can still charge you the consumer $650 for an appraisal but only pay a fraction of that to their staff appraiser while avoiding the task of trying to find an independent appraiser who might charge more. They also get to dictate many more things during the process.

The next issue is that the AMC’s have been developing a Hybrid system of appraising homes. This system is set up that someone else, NOT an appraiser, will come out and inspect your home, gather data and there relay that data to an appraiser of the AMC’s choosing. Once again, the AMC dictates who gets the job just like any other and it’s unknown to you the consumer the qualifications or experience of this appraiser who completes the report. Questions you should be asking, Who is the appraiser? Where are they located? (This is important because you have appraisers doing these reports that may not even live or service your area) Who is the inspector? What are their qualifications? Are they background checked (another main point to consider because as an example, it’s been proven that many of these inspectors are either real estate agents or Uber drivers making side money), Why is that significant? Glad you asked. It’s significant because appraisers are trained to observe things and report things. Do you think an agent is willing to report something that could hurt a peers’ transaction? Is the Uber driver capable of actually knowing what to report? I’m going to go out on a limb here and state this. AMC’s are not for protecting the public trust, rather they are in it to profit off appraisers and consumers that have no idea what is going on. So, this begs the question? Who exactly is doing the valuation on your home?

Now we move onto the next issue no one is willing to tell the truth about. LENDERS

Ah, yes, the Lenders. You know the ones that set the rules for who can get money and cannot and by what means. The very same people who have been found guilty of predatory practices, bias, and racism year after year. What’s their role in all of this, you ask? Well, let’s start with the obvious. Lenders are in the business of making money. Even with all the safeguards in place, lenders still seem to find a way around them to not only make their deals work but to also create more issues that contribute to the appraisal profession. Lets look at the one main issue I myself have an issue with. This issue is also an issue of AMCS. That issue: Trainees

I’ll keep this short here and you can refer back to my article about trainees here for more information. One of the major issues thats been discussed is the lack of new people coming into the profession. This created the narrative of a shortage of appraisers which then allowed AMCs and others to develop new technologies to modernize the profession. What no one is willing to tell you due to financial gain and more is that many lenders and most AMCs will not allow a trainee to inspect a property on their own without a supervisor. This combined with the AMC’s greed for profits & lesser pay to an appraiser has resulted in many appraisers unable to take on trainees. I mean its ok for an AMC to make massive profits but not an independent appraiser. So now you have AMCs and lenders crying they cant get reports done quickly, yet they themselves are the ones that created this issue to pad their pockets. Ive already given the solution to this issue in a prior blog post and its so simple to do. Yet, no one has dealt with it properly and instead they have created hybrid appraisals, technology, staff appraisers and more. Ah, yes lets create more new things to make money, avoid the real reasons, create false narratives and just move on. Of note Fannie Mae does not have any rules in place to restrict a trainees from performing an appraisal inspection so long that the supervisor signs it.. hmmmm Suggestion? If you are selling your loans to Fannie Mae, then you abide by their rules and stop making up your own . Issue settled plain and simple. You nor an AMC can make up your own rules now. Think about it

Are you now seeing how dysfunctional this profession has become due to the greed, the saving face and more of the major players? But the appraisers are the ones to be blamed yet again.

Next up HUD.

Yes, Housing and Urban Development. The same entity that is now very focused on racial bias in the appraisal profession yet the same organization that created redlining and for years have done absolutely nothing to rectify their bad practices from the past. So instead of actually looking at what’s really happening, they have decided that it’s the appraiser who is to blame for this narrative of undervaluing homes in minority communities. Let’s get this straight here and now before I go any further. HUD has now found a way to try to fix things by pretending there is an issue here when there is not one to be found. They themselves refuse to release any information on any appraisal complaints, refuse to tell anyone the truths, and with each new story seem to contradict themselves. They have yet to tell the public that many of these complaints have been dismissed by themselves and by the state boards. But why would they want that information out there, as that would totally dismantle any argument they continue to make that appraisers are biased or racist? Instead they bring in people that have no knowledge of the appraisal process, people to do studies using Zillow information (remember Zillow lost millions in buying homes using their algorithm) using tax assets data (which is different information that is to be used only by the tax assessor) and even give have people come in to give examples of the narrative.

