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, January 19, 2022

Identifying Bias and Barriers, Promoting Equity: An Analysis of the USPAP Standards and Appraiser Qualifications Criteria.

Identifying Bias and Barriers, Promoting Equity: An Analysis of the USPAP Standards and Appraiser Qualifications Criteria. Jim Park, James Park, ASC, Mary Cummins, real estate appraiser, real estate appraisal, los angeles, california, license, certified, residential, pave task force, trainee, requirements

UPDATE: The Fair Housing Alliance just stated they prepared the report with their partners. "The federally-funded report produced by the National Fair Housing Alliance and its partners raises serious concerns about the standards and criteria related to the appraisal of residential real estate, which often represents a family’s largest asset." IWoodruff@nationalfairhousing.org

How does one go about getting a federal government grant to write an "independent study" which uses false and misleading data to promote their organization's agenda? Must be nice. 

https://nationalfairhousing.org/groundbreaking-report-identifies-bias-and-systemic-barriers-in-real-estate-appraisals

ORIGINAL: Jim Park of the Appraisal Subcommittee (ASC) just released a press release which states,"Findings Released in Independent Study on Real Estate Appraisal Standards and Appraiser Qualifications Funded Through a Cooperative Agreement Between the Appraisal Subcommittee (ASC) and the Council on Licensure, Enforcement and Regulation (CLEAR) report titled "Identifying Bias and Barriers, Promoting Equity: An Analysis of the USPAP Standards and Appraiser Qualifications Criteria." 

It's an 84 page pdf. I assume this will be part of the PAVE Task Force report due February 2022? Send comments to jim@asc.gov 

https://www.asc.gov/Documents/OtherCorrespondence/2022-01-14%20NFHA%20et%20al_Analysis.pdf

The National Fair Housing Association, Fair Housing Advocates of Northern California, Fair Housing Center of Central Indiana, Andre Perry contributed to this report. They promoted the false narrative of alleged appraisal bias in the case of Paul Austin, Tenisha Tate in Marin, California besides a few others. Andre Perry has been peddling his non-peer reviewed, non-published false research to sell his books. I'm glad that Christensen Law and Peter Christensen also contributed to this report. Christensen understands real estate appraisal, regulations and the law. It doesn't look like he was allowed to contribute much at all.

I won't go over the entire report in great detail though I will note a few things.

Pg 5, paragraph 2, "Until recently, however, the appraisal industry seems to have escaped the type of regulation and scrutiny faced by other participants in the mortgage market. Our analysis finds that the appraisal industry has operated in a relatively closed, self-regulated framework."

Real estate appraisers are extremely regulated. We are more regulated than loan agents, real estate agents/brokers and others in the mortgage market. We are regulated by the federal and state governments and are not "self-regulated." People are under the misconception that the private non-profit the Appraisal Institute (AI) who is supposed to represent Appraisers actually regulates Appraisers. They don't. We're regulated by multiple federal and state government agencies, see this article. Appraisers have to pay to join the AI. If you want to be an AI MAI Appraiser, it will cost you about $15,000 and take a couple of years. Only wealthy appraisers with $15,000 laying around and lots of extra time can afford to join. I'm not a member.

"Recent news stories have presented the shortcomings of the appraisal industry in stark relief, where individual homeowners and researchers have demonstrated that discriminatory bias continues to plague the appraisal industry, undermining value and breaking a key rung on the ladder to the middle class for families of color."

The recent news stories have proven to be false. The real reason people of color own homes which are worth less than the homes of white people is income. POC make less money. Women also make less money as do other groups. Of course they will buy and own homes that cost less. I've written about some of the major cases in the media, see below. 

Cora Robinson, Oakland, California. HUD complaint most likely already dismissed. 

Paul Austin, Tenisha Tate, Marin, California No HUD complaint, lawsuit will most likely be dismissed.

Carlette Duffy, Indianapolis, Indiana HUD complaint most likely already dismissed

Abena Sanders Horton, Alex Horton, Jacksonville, Florida New FOIA request. No info yet. 

I did FOIA requests for all of the above cases. Only three actually filed complaints. I believe two complaints have already been dismissed. I'm just trying to get a hold of the final report which they will not release unless I get a signed and notarized form signed by the complainant which states their full name, date of birth, country of origin, nationality, home address ... stating they agree to the report being released. I'm obviously appealing the FOIA case because that is ridiculous. I think they are withholding the reports because of the PAVE report coming out. These people publicly posted their complaints with their information online and in national press releases. The cases appear to be over per FOIA. If they won, they would have released another national press release and more media articles. This is why HUD doesn't release cases where no discrimination was found. They try to blame it on FOIA regulations which is false. Asking for the "country of origin" of the complainant seems discriminatory. I don't need or want to know that. It has nothing to do with the complaint.

From the Outline.

The report suggests Appraisers need more training on Fair Housing. We already have lots of repetitive training on Fair Housing to get your license and renew it every two years. That is not an issue.

Duty of Care, pg 11. They suggest adding the borrower as an "intended user" of the lenders appraisal report to increase accountability to the borrower. No much for appraisal independence and undue influence. Then the lender who ordered the appraisal will also be liable to the borrower. I see great push back on this issue. The purpose of the appraisal is to secure the loan for the bank and anyone who buys the loan or mortgage backed securities based on the loan. The borrower doesn't have to get a loan. A private loan is not a right but a privilege. The borrower can hire their own appraiser to do their own appraisal. Then they can be the intended user of that report.

"To increase the accountability of appraisers to borrowers who have been injured by appraisal negligence, the Appraisal Standards Board should consider amending the USPAP Standards to require appraisers to identify mortgage borrowers as “intended users” of appraisals prepared in relation to residential mortgage transactions."

Part I, Background, A, Bias in the Industry, "Redlining."

Adding race, nation of origin to the map data was dead wrong. Most of the other loan risk factors in the maps were based on many other factors besides race and nation of origin. The main factors were income and wealth of inhabitants. If you removed race and nation or origin from the data which they did, the risk stayed the same. These are the same risk factors we use today for credit scores. There is/was a correlation between POC and income. People with less income, less money live in areas with lower priced housing because that is what they can afford. These properties are more likely to be older, less well maintained, near industrial property and other less desirable features. That's why they were cheaper. When people have very little money, it's easy for them to not be able to make loan payments if they suffer one emergency. The solution to this problem is the same, increase the income of POC and others. More income, less risk. 

"Discrimination in Appraisals Continues on an Individual and Systemic Basis," pg 17.

They mention some of the alleged discrimination cases in the media. They don't bother to do any investigation into the cases to determine if there was indeed any discrimination. They don't post the results of the HUD complaints two of which were most likely already dismissed. Instead they link to press releases and false and misleading news articles. I will check out the Colorado and Connecticut cases.

