Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California

Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California
Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California

Wednesday, August 26, 2020

Black homeowner claims discrimination, low appraisal in real estate appraisal - Real estate appraiser, reviewer with 35+ years responds - Mary Cummins


UPDATE: The author of the article removed some of the false racist accusations. They removed the name of an appraiser they misquoted. They also removed the false statements by Andre Perry. I wrote a letter and article in reply to Andre Perry's false and misleading statements he made about appraisers, appraisals and real estate to the Finance Committee last year. The author clearly received many, many letters from people about this extremely misleading and reckless article. This is not the time to be making false claims of racism. There's enough actual racism out there. Below is the article refuting Andre Perry's false claims.


UPDATE: After doing some research this is partially busted. I'd need to see the appraisals to make a true determination if the first appraiser came in low. I obviously can't determine if the first appraiser was racist and acted in a racist manner. We don't even know if the appraised value stated by the owner was the actual appraised value. I have not and am not appraising this property. There are issues here. I posted some comps below pulled by a robot and not me. Yes, racism exists and some appraisers are racists. That doesn't mean every loan rejection is caused by an intentionally low appraisal made by a racist.

First a word about robot appraisals. They are not good indicators of value. The robot hasn't seen the property. The robot doesn't know condition of the property, view and many other very important factors. The robot pulls comps based on a basic math formula. It does not choose the most similar comparables.  That said I'm including robot appraisals only because there is no way anyone can claim racism, bias, discrimination with a robot. It's also just to show a range. Here is a saying among appraisers about robot appraisals such as Zillow. "The 'a' in 'Zillow' is for 'accuracy.'"

The original appraisal came in at the range given by four different robot appraisals for the property. The final appraisal came in higher. See the four main robot estimates below. The robot appraisals were based on the false larger size so they are even higher than they should be. Robots are software programs. They definitely do not consider the race or anything about the owner. They don't see the property. They know nothing about the interior. 

It's not a 4 bed, 4 bath home legally. It's 3 bed, 2.5 baths. That makes a big difference. The size in the MLS is larger than legal. Some estimates are based on the false larger size. You can't include unpermitted additions with most lenders because building and safety can force them to remove unpermitted additions. You have to choose comps based on legal size, bed/bath count of subject only. 

It has a funky addition which doesn't appear to be permitted. It's on a double corner lot closer to the main highway and commercial area. These can be negatives. 

It was not a bank loan but a credit union loan and a credit line. There are different requirements for credit union loans than bank loans. Based on my experience credit unions aren't as picky. The couple got a 15 yr loan which is generally for riskier borrowers and what appears to be another line of credit on the property. They took cash out. Banks need to see a higher loan to value to do a refinance and get cash out. Sounds like they didn't get the loan first time around which could be based on credit, income, length of time at current job... I have no information to verify this though I do have their loan documents and loan agreement. 

The area is not "predominantly white." If we go by % only then yes, whites are predominant at over half or 51% in this area. Whites are 51%, blacks 30%, Asians, Hispanics, mixed make up the rest. See chart below. In my area "predominant" is considered 85% or more. Also, the wife is black and husband is white. Did the appraiser only discriminate against the wife? 

Below is information about the property. It's all public information. 

They just refinanced July 18, 2020. They bought the 3 bed, 3 bath, 2,512 sf home built 1951 on a 21,586 sf lot 4132 Sherwood, Jacksonville, Florida for $295,000 July 19, 2017. There is what appears to be a $60,000 second. It's assessed at $308,000. Lot: 5  Block: 3  Map Ref: PM6505 Abbreviated Description: Assessor 100746-0000 Legal LOT:5 BLK:3 UNIT:1 SUBD:ORTEGA FOREST UNIT 01 SEC/TWN/RNG/MER:SEC 09 TWN 03S RNG 26E 19-22 09-3S-26E ORTEGA FOREST UNIT 1 LOT 5 BLK 3 MAP REF:PM6505. They got a $292,000 first 15 years from a credit union Coastline FCU, not a bank. They publicly listed their names, Abena Sanford Horton and Richard Alex Horton, and address. I'd still like to see the appraisals. If a local appraiser can run some comps, that'd be great. I'm in California and not Florida.