Now with all that said about HUD, I am very curious about something. Appraisers report the data, the facts and the information obtained within the area, make adjustments and then determine an opinion of value right? So if the appraiser is doing his or her job correctly, the appraisal will reflect all those facts and information within the properties area. What HUD and all of these advocates want is for the appraiser to pick that home up and place it in an area of their choosing to determine the value of it? So what they are saying is that we need to forget about crime rates, school systems. Infrastructures, what market participants are willing to pay for a home (btw appraisers do not create the value, its the people that buy and sell the homes that do), and location. Here is a thought: If you want to really find the issues, look at the local cities, look at where they spend the money, look at if they are trying to help these areas etc. Ask yourself this question? Would you pay the same amount for a home in an area that all your neighbors have security bars on their windows, little police force, schools that need funding, roads that need repairs, or would you look elsewhere? Again this isn’t an appraiser issue We aren’t the ones telling you what to sell for, what to do etc. This isa more in depth city or town issue, a neighbor issue, and neighborhood issue.

Lastly, let’s discuss DATA

DATA. The sole important part of any appraisal and more. Appraisers rely on Data. Data that has been input into computers for years that range back as far as I can remember. See Appraisers use the same data as an Agent, as Zillow, as Open-door and many others. The difference is that appraisers have to dive deep into that data and decipher it to use it. So if the data going in is bad, then the output can be bad. Look at Zillow, as I stated. They built an algorithm around data, but their data is poorly deciphered, thus putting them out of the Buyer business due to over paying for homes The same with Open-Door. There are many out there that suggest AVMS (automated valuation models) be used instead of an appraiser. Well, how do you know that the data the AVM is using is credible? Here is an example: Home listed on the market for $650,000 Tax records and others state it’s 6000 sf, No basement Upon looking the home it’s actually 4370 sf, of livable space and has 1000 sf of finished basement area. Math, I know it’s hard but that’s only a total of 5370 sf of finished space. So, who’s to blame here? The appraiser or the data? I’d say the data that was totally incorrect. Let’s take it a step further. The agent stated it was updated and remodeled. Yet upon inspection the home was updated 8 years ago. It also has deficiencies to it that the agent left out. While there is a place for some alternate products for a valuation of your home, there is no replacement for 2 eyes and experience.

Lastly, I’ll leave you with this last example of the cheap products and more these AMC’s and others are creating without telling you the truths that ultimately can leave you with sleepless nights. While it’s too much to write here, I’ll give you the link to read for yourselves. I suggest you do so.

https://appraisersblogs.com/house-measurement-by-property-data-collector-gone-wrong

Now I need you, the consumer, to think about this and think hard. Where else in this world are you the consumer, subject to having a third company decide the service professional based upon the sum of money that third body can keep? Think about it. If you choose to buy something off Amazon, you choose it based on the reviews and more. If you need to engage a mechanic, you search for the one you would like to hire. Plumber? I just had plumbing issues, and I could hire someone who was qualified and did a fantastic job. Sure, I could have selected a cheaper one, but that would only have led to further issues. I do a lot of private appraisal work because I can’t stand having an AMC dictate my fee or time. I get most of my work because of good reviews and people willing to compensate me for my expertise, etc. With an AMC, they subject you to having a service done based upon the thoughts, motivations, and gain of a third body. You can not choose the service provider of your choice or on the advice of your lender, therefore leaving that up to the AMC to decide for you based upon the extent of money they can pocket and not have to offer the independent appraiser.

So recapping here, there are many issues that are not being told to you the consumer. You are being led to believe certain things for the gain of others. The AI doesn’t represent all appraisers. AMC’s are telling you just how great they are when they are not. HUD is trying to blame others for their issues of the past. When it comes to your homes’ valuation, you may not be getting the most experienced appraiser in the area, the most knowledgeable one or the most qualified one because of the greed of the AMC and how much they can save to put in their bank account.

So, as the title suggests, is it the independent appraisers who are biased or is it the very entities created that are supposed to protect you and give fairness that are the ones that are biased to make gains? Since I follow all of these issues and more I will say the bias here is not with the appraiser but with the homeowners, the lenders, AMCS and the Government entities. It now falls to HUD who created the issues to find a scapegoat.