"Discrimination in Appraisals Exists on a Systemic Basis," pg 18.

They mention the Freddie Mac research on Appraisal Gap. I wrote an article here which explains Appraisal Gap. You are more likely to have appraisal gap in areas which are revitalizing and quickly appreciating due to the historical nature of appraisal reports. Areas which are revitalizing are more likely to have POC. That is the correlation. At least they do note that the effect was shown across the nation and across appraisers. This shows it was not individual appraiser bias. 

They mention FHFA report on keywords found in appraisal reports, pg 19.

FHFA stated they searched millions of reports for what they feel are discriminatory words and found thousands had words which could be considered discriminatory. Just to get a ballpark figure here, 1,000/1,000,000 = .001 or .1% of reports. They did not review the reports and find the values were low or not market value. 

I agree that no one should have discriminatory language in the report. I disagree with the word "gentrification." I don't use it because it's not accurate.The proper term is revitalization. Still, it has nothing to do with race but money. Socioeconomic classes aren't protected. Lenders can discriminate based on money. FHFA itself uses the word all of the time as do other government agencies. Is it only discriminatory if an appraiser uses it?

Andre Perry's misleading report, pg 19. This report has been debunked here. It's not peer reviewed or published research. If you read Andre Perry's book, he is biased against certain people. He admits it. He also has an agenda to sell books.

Pg 19, "Howell/Korver-Glenn. A 2020 study of American Community Survey homeowners’ estimates from 1980 to 2015 found that neighborhood racial composition was an even stronger determinant of a home’s value in 2015 than it was in 1980."

That's because there is still a strong correlation between income and POC. The government and others haven't done anything about this. POC make less money. For this reason they buy and own homes in less expensive areas. They also own less expensive cars. Is that also the fault of real estate appraisers? FTR all the values came from inaccurate Zillow. Zillow has stated their values are not appraisals or accurate. Appraisers did not contribute the values in Andre Perry's paper or the other research so you can't blame appraisers.

Pg 22, They basically state the Sales Comparison Approach is biased because it's based on the sale prices of similar homes in the same area. Everyone knows the main three factors of home valuation are location, location, location. Should we use comps in Beverly Hills to appraise a home in South Los Angeles? No. Even if an Appraiser appraises a $100,000 home for $200,000, it doesn't affect the market value. The home is not worth $200,000. 

Pg 22, This is utter nonsense to cite in a government report!  In the book "Race Brokers, Dr. Korver-Glenn details the results of interviews with appraisers, including appraisers of color, regarding the steps they use to value a home based on their interpretation of the sales comparison approach.27 Many of  the appraisers in the study “assumed that White buyers were the standard for determining an area’s desirability, with White areas meeting this standard and receiving the highest values and non-White areas falling below the standard.“

Who the hell did this person interview?! Did they not interview appraisers in low income white areas like Florida, Virginia, California...every state in the nation? The sales comparison approach will show you the area's desirability based on money. It has nothing to do with color but income. AVMs, Appraisers don't see the occupants. We don't know the races of the people. There is no race reference in the data we research. 

Pg 24, "Appraisal Discrimination Is One of the Key Drivers of Today’s Wealth Gap." No, income gap is the main driver of the wealth gap! If you make less money, you have less money, buy and own a less expensive home. This discriminatory language should have never been allowed in a government report. People who complain about discrimination discriminating against others again. If the tables were turned, these people would be screaming bloody murder. 

Pg 24, "Appraisals Can Also Raise the Unique Challenge of Overvaluation." After the great recession everyone lost home equity. It affected poor people with subprime loans even more because the loose lending regulations by the government caused these people to have mortgages they could not afford. They lost their homes. If they met proper income, savings requirements, they would have been able to afford to pay their mortgage even though they were upside down like everyone else. If they weren't less wealthy, they would have had money to weather an emergency. 

Pg 26, "The Appraiser Workforce Suffers from a Lack of Diversity." Appraisers are just about as diverse as real estate agents, loan agents yet no one complains about them. They don't complain because agents can't kill deals with low appraisals but appraisers can. Here is an article I wrote about race and appraisers. That said I'd love to see race of appraisers match the nation. We need more diverse appraisers. The race of appraisers won't affect values because it's based on math and numbers. 

Part II. 

C. Governance of Appraisal Industry.

They bring up the fact that the Appraisal Institute is a private organization not part of the government, and doesn't legally have to abide by all government regulations. They suggest investigating the relationship between AI and the government. In the meantime they suggest AI add more diverse board members including consumers and civil rights people. In light of who actually made the report they basically want their own people on the board to control the AI. They said nothing about race, gender ... diversity. Here is their white board. Leadership is also 100% white. Six of 29 board members are women. I think they're all Appraisers. They should have others on the board. The government should keep in mind that the AI must follow their non-profit mission statement. Their mission is not to promote the government but appraisers and the industry. I didn't realize that people have to pay to appoint a trustee. That's ridiculous. AI should offer USPAP to anyone for free. Most of the other recommendations are already being done. 

D. Gaps in Fair Housing Requirements and Training

"As described above, the evidence clearly shows that the current appraisal system can result in biased valuations, both at the individual and neighborhood level. The causes of such bias are varied and complex."

I disagree that evidence has shown bias in the current system.  The Market Comparison Approach to value shows the market value. It's based on willing sellers and buyers. If someone wants to pay $200,000  for a $100,000 home in South Los Angeles, they can do that with a huge down payment but they won't because it doesn't make sense. The property won't be worth $200,000 except for property tax purposes. They can only sell it for $100,000. They lost $100,000. 

I also doubt that appraisers are not getting enough training in fair housing and discrimination. We take many classes to get our license and more classes every two years to keep our licenses. I don't know any appraiser who does not realize it's not legal to discriminate. If they want to add "shall" and "must" to USPAP, fine by me. I'm also fine with education changes as long as there aren't more hours and are just more hours on fair housing.

E. Barriers to Entry into the Appraisal Profession

I agree with some of these issues and suggestions though not all. They suggest reviewing any possible barriers to entry. Let's just make sure the bar is not so low that anyone can become an appraiser. You need to be a math, numbers person who can physically measure a building, climb a ladder, get into a crawl space, visually see construction material, hear a fan... They need some hands-on training. You wouldn't want a medical surgeon to just pass a written test then start cracking people open with a bone saw.

They suggest reducing license types to certified and general only getting rid of trainee.They suggest getting rid of college education requirement and possibly reducing the number of education hours needed. They suggest having an application based class so they can learn how to do an appraisal and getting rid of experience hours. If they do that, lenders will just make sure they only request appraisals from appraisers with so many years of experience. Those new people won't get work. They suggest reviewing the tests to make sure they are fair. I passed the appraisal exam for certified residential first time within an hour after a major car accident (uninsured motorist totaled my car) where I broke both wrists and got a concussion. I didn't go to the hospital until later because I was not going to lose my $750 test fee. I agree that some questions were worded poorly but just choose the best answer. The test was easier than high school exams. I would hope at least a GED or High School diploma would be needed. Don't set people up for failure. Make sure they can do the job or they won't get work.

