Home Appraisals Racist? ... 116

#homeappraisal #realestateagent #homevalue

The thought is that home appraisals are racist as there have been public allegations of the practice and some settled lawsuits.

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Thoughts:
1. As a a real estate agent, and someone who has taken appraisal courses in grad school, there is a lot of grey area in appraising.
Three main approaches to appraisals
A. Income Approach
B. As built approach(how much would it cost to build)
C. Comparative sales approach.

Appraisals for homes in the United States really only get done under the comparative sales approach, which is basically, look at houses similar and determine a value based on the difference.

2. This is very different than what a real estate agent would do. We will still use a comparative sales approach. We would then use a marketing strategy designed to get the most money out of the sale. Therefore, in a hot market, limited inventory, we see a “comp”(comparable sale) in a neighborhood and it has great characteristics...i.e. sold fast, similar home to the one listed, we may well price a house a little under the selling price and hope multiple bidders take that house much further than what it will appraise for.
3. In this case, appraiser will come back and say “I have no comps to justify your sale price.” I had a house earlier this year sell for 30k over asking, and there were multiple offers at that level…the appraiser could not justify the asking price even though it was clearly an arm’s length transaction.

4. Understand that bad appraisals happen all the time…both to the good and the bad. The issue of racism in appraisals does matter though, and here’s how, in my opinion.

a. Homeowner re-finance or equity out. If the homeowner can’t refinance or get equity out because of a racist appraisal, that is an issue.
b. A sale of a property. This is a little more tricky. If the house doesn’t appraise, the buyer may not be able to afford the difference between the appraisal and the purchase price and might have to walk..in this case the appraisal caused the house to not be sold to the buyer.
c. Systemic low appraisals in particular areas would definitely hurt a community.
d. Similar to refinance/cash out, people tend to make improvements to their property when they think it will pay off. As an example, when the value of my home when purchased was 200k, I had no hesitation remodeling my bathroom when I knew I could get 240-250k out of the sale. Consistently low appraisals kill the ability to improve a home, because the owner knows they are in a negative equity situation already.

5. Appraisals are justification for the bank to lend the money. That’s it. It’s a moment in time as well. It’s about the same relevance as getting approved for a 30 year mortgage. I don’t know what I will be doing in 1 year from now..how can I be a good credit risk for 30 years into the future?

6. I’m particularly interested in this practice of black families removing articles from their homes..a whitewash, to try and get a better appraisal. Can you imagine having to do such a thing or thinking you would need to do such a thing? When I show homes throughout St. Louis, I don’t pay too much attention to who is on the wall.

7. On racism with respect to appraisals, those appraisal reports are written. You actually pay for them on a refinance. It shouldn’t be too difficult to check the comparable sales and see if a mistake was made. Also, you have to be careful with market conditions…the one article talks about homes in California that are in the 500,000 on a bad day and can be worth more than 1,000,000 on a good day. If there are very few comps and the market moves fast, it’s possible to be off by that much.

8. I think most people (general public) have no idea how the appraisal process works. Whenever something is unknown there’s this sense that someone is hiding something. My thought is that it isn’t whether or not appraisals are racist, but that appraisals are quite ridiculous in the first place. It’s definitely more of an art than a science, and since it can be manipulated by human interaction, you will get many different outcomes, some of which are bound to show racism, sexism, many isms, AND economic class disparities as well.

Source: https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_211

https://finurah.com/2021/12/08/california-couple-sues-appraiser-over-what-they-say-was-racial-bias-in-home-valuation-lowballed-by-500k/

https://www.forbes.com/sites/brendarichardson/2021/03/08/hud-reaches-agreement-with-jpmorgan-chase-resolving-claims-of-race-discrimination-in-appraisals/

https://fox59.com/news/indianapolis-homeowner-files-discrimination-complaint-after-removal-of-black-identifiers-leads-to-100000-appraisal-increase/

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