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Working Paper 24-06: Home Purchase Appraisals in Minority Neighborhoods

I love their use of the CDC ratings and "air quality". That's one way to phrase their fixation on old urban neighborhoods with the wide mix of ages, sizes, quality and condition without getting caught using that "urban" word.
 
If I had to guess there is probably a combination of factors.

1. More seller concessions can bring it below contract.
2. Less informed and less educated, I'd imagine you would see similar stats in poor predominant white neighborhoods.
 
I did a relocation appraisal earlier this year. The house was nice, but a nine year old home surrounded by new home construction in the same subdivision and hundreds of sales in surrounding subdivisions. The nice couple met me at the door and told me specifically they needed $450,000. They had paid $425,000 the year before. Well, when I researched the similar age homes from the subdivision, the opinion of value was nowhere near their expected value. The new home sales in the subject subdivision did not support their previous sales price. This was in my town, so I know the market very well. The second appraiser used new home sales and came in $30,000 higher than I did (still way below the $450,000). They did the typical rebuttal letter and why didn't you use these sales from the other appraisal? I stood firm because the similar age/size sales in the subject subdivision supported my value. They got a third appraisal for exactly the second appraiser's value. They listed it for $20,000 above their value and $50,000 above my value. I watched the property. Relocation value was needed for under 120 days. At 90 days, they dropped the price. At 120, 150, 180 days they dropped the price. At 216 days the home has a stigma of "something must be wrong with this property" and they dropped the value to my suggested list price. They then dropped it from the market that week. If the property does not sell, you don't get scoring on your value versus the actual sales price. If they had listened to me, they would have sold the property within the 120 day time period, but now I get no credit for being right.

I told this story because this is how appraisers get a bad reputation and the data gets skewed against us. Nobody complains if you are over the projected price, everybody complains when you are below their projected price. It doesn't matter, the race, geographical competence or experience of the appraiser. The sellers were white. They thought I was the perfect appraiser for the job because I had 30+ years of experience and lived in their town until they saw my value.

I must have had relocation bias.
 
I would be real interested in seeing reports regarding the number/percentage of waivers given by neighborhoods and the ethnic makeup of the borrowers. My guess is the results will show a disparity between white and non-white neighborhoods and borrowers.

Sometimes it is impossible to use mathematic formulas and statistics to disprove reality.
 
Mejappz said:
The motivations behind hiring decisions made by (AMCs) are just as influential as any other factor. However, apart from Philly's report, this crucial aspect often does not receive the attention it deserves. I've been discussing the issue between market area and neighborhood for years, but it always seems to fall on deaf ears. I guess I was right all along. :giggle:

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This is a funny article.
The Dodd Frank did not require the use of AMCs. That was the HVCC, which the Dodd Frank sunset. Oh and the funniest thing is that when the Dodd Frank was accepted in to law, the Truth in Lending Act forbid charging borrowers for 3rd party fees, when that 3rd party wasn't necessary to the transaction. But you know, lenders weren't willing to pay AMCs enough money to make being a middle man worth while, so, donate to politicians - or be related to them - and get the law changed.

And if you "think" you know what Dodd Frank said when passed, hopefully you have kept up with all the "Democratic" changes to that law. Because that's what the CFPB is here for:

§ 1026.42 Valuation independence.​


All versions of 12 CFR Part 1026 (Regulation Z)​


 
In lower income neighborhoods I have had more come in below contract I'd imagine. I can tell you its not from not understanding the market. Sometimes I'll get an appraisal where the comps are all in the same community, comp is a c4 not updated and those selling similar to the sales price are high c3 and updated. Not my fault. I'd guess there are more first time homebuyers and lower education making informed decisions in homebuying less likely.
 
Regardless of property type or location, I think the prospect of less well informed/advised buyers is due to the brokers acting differently with the data than appraisers act. The effects of that will be different when the quantity/similarity of the data is lower than when that quantity/similarity is higher. Complexity becomes an effect-multiplier.

If an appraiser is working to specs we should expect that they are "seeing" a lot more of the data than 95% of the brokers out there, and is routinely looking at more sales data in a week and specifically for value than the average broker is looking at/analyzing in a year. It simply isn't common for a broker to provide relevant comparables to an appraiser that the appraiser wasn't already aware of during their normal course of business. That is, if/when that appraiser is working to specs.

Harder for appraisers WILL also be harder x 2 for the brokers and buyers/sellers just because they're not trained to look at everything nor are they performing their own different-valuation processes all day, every day. They are trained to look for what it takes to make their deal - because THAT is their job - and because many brokers don't really understand how appraisers pick their comps. The flip side of the "data availability" coin is that easier for appraisers will also be easier for the brokers and buyers/sellers. More agreement despite their different search criteria and different modes of research and analyses.

Just from a logic and consistency and critical thinking perspective, "The effect dissipates when the data and analysis are easier" directly contradicts the appraiser bias allegation. Based on their own conclusions, the appraisers AREN'T coming in low when the data is easier, which would not be the case if appraisers were acting with that kind of bias. You basically cannot have that kind of "dissipates when its easy" in the same room as "appraisers as a group are racists bias".

Screwing up on the selective basis regardless of how easy the analysis is would accrue to a violation of the ETHICS RULE. By comparison, screwing up more on everything as the analysis gets harder accrues to the COMPETENCY RULE.
 
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