They suggest AI and others try to recruit more women and people of color. I'm a Latino female. I contacted AI about supposed scholarships they offer. They said I have to pay to join AI just to apply for the scholarship! They dangle a scholarship to get money from new memberships. No thanks. 

One worry here is that the big rush of appraisals is over. We don't need new appraisers right now. I fear people will pay to become appraisers and lenders will not use newbie appraisers. That would be cruel to do to people.

F. Compliance and Enforcement p. 71

They talk about using data to determine if there is discrimination in appraisals. They talk about releasing report results. They won't release negative results of HUD complaints because complainant of course won't agree. You will only hear about cases where there was discrimination or someone agreed to a non-guilty statement just to end the case due to legal costs. They need to release ALL of the HUD complaints and investigation results.This is why the false narrative has continued. HUD did state most cases are dismissed but that's it. HUD also said most discrimination complaints based on disability and not color or race. 

They talked about maybe using another method of determine value. Lenders won't agree to cost or income approach as they don't reflect market value. Lender needs to know what they can sell the property before if the borrower doesn't make the payments. They talk about getting rid of the free form text parts of the appraisal. Okay! Less work for appraisers though they may no longer comply with USPAP without text explanations.

Pg 77, Reconsideration of Value

There should be standards in the ROV process. I believe there already are but I'm fine with it being more defined. Maybe there should be a fee paid by the lender. Sometimes an appraiser can be given seven new comps to consider. If you have to drive and see them all then put them all in the grid and then explain why they can or cannot be used, that's a complete new appraisal if not more work.

Conclusion

Overall I disagree with the message and tone of the report. The report is discriminatory, biased and defamatory against appraisers as a whole and as an industry. There is no independent research which shows appraisal bias and discrimination. They mention anecdotal media cases about alleged bias and discrimination as if they were facts. HUD won't release the final investigation reports of two cases which I believe have been dismissed because the complainants don't want them released. They refer to Andre Perry's paper as if it were peer review published research when it's just the false basis of his misleading book which he's selling. I'm okay with the basic recommendations which are to take a closer look at some issues. I agree with some of the suggestions to make becoming an appraiser easier. 

Below is the Table of Contents with page numbers. 

Table of Contents

Acknowledgments 3

Executive Summary 5

Part I: Background 13

A. The Problem of Bias in the Appraisal Industry 13

• The Appraisal System Historically Undervalued Homes in Communities of

Color

13

• Appraisal Policies Perpetuated an Unfounded Association Between Race and

Risk

15

• Discrimination in Appraisals Continues on an Individual and Systemic Basis 17

• Appraisal Discrimination Is One of the Key Drivers of Today’s Wealth Gap 24

• Appraisals Can Also Raise the Unique Challenge of Overvaluation 25

• The Appraiser Workforce Suffers from a Lack of Diversity 26

B. Civil Rights Laws and Regulations Applicable to the Appraisal

Industry

27

• The Fair Housing Act and the HUD Regulation 27

• The Equal Credit Opportunity Act and the CFPB’s Regulation B 28

• The Civil Rights Act of 1866 29

• State Laws and Prohibited Bases 29

• Theories of Proof 30

• Increase in Appraisal Discrimination Enforcement 33

Part II: Analysis and Recommendations 34

C. Questions about the Governance of the Appraisal Industry 34

• Overview of the Appraisal Regulatory Structure 34

• The Appraisal Foundation’s Legal Authority is Not Clear 35

• The Appointments and Elections Processes Would Benefit from Inclusion of

Viewpoints that Represent Consumers, Including Consumers of Color

40

• The Rules of Procedures and Exposure Draft Process Would Benefit from

Greater Transparency and Inclusion of Viewpoints that Represent Consumers,

Including Consumers of Color

44

2

D. Gaps in Fair Housing Requirements and Training 48

• Lack of a Clear Prohibition of Discriminatory Conduct 48

• Lack of Guidance on the Use of Discretion 52

• Lack of Clear Fair Housing Training Requirements 56

• Lack of Effective Fair Housing Training 58

E. Barriers to Entry into the Appraisal Profession 64

• Multiple Levels of Licensing and Certification 64

• College Degree Requirements 66

• Appraisal Education Hours 66

• Experience Hours 66

• Standardized Tests 68

• Concern: Pipeline of Trainees and the Future of the Profession 69

F. Compliance and Enforcement 71

• Need for Data 71

• Development of Robust Compliance Management Systems 72

• Duty of Care: Appraiser Accountability 75

• Reconsideration of Value Process 77

G. Conclusion 80

H. Glossary of Acronyms 81

I. Appendix I – Authors’ Summary Biographies 82

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


Mary Cummins, Mary K. Cummins, Mary Katherine Cummins, Mary, Cummins, #marycummins #animaladvocates #losangeles #california #wildlife #wildliferehabilitation #wildliferehabilitator #realestate #realestateappraiser #realestateappraisal #lawsuit real estate, appraiser, appraisal, instructor, teacher, Los Angeles, Santa Monica, Beverly Hills, Pasadena, Brentwood, Bel Air, California, licensed, permitted, certified, single family, condo, condominium, pud, hud, fannie mae, freddie mac, fha, uspap, certified, residential, certified resident, apartment building, multi-family, commercial, industrial, expert witness, civil, criminal, orea, dre, brea insurance, bonded, experienced, bilingual, spanish, english, form, 1004, 2055, 1073, land, raw, acreage, vacant, insurance, cost, income approach, market analysis, comparative, theory, appraisal theory, cost approach, sales, matched pairs, plot, plat, map, diagram, photo, photographs, photography, rear, front, street, subject, comparable, sold, listed, active, pending, expired, cancelled, listing, mls, multiple listing service, claw, themls, historical appraisal, facebook, linkedin DISCLAIMER: https://mary--cummins.blogspot.com/p/disclaimer-privacy-policy-for-blogs-by.html

PAVE Task Force Report Coming February 2022, by Mary Cummins Real Estate Appraiser

False and misleading. "The Interagency Task Force on Property Appraisal and Valuation Equity. An equitable path toward addressing the persistent misvaluation and undervaluation of properties experienced by families and communities of color." pave, task force, mary cummins, real estate appraiser, los angeles, california, 

The image above came from the PAVE Task Force website at https://pave.hud.gov . Their statement "the persistent misvaluation and undervaluation of properties experienced by families and communities of color" is very misleading. "Misvaluation" and "undervaluation" have not been proven. There hasn't even been any independent research on the issues. Andre Perry's non peer reviewed, non published personal paper has been shown to have major statistical flaws intentionally made by Andre Perry for his agenda in promoting his book for money. Fannie Mae's research showed there was no major difference in appraisal gap based on the race of the borrower. 

