Racism and the lack of diversity in the appraisal business

Miller (00:04):
Human beings that aren't trained properly or have built-in personal bias are not accountable, until now.

Myers (00:13):
That's Jonathan Miller, president and CEO of Appraisal firm, Miller Samuel, talking about the appraisal industry.  Claims about racial bias in appraisals are nothing new. But recently, researchers digging through millions of appraisals from the Federal Housing Finance Agency, the FHFA, found, yet again, evidence of systematic racial bias from appraisers—where higher property values were given to people when they were white, and lower property values were given when the owners were people of color. I'm Emily Myers and this is the Brick Underground Podcast. This episode takes a look at racism in appraisals. I recently spoke to Jonathan about how prevalent this type of discrimination is in New York City and what's being done about it.

Miller (00:59):
The common theme is that an African-American couple is refinancing their home and, and this is not just New York, this is a national situation and they're appraising their home and it comes in lower than they thought it would. So they complain to the bank. The bank sends another appraiser out, and before the appraiser gets there, they change all the personal pictures to have no African American, you know, in the pictures they have a white neighbor stand in for them, and then magically the house appraisees for more. This is something that I've been very active nationally on, and because I chronicle how this is evolving and, and applying pressure to what I believe is the primary source of the problem, which is The Appraisal Foundation and their policies in New York that essentially have created this sort of mentoring system that's been going on for decades. You know, you basically can only get into profession if you know, you know, if you're related to somebody.

Miller (02:08):
Uh, my firm is one of the exceptions. We didn't do that, but, you know, Fannie Mae or the precursor of Fannie Mae was, began during the depression and it was redlining all day long. The mortgage world has long been, you know, it was the originator of this idea and appraisers are an offshoot of that. And to give you evidence of how real this is, is if you look at, uh, the Bureau of Labor Statistics Study, they track 400 occupations in the US, 400. The appraisal industry is 400th in diversity in that we are 98% white. I'm the poster child for, you know, I'm a middle aged, you know, predominantly male, white, and there are very few people of color, you know, and, and that is insane, especially when there's been an appraiser shortage in certain rural areas in the country for years.

Myers (03:07):
So what you are saying though, is the industry isn't doing anything about it. In fact, it is actually fostering this...

Miller (03:14):
Well, it, by doing nothing, it's fostering it right? Through my writings, I pressured for the first time they added an African American to one of their boards for the first time in the 30 plus years of their existence. Um, and the head of diversity in their organization is a middle aged white guy. They can't see it. It's one of these situations where now we're seeing HUD is doing a significant investigation into them. President Biden, it's one of his planks. I mean, it's really front and center and the organization that is the arbiter of licensing, meaning the, the fact that I have a license and certification to do what I do, — they sort of oversee or manage that — and they're doing nothing. So it, and it's sort of — it would be funny to see the comedy of errors if it wasn't so serious a problem. And so the way I look at it is it's something that's, we're moving in, I think, the right direction. But it's like a glacial pace and it's, it's sort of insane that we're even having this type of situation in 2022.

Myers (04:31):
Okay. So, you would agree with what the reports are telling us that, that it is, it is a systematic, discrimination, racial discrimination that's taking place.

Miller (04:42):
Listen, I, you know, I, I'm not gonna say that every appraiser does this because they don't. Um, but it's, it definitely exists. Um, and so the industry being 98% white has no credibility to defend itself and shouldn't, it should be revamped or revised, and restructured.

Myers (05:01):
So are appraisers at risk then of losing the sort of public trust and, and what would that mean if they did?

Miller (05:06):
Oh, I, I think that we're already at that point, the certification that we have are the management of sort of what we have to do to be licensed is called USPAP, Uniform Standards of Professional Appraisal Practice. And the Appraisal Foundation is a, is, uh, that's their, their charge is to manage, USPAP, keep it relevant, and to protect the public trust for valuation. Think of the bond market and the trillions in the bond market are based on appraisal valuations. Right. Um, this is an important issue where just at that point where the lack of paying any attention to this issue and fixing it by this organization and others too, um, is just inexcusable. So that's what we're fighting for.

Myers (05:53):
Yes, because the latest research indicated that the, it had got worse throughout the pandemic that the, the numbers were, were more stark homeowners who had done the, like you explained earlier, the white-washing experiments of their homes, removed all the photos and the artwork that indicated that they were Black, they got a white person to stand in for them to pretend to be the seller and, you know, saw the value of their house go from $500,000 to $800,000.

Miller: Right.

Myers: When you are appraising a place, what factors do you consider? Is an appraiser looking at personal photos?

Miller (06:27):
No no. So, so you're like, essentially you're pretending the place is empty, you know, that, you're not looking at the quality of the furniture. You're looking at the real estate, not the, the chattel or the personal property. That's part of it. Um, but human beings, um, you know, that aren't trained properly or have built in personal bias are not accountable - until now,  Now we're starting, we're seeing lawsuits, we're seeing, you know, attention being brought to this, which no one knows what we do. Like we're this sort of shadow industry and we're getting all this attention for the wrong reasons, unfortunately. And I think part of our industry's problem is we're our own worst enemy. Um, we can't get of our own way, and this is hopefully what many like-minded people like me are trying to fix.

Myers (07:21):
So, of course, you know, some owners have been appraising in order to refinance, probably less so now, so there's no sales price to compare it against. Um, but do you have, or do you gather data on appraised value versus sale price? And how would you look at that data?

