Freddie Mac vs Appraiser Bias

[Dale Floyd]

Danny Wiley, senior director, property valuation for Freddie Mac, brought up the use of inspection technology to help eliminate bias.

“The data tells us we actually get more accurate condition ratings with a third party inspection,” said Wiley. “I don’t think people see that as potentially something to help with the bias but the data clearly shows that that is a contributor to improving our results and getting less bias in those condition ratings.”

“We came to the conclusion that the percentage of undervaluation in each one of those markets didn’t vary according to the race or the demographics of that area,” said Hogan. “Now, obviously, that would make sense because AVM doesn’t know the race, it’s pretty much blind to those things.”

https://www.nationalmortgagenews.com/news/fhfa-to-make-fannie-freddie-appraisal-data-public



I’d really like Danny to reveal the data he referenced revealing real life examples of appraiser bias versus non-bias with a third party. I’m a little confused with DW these days.

 

[Joe Flacco]

I can kind of understand what he is saying about the condition ratings but it is less a issue of bias and more a issue of quality / condition judgement being very complex with dozens of different factors. It is not just the issue of what is the rating but also how does it fit and compare with the other properties in the neighborhood.

Residential real estate market is just very complex.

 

[Zoe]

That doesn't make sense. How is third party more objective? Where is Joan? LOL

 

[Terrel L. Shields]

That doesn't make sense. How is third party more objective?

Agree. It doesn't make sense. Why would the inspector's descriptors not be as biased as the appraisers? I mean if the appraiser is basing the assessment upon skewed inspection data, then it makes no sense whatsoever. Say the inspector downgrades the condition and quality? Labels the interior as "dated" even with pictures that are not clear on that point. Maybe the inspector neglects to scrub the pictures of family photos.... etc etc.

 

[Joe Flacco]

It is more objective because the third party inspector doesn't have to be concerned with how does the rating impact the comparison with the other properties.

Does that lack of interest or concern with the appraisal and sales comparison result in more reliable valuations? No.

 

[Ricky LaFleur]

“We came to the conclusion that the percentage of undervaluation in each one of those markets didn’t vary according to the race or the demographics of that area,” said Hogan.

By the term "undervaluation", aren't they inferring error on the part of the appraiser?

 

[alebrewer]

I'm curious how they quantify a 'more accurate condition rating'...

 

[J Grant]

I thought the third party does not make condition ratings? ( because a condition rating is an opinion)

My understanding is the third party reports in photos and notes or a checklist what they observe at the property and the appraiser determines a condition rating from the information.

 

[Non Sequitur]

I'm curious how they quantify a 'more accurate condition rating'...

Yeah, given the C ratings we're working with I would love to know what "more accurate" is based on.

 

[Dale Floyd]

DW and I are having a respectful conversation about this topic right now. He proclaims FreddieMac reviews thousands of appraisals each month revealing appraisers getting condition ratings completely wrong, versus thousands of reports revealing third party inspectors getting condition ratings right.

I'm asking questions about that, because I'm not sure how they know who is right or wrong without those comparisons being made of the exact same properties side by side. I think they use a ton of general assumptions.

It's funny to me that appraisers are so easily criticized these days. Danny was truly an excellent appraiser in his days in Mid-Tennessee, and my bank used him and his firm back then. Doesn't mean we always agree, but I have a truckload of respect for him.