Per the National Association of Realtors (NAR) the Task Force report is coming out February 2022. It will be interesting to read the final report. With statements like the above they clearly have an agenda. If you remember, this was Joe Biden's campaign platform. Here's an article I wrote about Joe Biden's false statements about appraisals and appraisers. Team Biden basically invented a problem that didn't exist so they could promise to fix it just so they could get the vote of POC. I'm a Democrat. I understand politics and campaigning but this is just plain wrong to vilify people and a profession for your own agenda. 

Here's an article I wrote about the purpose of the Task Force. It lists all the members of the Task Force. Again I'd like to note that James Park of the Appraisal Subcommittee (ASC) is the only Appraiser on the Task Force. He doesn't represent Appraisers but the ASC. 

There are some things which should be changed such as the requirements to become an appraiser. The apprentice mentor program is not working. It's too difficult for apprentices and mentors. 

It will be interesting to see the final report. I predict it will basically suggest regulations and actions which are similar to our current regulations but worded as if they are new.

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


Mary Cummins, Mary K. Cummins, Mary Katherine Cummins, Mary, Cummins, #marycummins #animaladvocates #losangeles #california #wildlife #wildliferehabilitation #wildliferehabilitator #realestate #realestateappraiser #realestateappraisal #lawsuit real estate, appraiser, appraisal, instructor, teacher, Los Angeles, Santa Monica, Beverly Hills, Pasadena, Brentwood, Bel Air, California, licensed, permitted, certified, single family, condo, condominium, pud, hud, fannie mae, freddie mac, fha, uspap, certified, residential, certified resident, apartment building, multi-family, commercial, industrial, expert witness, civil, criminal, orea, dre, brea insurance, bonded, experienced, bilingual, spanish, english, form, 1004, 2055, 1073, land, raw, acreage, vacant, insurance, cost, income approach, market analysis, comparative, theory, appraisal theory, cost approach, sales, matched pairs, plot, plat, map, diagram, photo, photographs, photography, rear, front, street, subject, comparable, sold, listed, active, pending, expired, cancelled, listing, mls, multiple listing service, claw, themls, historical appraisal, facebook, linkedin DISCLAIMER: https://mary--cummins.blogspot.com/p/disclaimer-privacy-policy-for-blogs-by.html

Saturday, January 1, 2022

How to File Your Own Lady Bird Deed Real Estate by Mary Cummins Real Estate Appraiser Legal Expert

Lady Bird Deed, ladybird deed, enhanced life estate, revocable, real estate, trust, estate, deed, form, free, texas, vermont, west virginia, mary cummins, real estate appraiser
Lady Bird Deed, ladybird deed, enhanced life estate, revocable, real estate, trust, estate, deed, form, free, texas, vermont, west virginia, mary cummins, real estate appraiser

 

A "Lady Bird Deed" is also known as an "Enhanced Life Estate Deed." The deed allows the person owning the property, the life estate, to have full control over their property for life. They can terminate or change the deed at any time because it's revocable. The owner of the property has full continued power and authority over their assets without the involvement of the beneficiary. Without such a deed the owner would not be able to mortgage, sell the property or give it to someone else. 

In my experience the main purpose of such a deed is when a parent wants to leave their home to their child/children to avoid probate and eliminate transfer taxes. Prior to the Lady Bird Deed the transfer was irrevocable. That means you could never retract the deed if say your child mistreated you or became involved with elements such as drugs, gambling, debt, prison or a person, marriage you didn't feel was in their best interest. With the Lady Bird Deed you have full control of the property and can change your mind and take it back any time you like. 

The main estate and tax reasons to use a Lady Bird Deed are of course to avoid probate and taxes. The deed automatically transfers the property to the designated beneficiary upon death of the original owner avoiding probate. Because of the way assets are classified through the usage of a lady bird deed, anything left to a family member is termed an “incomplete gift” for tax purposes. This classification comes with two important benefits. "First, because of their incomplete status, these assets do not have any gift tax associated with them – there’s no need for the beneficiary to file a gift tax return. Second, the assets are included in the deceased family member’s estate when they pass. Because of this, the property qualifies as adjusted – essentially removing any appreciation that may have occurred while the original owner still retained the asset, which means the new owners will not have to pay as much in income taxes if they decide to sell the property." There are also benefits it you apply for Medicaid. A Lady Bird Deed does not have to be disclosed as a transfer. 

If you ever change your mind about the deed, you can file a revocation document or a new deed giving, selling the property to someone else.

Legal Terms Used in a Lady Bird Deed

ESTATE IN REMAINDER - The estate which is owned after the owner of the life estate dies. If you own the home and Lady Bird deed it to your son, your son owns the estate in remainder after you die.

GRANTOR - The Grantor is the owner of the property who is giving the estate in remainder.

GRANTEE - The Grantee is the owner receiving the property or estate in remainder. The Beneficiary.

LEGAL DESCRIPTION - The legal description is generally what is included in the deed that legally describes the property which is the land. It is generally tract # x lot # x. "Tract # 5745 lot 300." If there is more than one portion of a lot, if could be longer such as "MONTROSE TRACT AS PER BK 5 PG 170 OF MAPS SE 40 FT OF LOT 14 AND ALL OF LOT 13." Farm land is even longer and more complex. 

LIFE ESTATE - The estate which is owned during the life of the owner of the estate. If you own the property and lady bird deed it to your daughter, you own the life estate. 

PROPERTY ADDRESS - The United States Postal Service address of the property. Example, 123 Main St, Los Angeles, CA 90012. 

How to File a Lady Bird Deed

Go to this link and download the pdf. You can also just use the text below and make your own form.

https://drive.google.com/file/d/1o_ztG6MHl6vhDpkERU8VOfJSGhtr71sD/view?usp=sharing

Fill out the form. 

Get it notarized by a licensed notary. Be sure to bring your identification. They may charge you $5 or $10 to notarize it but your bank may do it for free.

File the form with the County recorder where the property is located. 

Text from the form.

*******

Lady Bird Deed 

This Deed is made on this day of _______________, 20__, between the 

Grantor ______________________________ 

of address __________________________________________________ and the  

Grantee Beneficiary ______________________________ 

of address _________________________________________________. 

For good and valuable consideration paid by the Grantee Beneficiary, the receipt of which is hereby 

acknowledged, the Grantor does transfer and convey the following described property to the Grantee 

Beneficiary effective on the Grantor's death: 

Property Address: ______________________________________________________________ 

Legal Description: ______________________________________________________________ 

 _____________________________________________________________________________ 

 _____________________________________________________________________________ 

The Grantor reserves a life estate for himself/herself during the Grantor's lifetime coupled with an 

unrestricted power to convey during the Grantor's lifetime, which includes the power to sell, gift, 

mortgage, lease and otherwise dispose of the property, and to retain the proceeds from the 

conveyance. 

