Freddie Mac Research - Appraisals

[TerryRohrer]

Looks like in their haste to support the predetermined conclusion that appraisers are racists, Freddie folks didn't waste much time on research (after all, they had Andre Perry's Zillow based trash and t one of the unsubstantiated claims in the media to rely on). I have been saying for a while that the "appraisal gap" could be a product of appraisers protecting minorities (and lenders). Decided to research that a bit, and is a draining 30 seconds, came up with the study referenced in the link below. They found that minorities, particularly blacks, typically pay between 3 and 4 percent more for similar houses than do whites. Now, that was before our "wokeness spring" had sprung, so likely will get dismissed as biased trash by those selling their narrative. But, about what was the difference in the incidence of appraisal gaps? 3 to 4 percent or so? Maybe Freddie didn't control for everything but appraiser racism after all!

Study Finds Racial Disparity in Prices Paid for Similar Homes | The Journal of Blacks in Higher Education

In comparing transactions for similar homes in the same neighborhoods, the data shows that Blacks spent between 3 percent and 4 percent more than Whites.

www.jbhe.com

 

[CGinMN]

[O]ur analysis documented meaningful, statistically significant premiums in the prices paid by black and Hispanic buyers in each of the four large metropolitan areas that we studied... While certainly not conclusive, this pattern suggests that the relative inexperience of black and Hispanic buyers, due to the historically lower rates of home ownership, may contribute to the higher prices that they initially pay upon entering the market. With the experience gained from having participated in the real estate bargaining process at least once, black and Hispanic sellers do as well as their white and Asian counterparts.

Seems like a reasonable conclusions. One that would also explain Freddie's appraisal gap findings.

 

[TerryRohrer]

Does Appraiser and Borrower Race Affect Valuation?

https://icapweb.org/go.php?id=776&table=page_uploads&fbclid=IwAR0mK7JQpjYkknJyUt7r_Hha3QN9h7fLXAz3SLiKdSQZdeXL7tpsIkUk6jE

 

[CGinMN]

It has been 6 months since this research note was released. Will Freddie Mac deliver a timely follow up addressing the many criticisms? Instead, the "exploratory research" has become Exhibit #1 in the political crucifixion of the appraisal industry. Considering it is being cited repeatedly in hearings on Capitol Hill as primary support to upend the entire industry, change the regulatory regime, create new appraiser qualifications, eliminate appraiser discretion, and eliminate market-based sales comparison methods, doesn't Freddie Mac see the need add some more context and clarity?

 

[shrubberyvaluation]

What proportion of the various gaps discussed are explained by these variables? For example, if each contributed 1.25% to the appraisal gap, that could explain the entire concluded gap (and in my view. 1.25% is a modest amount). Just wondering how the motivations of realtors, lenders, buyers, sellers, home inspectors, and all other housing market participants are being measured and explained leading up to the entire "gap" being explained solely by appraisals.

"Differences in comparable sale distances, comparable reconciliation, variances in comparable sale prices and possible systematic overpayment for properties by minorities can explain only a modest amount of the observed appraisal gaps for the minority tracts."

Distance in comparables might be explained by a couple things off the top of my head. Detached vs attached, vs hi rise condos. More dense housing is probably more prevalent in lower income areas and comps are probably closer in general. Also lower income areas typically have less of a difference in updates and features so you might not need as big of a range to find a comparable property. I'm not sure about variance in comparable sales prices but this could also account for that.

I don't know how they are gauging comparable reconciliation.

 

[shrubberyvaluation]

3) The percentage of appraisals that are lower than contract price due to the practice of subtracting seller concessions from comparable properties dollar for dollar in the different tracts.

That would not be the issue of appraisers. That would be based on the lender not wanting to lend for seller concessions.

 

[TerryRohrer]

It has been 6 months since this research note was released. Will Freddie Mac deliver a timely follow up addressing the many criticisms? Instead, the "exploratory research" has become Exhibit #1 in the political crucifixion of the appraisal industry. Considering it is being cited repeatedly in hearings on Capitol Hill as primary support to upend the entire industry, change the regulatory regime, create new appraiser qualifications, eliminate appraiser discretion, and eliminate market-based sales comparison methods, doesn't Freddie Mac see the need add some more context and clarity?

I think they are likely smug and satisfied with the status quo. They accomplished/supported the narrative required to remain ensconced in their ivory tower filled with perks and bennies!

 

[CGinMN]

I think they are likely smug and satisfied with the status quo. They accomplished/supported the narrative required to remain ensconced in their ivory tower filled with perks and bennies!

I am trying to be less cynical about it. This was framed as exploratory/step 1 in a longer process to study an important issue. If the exploratory research was intended to solicit feedback, I give them the benefit of the doubt that they will produce some type of follow up that addresses the feedback. Lets just hope it's timely because their research is being used as a basis for legislation being debate right now.

 

[shrubberyvaluation]

I am trying to be less cynical about it. This was framed as exploratory/step 1 in a longer process to study an important issue. If the exploratory research was intended to solicit feedback, I give them the benefit of the doubt that they will produce some type of follow up that addresses the feedback. Lets just hope it's timely because their research is being used as a basis for legislation being debate right now.

I can give them a benefit of the doubt too, its different than PAVE, whos opening statements already had their conclusions and is clearly political.

 

[George Hatch]

They all have to start somewhere. Unfortunately it appears that some parties have started and ended at the same place - when the allegations are raised. Which, that is not what I'm suggesting Freddie has done. They're at least looking at multiple appraisals by the same groups of appraisers. That's more than anyone else seems to have done so far.