Miller (07:38):
So the answer is no. We don't look at that, we don't have access to the appraised value. You know, if they did a refinance last year or two years ago, we don't see that. Um, the other thing too is that we don't see who the owner was in an, in one of the comps. You know, like, Hey, were they African American or not? I think the problem is more about the subject, you know, what's actually being appraised by that person. Um, and I I, I would guess a lot of it is unconscious bias. Um, it's there, but it's, you know, maybe not like something you'd see in a bad movie. Um, um, but it, but it's clearly there.

Myers (08:16):
And what's, do you think of the extent of it is in New York or New York City?

Miller (08:21):
It's probably no different than any other market in the country. Uh, I would guess, you know, it's, we're just learning more and more about it now. So, but, I don't see, I see this as a US problem and not particularly, hey, it's more in New York or more in one other state or less in one other state than another. Um, I, I just don't, and the fact that we're dominated by a single class, you know, single, uh, classification, um, you know, basically white males, you know, is problematic in and of itself.

Myers (08:58):
Yeah. And you, you mentioned obviously redlining, and I just wanna make sure that we, um, kind of define that obviously, just in case the people, it was obviously this exclusionary practice of mapping neighborhoods.

Miller (09:12):
Yeah, yeah. The, the federal government literally has maps, you can Google it that said, Hey, you know, in this sort of triangle or square state region, you know, that's undesirable. You know, it's people of color or whatever, and it, it's like, don't lend there. Um, and that's the beginning of sort of mortgage lending. Um, it's, it's, it's amazing. And there, there are websites that sort of have all these math, it's incredible. Um, and that was in the thirties and it just sort of, sort of continued along, um, over time. And the profession is, you know, sort of was born out of this. So, um, there's some remnants of the past that never got taken care of.

Myers (10:00):
Yeah. And, and obviously parts of Brooklyn, Queens, the Lower East Side and Harlem, all lost opportunities for investment due to redlining.

Miller (10:09):
Sure. Parts of Manhattan. I mean, it's, it's a widespread issue that's finally coming to light, I'm very pleased that it is, but I'm not pleased about how slow, uh, and how much, you know, uh, gobbledygook is sort of, there. Corporate or a government speak is sort of slowing down, um, the solution and obviously in most cases it's, uh, the lender requiring the appraisal.

Myers (10:35):
Yes. Banks have obviously been involved in the redlining, but to what extent are they driving this form of racism?

Miller (10:42):
You know, I think, uh, the biggest thing is that, uh, the appraisal profession, the entry into the profession is the problem. It's very hard. Unless you have somebody mentor you for two years, you barely make any money or you don't make enough money. Um, because to the appraiser, you're not, there's not much value. You don't know much. And banks, even though Fannie and Freddy who set the standards for, um, mortgage lending are fine with a new person doing an appraisal that's supervised, most banks, it's a financial crisis will not accept people with less than a two years of experience. So someone has to basically not make a living for two years. And then there's, there's other things like in AMC structure, which is an Appraisal Management Companies, which are this third party institutional middleman that was born out of the financial crisis to sort of separate the loan officers or the sales function of a bank from the underwriting function. The problem with, um, AMCs is that unlike a Hollywood agent that might get 10% of the fee for a movie of a star, uh, they get 50% of the appraisal fee. So that means that overnight appraisers are making 50 cents on the dollar or less, and yet, um, they're gonna carry somebody an appraiser that's not certified for two years and can't sign reports. Um, like it's, it's, it's a broken system and this is what we're trying to fix.

Myers (12:26):
And so what is advice for people who are seeking appraisals and feel that they might be suffering?

Miller (12:33):
So you have no choice. Like when you go to a bank, the bank has an approved list of appraisers, and remember they selected like, you know, you're approved. So if you criticize the appraiser to the bank, you're criticizing the bank, right? Um, so if you have a problem with the value and, and you're objective, meaning you're not like emotionally attached to some crazy number that your house has never been worth. Yeah. Which is not uncommon. Um, believe me, uh, you can request a second appraisal. It doesn't mean they throw out the first one. It might mean they average them or they give one greater weight, um, or review of the first appraisal. Um, there's always an option. Um, it's just, um, you have to approach it in a very sort of neutral way. Like, you, you don't want to be on the attack, you just remembering that the bank selected the appraiser.

Miller (13:28):
You do have recourse, and you're supposed to get a copy of the report as well. So that will help you better understand and maybe have a, one of your agents or appraiser, you know, review it for you just to give you a sense of, is this real? Is this, does this make sense? Um, most of the time it does, like, um, I don't want to, you know, give anybody the impression that all appraisals are, you know, are biased and like the numbers are always off, but there's enough to catch attention and that's what is being addressed right now. Hopefully.

Myers (14:02):
That was my conversation with Jonathan Miller, president and CEO of the appraisal firm, Miller Samuel. We reached out to the Appraisal Foundation and the organization's director of communications, Amy Kaufman, told me they are committed to rooting out bias and discrimination and promoting diversity in the appraisal profession. She identified two initiatives to that end. One is an online training path for aspiring appraisers, allowing them to avoid the need for a mentor, and the other is a grant to offer scholarships, to aspiring appraisers to cover the costs of education and exam fees. Kaufman also says the board has implemented a new nominations process, and of the most recent appointees in the past two years, all but two are women and three are people of color. We would love to hear from our listeners on this or any other New York City real estate issue, and we have a new feature on the show notes page at our website, brickunderground.com, where you can leave us a voice message without even dialing a number. Use the link to ask us a question that we can answer in our next episode, or tell us what you want to hear about. As always, you can find hundreds of articles on every aspect buying, selling, and renting at brickunderground.com, where we help you better navigate the market, find a deal, and make sense of the legal jargon, and hopefully stay one step ahead of the competition. I'm Emily Myers. Thanks for listening to the Brick Underground Podcast. The show was produced by myself and Jenny Falcon.