EXECUTED this day of _______________, 20__. 

Grantor Name: _________________________ 

Grantor Signature: ______________________

STATE OF _________________________ 

COUNTY OF _________________________ 

On this day, personally appeared before me, _________________________, to me known to be the 

person(s) described in and who executed the within instrument, and acknowledged that he/she signed 

the same as his/her voluntary act and deed, for the uses and purposes therein mentioned.

Witness my hand and official seal hereto affixed on this day of _______________, 20__. 

Notary's Public Signature: ______________________ 

*******

More information about the Lady Bird Deed here.

https://agrilife.org/texasaglaw/2019/11/22/enhanced-life-estate-deeds-aka-lady-bird-deeds/

Disclaimer: I am not an attorney. I am a licensed real estate broker, appraiser, expert with over 35 years of experience. I help people fill out basic real estate forms. If you need legal, estate or tax advice, please, contact a licensed attorney in your state. I'm in California. Lady Bird Deeds are recognized in Texas, Florida, Michigan, Vermont, and West Virginia.

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


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Tuesday, December 28, 2021

Number Licensed Real Estate Appraisers in California per BREA by year by Mary Cummins

Mary Cummins, Real Estate Appraiser, California, BREA, OREA, license, licensee, certified, residential, general, trainee, Los Angeles, number, increase, decrease, year
Mary Cummins, Real Estate Appraiser, California, BREA, OREA, license, licensee, certified, residential, general, trainee, Los Angeles, number, increase, decrease, year

Above is a chart of the active licensed real estate appraisers in California per the California Bureau of Real Estate Appraisers. The numbers are also in a table below. This includes Trainee, Residential, Certified Residential and Certified General. The numbers aren't taken from the exact same time every year because that is how they reported it via their website. Most were November of each year. The numbers came from the Spring or Winter Newsletter reports. The specific dates and numbers are listed below. 

In Spring 2009 the head of BREA (then called OREA) Bob Clark  stated "With the unprecedented appreciation in real estate values, OREA experienced a dramatic increase in licensing activity, going from approximately 18,800 licensees in 2005 to over 20,100 licensees by the beginning of 2007. With the decline in the real estate market, the pendulum has swung in the opposite direction, with a current license population of approximately 17,300." 

There were 17,300 in the Spring (maybe March 2009) and 15,625 by November 30, 2009. Today we have less than 50% of the number appraisers we had in 2007 right before the peak then crash. We have about 10,000 fewer Appraisers. 

The peak before the Great Recession was about 2007. Homes had appreciated greatly and rates were low so everyone was buying, selling and refinancing. This caused a huge demand for real estate appraisers, agents and mortgage brokers. There is always a large influx during these times. It is expected to lose licensees as the market slows because there is less business. Appraiser licenses renew every two years today. It makes sense that licensees would not renew their license when it expires after the slowdown. For this reason there could be up to a two year lag between the slow down and loss of licensees. 

Below is a chart of the U.S. National Home Price Index. You can see the 2007 peak and subsequent Great Recession. You can also see our current crazy market. 

Mary Cummins, Real Estate Appraiser, California, BREA, OREA, license, licensee, certified, residential, general, trainee, Los Angeles, number, increase, decrease, year
US National Home Price Index, BREA, Mary Cummins, Real Estate Appraiser


One would expect an increase in the number of appraisers when the market heats up like it has done within the last few years. Oddly enough there is no increase in the number of licensed real estate appraisers. I believe the reason there hasn't been an increase is because of the current Trainee Appraiser Program. Today a new real estate appraiser must work at as Trainee for a licensed, experienced Appraiser for a certain number of hours. That is difficult to almost impossible because licensed Appraisers generally don't want to mentor trainees. Nothing to gain, everything to lose. I wrote an article that outlines the problems HERE with possible solutions. 

The market is expected to continue to appreciate though not at the crazy rate of 2020 and 2021. Some lenders, mortgage brokers such as Better.com have already eliminated some lending agents. One of the reasons it will slow is because the Fed has stated they will increase interest rates in 2022 maybe even more than once. Another reason is lack of inventory and many being priced out of the market. While some Appraisers were busy and had lag times within last six to 12 months things have already slowed and not just because of the holiday time of year. 

The Government stated they are working to understand the Appraiser issue. By the time the issue is resolved there won't be a need for as many because of the market. Things have already slowed and will slow further. Maybe we just don't need as many appraisers as we did in the past. Today some lenders use appraisal waivers and AVMs. This could end up being a non issue. 

Chart number of licensed real estate appraisers in California by year. Licensing was first mandatory in 1994 because of legislation. I've been appraising since 1984 as a real estate agent though no license was needed at the time. 

Year

# Licensed Appraisers

2002

10943

2003

12167

2004

 

2005

18854

2006

 

2007

20100

2008

 

2009

15625

2010

 

2011

 

2012

 

2013

 

2014

11868

2015

11189

2016

10852

2017

10742

2018

10562

2019

10056

2020

9630

2021

9461


Below is where I got the data so you can see the actual dates. The 2007 data came from the quote above. 

Mary Cummins, Real Estate Appraiser, California, BREA, OREA, license, licensee, certified, residential, general, trainee, Los Angeles, number, increase, decrease, year

Mary Cummins, Real Estate Appraiser, California, BREA, OREA, license, licensee, certified, residential, general, trainee, Los Angeles, number, increase, decrease, year

Mary Cummins, Real Estate Appraiser, California, BREA, OREA, license, licensee, certified, residential, general, trainee, Los Angeles, number, increase, decrease, year











Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


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Friday, November 12, 2021

Home Staging is to Increase Sales Price. It's Not About Racism. Mary Cummins Real Estate Appraiser

Recently there have been a few media articles about black people who allegedly white washed their home i.e. removed all traces of blackness and received a higher appraisal value. These misleading articles have spread a false narrative about real estate agents, appraisers, sellers, buyers and the legitimate process of "home staging."

When someone lists their home with a real estate agent for sale the agent will tell them they must prepare and stage their home. Below is a brief summary of how a seller should stage their home in order to get the best price in the least amount of time from Smart Box Moving and Storage. As a real estate broker and appraiser for over 38 years I agree with this list.

"When you are preparing your home to put it on the market, experts suggest that a key part of home staging is removing personal items from the house. A strategically staged home typically sells faster and for more money so it’s important to take the necessary steps to properly stage your home. Removing certain items from the home will make your home feel larger, more organized, and will also help prospective buyers visualize themselves living in the home. Prospective buyers will take notice of every detail in your home so don’t turn them away by having the wrong items in your house. Consider removing the following items to ensure your home appeals to all buyers. 