Below is the Zillow estimate $366,000 to $448,000 with $407,171 estimate. It looks like they are pulling the false larger MLS bed/bath count and size which appears to be more than legal. That could cause a big difference right there.


Redfin says it's worth $342,000.


Movoto says $324,000.


Real AVM score.

$424,300
Confidence Score
68
RealAVM™ Range
$373,384 - $475,216

Here is the racial makeup of this neighborhood based on the address.White 51%, Black 31%, Hispanic 10%, Asian 5%, 2+ races 2.6%, other .4%. African American isn't the minority here. The minorities are Hispanic, Asian, other and mixed. While whites are listed at 51% which is more than 50% it's not 85-95% white which is generally considered a "white majority" in my area. 

This is from the MLS when they bought it. I see some issues, i.e. unpermitted extra large bedroom, bathroom and double corner lot. 

"Property Overview - Two blocks off the river and in the popular Stockton School District in Ortega Forest, sits a 4 bedroom home with the most beautiful wooded, double corner lot waiting for new owners to call it ''Home''. And if you absolutely love your a Mother-in-Law, there is a suite just for her! But if not, then you have 2 Master Bedrooms! Some of the other Main Features include an over-sized 2-car garage, wood floors in most of the house, interior recently painted, a very large terrazzo-floored Florida Room, wet bar, tiled sunroom, french doors and a large awning-covered back patio. You need to come see this, because with just a tiny bit of TLC, it could be yours!"

The first appraisal allegedly came in at $330,000 when owners thought it was worth $450,000. $330,000 is in ballpark of the robot appraisals. The area is not $350,000 to $550,000. High is $480,000. Allegedly the second appraisal came in at $465,000. We still don't have the appraisals so we don't know the values of the appraisals. This is all speculation.

Below are some comps pulled by a robot and not me. They were pulled after the Hortons got their loan. We have to throw out comp 1 and 12. One because it's newer and 12 because it's right on the river, has a boat dock and larger. 4693 Ivanhoe is much larger, has been renovated and is farther from the main street. It also came in higher. Look at comp 3, 4336 Sherwood. This is on the same street but an inner lot closer to the river and away from the major road and highway. It closed after they got their loan. In appraising we can never appraise over the highest current sold comp. It's possible there just weren't similar enough comps that had closed when they had their house appraised. 


Below is a satellite image of the subject. You can clearly see why there would be a large variation in values due to location on the water or near a major highway and commercial zone. Subject is located closer to the main highway and commercial area than higher comps which are located closer to the river.





Abena Sanders Horton is an attorney? Maybe she threatened to sue the Credit Union if she didn't get the loan she wanted. I've seen it many times. I can't find her original post online. Perhaps she deleted it when the scrutiny started. A lot of people post iffy things then they blow up.


ORIGINAL: Few weeks ago an article came out about appraisers allegedly discriminating against black homeowners in real estate appraisals appraising them below market value. The non-peer reviewed "research" it was based upon was faulty. I've been writing a response but have had major computer issues so I have been putting it off.

In the meantime some people are jumping on that misleading "research" stating they've been discriminated against in real estate appraisals of their home. I'm sure there are a few bad apple racist appraisers who may not appraise homes properly. That said there are many regulations and rules which prevent this.

Below is link to an article where a homeowner states their home was appraised 40% below market value due to their race. 


I've been a real estate appraiser over 35 years including a review appraiser. I review other appraisers appraisals for banks. The homeowners need to post the address and both appraisals so appraisers can review this appraisal.  Real estate appraising is based on a math formula just like robot appraisals. Not only do we never consider who owns, lives in the home or decor, we must and do blur out all people and photos/paintings of people, religious articles, some other personal items in the photos in the appraisal. This includes comp photos. It's the law and we all do it. No appraisal gets past the Appraisal Management Company and gets to the bank without following these rules.Homeowners don't have to remove photos or personal items from their homes. Appraisers remove them digitally. Look at your appraisal.

I think some people are jumping on the misleading and incorrect "research" someone posted recently about black appraisals coming in low just to get attention. Appraisers may vary by 5% and still be within proper parameters. If an appraiser is appraising a tract home in a median home value area, any variance should be minuscule like one percent. The property should appraise itself. To vary by 40% is criminal. If that is true, that appraiser should lose their license and go to prison. Not only that but the Appraisal Management Company would have caught and stopped a poor quality appraisal before it was submitted to the bank. 