Family Photos

While you may adore those large portraits of each of your kids, it’s best not to showcase those when you are staging your home. Buyers might be distracted by all of your family photos and it could make it harder for them to envision themselves living in your home. The idea is to help buyers visualize themselves in your home and this can be difficult with a display of family photos. 

Taste Specific Artwork and Accessories

Typically, when you decorate your home, you do so according to your own taste and personality. However, when staging a home, you don’t want your personality to stand out. For instance, you might be an avid hunter but not everyone will appreciate animal heads hanging on the wall. People might also be offended by certain artwork such as nudes, religious art, or political posters. It’s best to remove any taste specific decor and place a few neutral pieces around the home instead. 

Collections

Collections have a tendency to take over a space and make it appear cluttered. Buyers might miss the detailed crown molding if they are distracted by an overwhelming collection. A portable storage container is a great solution for storing your valuables and collections while you are selling your home. 

Awards and Certificates

While you might be proud of those diplomas, sports trophies, and school certificates, now is not the time to display them. Much like the family photos, it can be difficult for buyers to envision themselves in your home when they see so many of your personal items. Depersonalizing space is important because it will help buyers psychologically move in. 

Firearms

If you keep guns in your home, it might be a good idea to place them in storage while selling your home. Not all buyers will be comfortable with the idea of having firearms in the home and this can be a deterrent. 

Personal Items

As tiresome as this might seem, it’s important to erase the evidence that you actually live in your home any time you are showing it to a potential buyer. Remove personal items such as toothbrushes, medications, shampoo, glasses, dirty laundry baskets, dirty dishes and so on. You can hide many of these items in pretty baskets or boxes with lids. You can even hide things in plastic bins that will easily slide under the bed. 

Pets

They may be your best buddies but your furry friends don’t appeal to everyone. Pets are messy, dirty and stinky and not all buyers love them. Some people might be turned off by the fact that there are pets in the home so it’s important to find a place for them to go when you are showing your home. You should also remove any evidence of pets living in your home such as food bowls, cages, and toys.

Excess Furniture

Having too much furniture crammed into a room can make the space look smaller and this is definitely something you want to avoid when selling a home. Your goal should be to arrange furniture in a way that compliments the architectural features of the room while giving the illusion of spaciousness. You also want furniture that serves a purpose and showcases how the room could be used. For example, a desk and chair would show that the room could be used as an office while a bed and dresser would show that the room would make a nice bedroom. Avoid excess furniture or furniture that doesn’t belong. For example, you wouldn’t want a treadmill sitting in your bedroom. A portable storage unit is an ideal solution for storing your excess furniture while your home is on the market. "

The most important item to remove is personal items and photos. From blog article "Why You Should Remove Personal Items in Home Staging," "Removing personal items is perhaps the most important thing when it comes to home staging. Potential buyers don’t want to know about the family that lived on the property before. You risk distracting or alienating potential home buyers by leaving personal items on display (family photos, religious texts, favorite movies, even sports memorabilia). Imagine walking into someone else’s home for the first time. You’re likely on your best behavior and very hesitant about breaking something or going into a room you’re not supposed to be in. It’s not as comfortable as your own home because the space simply is not your home. That’s the opposite of what you want your buyers to feel. Ideally, when someone walks into a staged property, they can easily visualize the space as their home. Lining the walls with personal artifacts ruins that illusion. Nobody wants to feel like they’re intruding."

There are a few people with their own agenda who are promoting the false narrative that black people must white wash their home when it's being appraised because real estate appraisers are racists who appraise black people's home lower than market value. That is absolutely false. Real estate appraisal is based on the home characteristics and recent sales only. Appraisers don't care about the race of the owner, tenant or buyer. We generally never even meet them or know what color they are. We only care about the structure and what other similar homes have sold for. We use the same methodology as Automated Valuation Methods which are robots who don't see any people or the home.

Sometimes a homeowner will tell me "I'm sorry my home is messy today." I generally jokingly tell them, "it's fine. The bank wouldn't care if you had dead bodies hanging in here. They only care about the structure and the value." That is the absolute truth. The bank just wants to make money on the loan. They want a full market value appraisal so they can make money. The appraiser wants the same. If we were to come in below market value, we'd never be hired again and lose money. There is absolutely no incentive for an appraiser to come in low.  

A few media articles stated that a black family had their home appraised. The value was lower than they liked. They decided to white wash, stage their home and request a new appraisal. The second later appraisal came in higher. In this quickly appreciating market of course a later appraisal would be higher yet they attributed the rise in appraisal value to their white washing. They could have just changed the door mat and the same thing would have happened. With certain areas appreciating 30% in a year that turns out to 2.5% per month. With a $500,000 home the appreciation could be $25,000 in two months. The appreciation could be even higher if they first had it appraised it during a slower sales time of year then later reappraised during the peak sales times when there were more buyers, sales and higher sale prices. It would be even higher if it's an area that's being revitalized or as some say "gentrified." I've seen increases of 40-50% in a year in some of these gentrifying areas recently.

Racism is a huge problem in the US which we must try to eradicate. Racist things happen to people of color all the time. Since the murder of black George Floyd racism against black people has been a huge issue. That said not everything is due to racism. Many people's appraisals are coming in lower than expected because of the fast appreciation rate in the market. Closed and recorded sales lag 45-60 days behind contracts for sale. During that time home values appreciate. This is not the fault of the appraiser but the nature of the mandatory historical approach to home value. 

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


Mary Cummins, Mary K. Cummins, Mary Katherine Cummins, Mary, Cummins, #marycummins #animaladvocates #losangeles #california #wildlife #wildliferehabilitation #wildliferehabilitator #realestate #realestateappraiser #realestateappraisal #lawsuit real estate, appraiser, appraisal, instructor, teacher, Los Angeles, Santa Monica, Beverly Hills, Pasadena, Brentwood, Bel Air, California, licensed, permitted, certified, single family, condo, condominium, pud, hud, fannie mae, freddie mac, fha, uspap, certified, residential, certified resident, apartment building, multi-family, commercial, industrial, expert witness, civil, criminal, orea, dre, brea insurance, bonded, experienced, bilingual, spanish, english, form, 1004, 2055, 1073, land, raw, acreage, vacant, insurance, cost, income approach, market analysis, comparative, theory, appraisal theory, cost approach, sales, matched pairs, plot, plat, map, diagram, photo, photographs, photography, rear, front, street, subject, comparable, sold, listed, active, pending, expired, cancelled, listing, mls, multiple listing service, claw, themls, historical appraisal, facebook, linkedin

Thursday, November 11, 2021

Appraisal Gap: What is Appraisal Gap and what causes it? by Mary Cummins Real Estate Appraiser

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What is "Appraisal Gap?" 