Real estate appraisal is based on the theory of matched pairs. Our goal is to find an identical property to the subject which has sold very recently on the open market. This is rarely possible so we find the most similar properties and adjust for the differences in size, location, view, amenities, upgrades, time and market. 

Below is the real estate appraisal math formula, equation. It's similar to what is used by robot appraisals such as Zillow, RealValue...

An appraiser first researches the condition, amenities, location, size, bed/bath count, view, upgrades... of the home, subject property. The most similar comparable sold and listed properties are then searched. We generally use at least three comparables sold within three months, one listed comp under contract and one active listed comp. The formula is as follows:

1. Properties +/-15% difference in Gross Living Area (GLA) with similar bed/bath count, view, amenities, age, condition, upgrades, location... 

GLA is the legal permitted size of the subject property. It does not include garages, patios, decks, balconies, stairwells, open areas, breezeways, unfinished attics, basements, unpermitted additions, guest houses, ADUs... Basements, guest houses, ADUs will be added in the comp grid as an "other" amenity. Unpermitted additions including unpermitted attic conversion generally can't be used in search parameter or given credit in the appraisal. The theory is Building and Safety can order the home order to remove it. The items are still mentioned, photographed in the report.

2. Properties within 1/2 mile radius or another similar area. It could be a square, other area based on known neighborhood boundaries of the subject property.

3. Properties sold within last three months or six months if no properties sold within last three months, active listings and under contract listings. 

After we have searched using the above parameters we then chose THE MOST SIMILAR SOLD/ACTIVE COMPARABLES TO THE SUBJECT PROPERTY.     

The appraiser then takes these comps and puts them in the grid in the appraisal.  We then adjust for the differences among the properties. Our adjustments are based on matched pairs analysis. Again, it's math, the same math computer appraisal software uses.

For instance, subject has three beds when sold comp 1 only has two beds. We figure out the value adjustment, market response to three beds verses two beds. I'm paraphrasing this for lay people because advanced statistics is involved. This is oversimplification of the process. DO NOT QUOTE OUT OF CONTEXT. We do this (paraphrased) by two searches where all parameters are the same except bed count. One search is for three beds, one is for two beds. Using statistics one can see the market reaction, value of three beds verses two. The third bed could add $20,000 value to the home. It varies by property. We do this with every line item for every property in the grid. 

This isn't my grid. I intentionally did not use one of my grids. I'm not commenting on their adjustments.


   

Per Fannie Mae we can't vary more than a certain % for each line item and total line items i.e. "adjustments must not exceed 10% for line items, 15% for net adjustments, and 25% for gross adjustments." This does not mean we can vary 20% on the actual valuation of the property! This ensures the comparables are truly comparable. The goal is no adjustments. This happens quite often with new to newish tract homes and condos. This makes appraisers very, very, very happy. The numbers do our work for us.

Some may ask why not use robot appraisal software so there's no human bias at all. Because you need to inspect, measure, photograph the home. Robot appraisals only work on newer identical tract homes and condos in good condition with the exact same amenities. They don't work for custom homes, view homes, upgraded homes, hillside homes, homes in poor condition, very old homes, condo unit in good/bad location in project... In my area of Los Angeles this is most homes. 

I've seen many people get upset at a home appraisal that came in lower than desired or being denied a loan due to credit. They frequently state it must be discrimination against age, sex, sexual orientation, color, religion... The appraiser, underwriter, AMC, bank...generally don't know any of these factors about the borrower. They only know home value and credit. Yes, there are racists in this industry like all the others. It doesn't mean that every loan denial is based on racism. 

Getting back to the original article I would like to see both appraisals. The homeowner should post them immediately or retract their statements. No living sane appraiser would come in 40% below "actual value." An AMC would catch it before it ever got to the bank or homeowner. There is a lot more going on here. 



Mary Cummins of Animal Advocates is a wildlife rehabilitator licensed by the California Department of Fish and Game and the USDA. Mary Cummins is also a licensed real estate appraiser in Los Angeles, California.


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