Appraisal gap is the difference between the agreed upon purchase price and the appraised value by the lender's appraiser. 

As an example you make an offer on a home for $100,000 with $5,000 5% down payment and a loan for $95,000 95%. The seller accepts it. You apply for a loan. The bank sends out their real estate appraiser to make sure there is enough equity in the home to pay off the loan in the event you can't make the payments and default. The real estate appraiser must use recent similar sold properties of a similar size with similar number of beds, baths and amenities such as view, pool, upgrades. 

The appraiser finds three very similar recent sales at $90,000, $89,000 and $91,000. There are no sales of similar homes that have recently sold for $100,000 though there are some offered for sale at $100,000. Sold comparables carry more weight than listed or pending sales. Sold comparables set the upper possible limit of value. The appraiser will probably value that home around $90,000. $90,000 is less than the $100,000 purchase price. The bank would probably only loan you a maximum of 95% of the appraised value if you have great credit or $85,500. This is about $10,000 less than you had originally planned. 

You will have to come up with a higher down payment or the seller will have to reduce the price. If it's a hot seller's market like today with multiple over list offers, the seller will not reduce the price. They will go with another offer if you can't perform. You can agree to pay the difference in cash. You would need to put down $10,000 more in cash in order to buy the home. 

You could also decide to go with a loan with a higher loan to value ratio. The higher the loan to value ratio, the more the loan will cost in terms of cost, fees and interest rate. You may also have to pay for mortgage insurance and pay part of your insurance and property taxes monthly with your monthly mortgage.

If there are higher pending sales that are near closing around $100,000, you could negotiate a contract extension and hope that a higher pending or listed comp sells and closes quickly at a higher price. Then you could request another appraisal which should be higher based on the recent similar higher sale. The seller may not agree to this unless you offer them a cash incentive.

What causes "Appraisal Gap?"

There are a few causes of appraisal gap. Most appraisal gaps happen in quickly appreciating markets like today November 2021. The faster and greater the appreciation rate, the more likely there will be a gap. The main issue is legally real estate appraisers must use closed verified sales. These closed sales set the upper limit of value. The bank, underwriter, Appraisal Management Company AMC will not allow an appraisal value higher than the highest closed comp. It's not up to the appraiser.

There is generally a lag of a month or two between the time someone makes an offer on a property, it's accepted, escrow is opened, the loan application is made, the appraiser appraises the property, the report is sent to the lender, the underwriter approves the loan (or not), escrow is finally closed and the deed is recorded in the local county recorder's office. "According to Ellie Mae, a software company that processes more than a third of U.S. mortgage applications, standard mortgages took an average of 47 days to close in 2020. VA loans took 51 days to close, and FHA loans took the longest to close — 52 days on average." 

During that time properties have appreciated in value from the contract price. This means the closed sales the appraiser used today in the appraisal are  based on contract prices that are actually one to two months behind the market. Some properties today are appreciating at 15-20% a year or about 1.25-1.6% per month.  With a $100,000 home that could be $1,660/month or $3,200. In this situation that doesn't explain the entire appraisal gap. Let's explore another reason for the appraisal gap.

Some markets like today are out of whack. There is not enough home inventory and many buyers making multiple offers over list for homes. Some people are paying more than market value for homes today. If you want to pay more for a home than it's worth, you can pay cash for it. If you want a loan, it's a different story. The lender is not willing to over lend on the property. They need to make sure they can sell the property for the loan value and all costs, fees if you don't make the payments. As it is the property could go down in value after you buy it and the lender could end up with a loan worth less than the home. In reality most lenders quickly sell the loans they make so they can get money to make new loans. Investors will only buy loans that meet certain criteria. One of those criteria is the loan to value ratio. Lenders will not make a loan with a very high to loan value ratio because they won't be able to sell it.

Below is a chart which shows that the appraisal gap increases as property values rise. The chart is from the article "Appraisal Gap Increases in 'Hot Markets'" from July 2021 (1). Per Corelogic, "Recently, we observed buyers paying prices above listing price and higher than the market data available to appraisers can support. This difference is known as “the appraisal gap,” and in studying it, we see several interesting correlations between home price appreciation, buyers paying more than listing price and buyers paying more than the appraised value." The faster the appreciation, the hotter the market, the lower the housing inventory, the more likely there will be an appraisal gap. (Click to see larger)

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appraisal gap, definition, what is appraisal gap, what causes appraisal gap, cause, mary cummins, real estate appraiser, real estate appraisal, los angeles, california, licensed, certified, cummins real estate, marycummins.com, blog, gentrification, minorities, bias
If you look at the chart above, you can see that the appraised value is about two months behind the sales price. The appraised value is increasing at the same rate as the appraisal gap which shows the appraised value is based on sales.

In the chart above you see March 2020 when the first pandemic lockdowns started. Appreciation the same for March, April 2020. It dips before May because probably fewer were buying homes. May, June 2020 it starts to rise again. Real estate is seasonal. It generally peaks June, July when school is out and it's easier to move. It slows August, September as school is back in session. It dips around Thanksgiving, Christmas and New Year. Then it ticks up in the spring a little. Because of the pandemic the seasonal cycles were off a little. You can still see the seasonal cycles in demand affecting the appreciation rate and appraisal gap. 

Appraisal gaps have existed as long as appraisals have existed. In every single appreciating and especially quickly appreciating market there have been appraisal gaps. In doing research for this article the first newspapers.com mention of appraisal gap was in Canada in 1947, "See Possibility of Larger Housing Loans With Appraisal and Cost Gap Narrowing," May 17, 1947, National Post, Toronto, Canada.

The Los Angeles Times had a very good article from March 12, 1998 titled "The Appraisal Gap. Rising Home Prices Have Outpaced 'Comp' Sales" pg 259. 

"Many people like pushing the limits and breaking new ground. Not real estate appraisers.  A cautious, methodical breed, many appraisers have found themselves in the uncomfortable and risky position of sizing up Southern California homes whose sales prices have ballooned way beyond any recent comparable sale. Pity the poor appraiser then who must prove to a skeptical lender that a house is worth its $225,000 price tag when the most recent and highest comparable sale, or "comp," was only $200,000."

"Getting a fix on current values is never easy. But it is particularly difficult when the real estate market starts to change, as it recently has in Southern California, where many neighborhoods have seen prices rise sharply after years of stagnation and decline. It's a time when appraisers often find themselves pitted against real estate agents and homeowners, who are eager to cash in on higher values." 

"Most lenders like to see an appraisal that's in line with at least three nearby comps that have been recorded with county officials within the last six months. But even the most recent comp may be several weeks out of date because of the lag between the time a sales price is agreed upon usually when escrow opens and when the completed transaction finally appears in county records. As a result, a fresh comp will fail to reflect current values, especially as prices are just beginning to take off."

Keys Properties stated in July 2021 in their article (2) "How to Bridge the Appraisal Gap in Today's Market," "in a rapidly appreciating market, it can be difficult for appraisals to keep pace with rising prices. Low appraisals are not common, but they are more likely to happen in a rapidly appreciating market, like the one we’re experiencing now. That’s because appraisers must use comparable sales (commonly referred to as comps) to determine a property’s value. These could include homes that went under contract weeks or even months ago. With home prices rising so quickly, today’s comps may be lagging behind the market’s current reality. Thus, the appraiser could be basing their assessment on stale data, resulting in a low valuation."

"The one weakness of our system is that everything is historical and it takes awhile for us to get that new data," said Joseph Baldino, president of the Los Angeles chapter of the National Assn. of Independent Fee Appraisers Real Estate Appraisers." 

19% of purchase transactions had a contract price above the appraisal valuation in 2021. In 2020 it was 7%, "Hot Housing Market Widens Appraisal Gaps," (3). The chance of having an appraisal gap is high today. Below is a chart from Corelogic from January 2020 to May 2021 showing the increasing appraisal gap. The chart below is the same as the one above which is for the same time period. 

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appraisal gap, definition, what is appraisal gap, what causes appraisal gap, cause, mary cummins, real estate appraiser, real estate appraisal, los angeles, california, licensed, certified, cummins real estate, marycummins.com, blog, gentrification, minorities, bias



The Appraisal Gap Widens in Areas That Are More Quickly Appreciating

In areas with quickly appreciating markets the appraisal gap can be wider. Some areas are in the revitalization cycle of real estate or what some call "gentrification." Home prices are appreciating very quickly in areas in the early stages of gentrification (6). I've seen 30-40% appreciation in a year in some areas in California like Oakland, South Los Angeles, East Los Angeles. In fact Pamela Perry of FreddieMac who just released research September 2021 on appraisal gap stated July 15, 2021 in a webinar titled "Property Valuation Appraisal Bias and Black Homeownership" "A few white folk move in (to a black area) and suddenly value spikes." The spikes cause appraisal gaps. 

The main cause of revitalization is people being pushed out of nearby more expensive areas into less expensive areas (4). Generally these areas are in the first time buyer range which has a high demand causing an even larger appraisal gap. As newer residents with more money buy into these areas, investors invest in and improve the areas and property values increase. This also happens in second time home buyer price ranges. A good recent example is West Adams in Los Angeles, California. Lots of larger older homes that were in decline have been bought and refurbished. Flippers and others have been selling these homes in minority areas in the $700,000 to $1,000,000 range. 

Many of these areas have mainly minority residents because home prices and rents were lower and more affordable when the area was in decline. Research has shown that there is a correlation between minorities, lower income and lower resulting net worth (5). People with less money and income buy and rent homes in less expensive areas. This means there is a higher chance of having an appraisal gap in a mainly minority area that is appreciating. "The demand has driven up home prices in a region where rates of homeownership have historically been low due to redlining, and where the population, which is predominately black and Latino, earns about 60 cents to every $1 earned by the average LA County resident" (7).

Home prices have been appreciating since about 2010 after the great recession of 2008. If one is looking at appraisal gaps in mainly minority areas from 2015 to 2020 one would see a greater gap in these areas than the US overall. 

As home prices in general increase in value, home prices in early revitalizing areas increase at a much faster pace as investors are attracted to the area. This causes the appraisal gaps to be more common and wider than the overall rate.  Some minority homeowners in these areas or other people misinterpret the appraisal gaps as "appraiser bias" against minorities. Things could not be further from the truth. 

UPDATE 11/2021: FHFA released appreciation rates for the US. Look at the cities with the  highest appreciation rates. The ones in California are minority areas, i.e. Oakland, Anaheim, Riverside, Long Beach, Folsom, Stockton, Fresno, Sunnyvale, Chula Vista. In other states it's Tucson, AZ, Jacksonville, FL... 20% to 37% per year, 300% to 600% in five years. These are minority areas that are gentrifying/revitalizing as people are pushed out of more expensive areas. Notice this is where most of the appraisal gap media articles have originated. Owners claimed the difference in appraisal value was caused by racism and white washing. It was caused by appreciation.


Appraising real estate is a combination of math and science. Many have made valuation software or Automated Valuation Models (AVMs) such as Zillow, RedFn, Trulia which estimate property values based on the location, size, age, number of bedrooms/baths and recent sales alone. The software uses the sales in the areas to define a value for each bedroom, bath, lot size, building size... The software doesn't see the people or even the home yet it derives a value based on numbers, data and math. 

Appraisers base their appraisal on the same exact features with important added information. Appraisers actually inspect the property and can note the condition, upgrades, repairs needed, additions... The Appraiser sees the neighborhood, access to public transportation and supporting facilities. The appraiser uses regression analysis to define a value for adjustments in the number of bedrooms, baths, lot size ... just like the AVMs. For these reasons the Appraiser's valuation will be far more accurate than any AVM. 

Appraisal gaps will always exist based on the current appraisal model and federal regulations. If you are buying a home in a quickly appreciating market, talk to your agent about the possibility of an appraisal gap. You may want to include an appraisal or appraisal gap clause if you don't want to lose the deal. You should definitely consider backup plans. If you do end up with an appraisal gap, please, understand the cause of the gap and your options. Don't attack the appraiser and falsely accuse them of personal bias. Appraisers don't set values. We merely report values based on data, numbers and math. 

References

1. Corelogic - "Appraisal Gap Increases in 'Hot Markets'" July 2021
https://www.corelogic.com/intelligence/appraisal-gap-increases-in-hot-markets/

2. Key Properties - "How to Bridge The Appraisal Gap," July 2021
https://www.keysproperties.com/blog/how-to-bridge-the-appraisal-gap-in-todays-real-estate-market/

3. Hot Housing Market Widens Appraisal Gaps, 19% of purchase transactions had a contract price above the appraisal valuation in 2021.    
https://nationalmortgageprofessional.com/news/hot-housing-market-widens-appraisal-gaps

4. ENDOGENOUS GENTRIFICATION AND HOUSING PRICE DYNAMICS
https://www.nber.org/system/files/working_papers/w16237/w16237.pdf

5. Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances, September 2020.
https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm

6. Housing appreciation patterns in low-income neighborhoods: Exploring gentrification in Chicago. https://www.sciencedirect.com/science/article/abs/pii/S1051137717301547

7. In 10 years, home prices grew the most in these LA neighborhoods.
  https://la.curbed.com/2019/12/23/21031672/los-angeles-home-prices-highland-park

Los Angeles Times - Archives for older articles or use newspapers.com 
http://www.latimes.com 

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


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