Bias Against Real Estate Appraisers by Mary Cummins

appraisal bias, cindy chance, ceo appraisal institute, mary cummins, real estate appraiser, real estate appraisal, confirmation bias, loss aversion, anchoring bias,

Interesting letter from Cindy Chance CEO of the Appraisal Institute. Basically people who automatically claim appraiser bias are they themselves biased. This is why the false narrative of the "racist white male appraiser" has gained so much traction in the media and with the public. It's gotten to the point that the government made up a fake solution to the fake appraisal bias problem to satisfy the public and garner votes for the upcoming election i.e.  PAVE report. What we appraisers actually do is unbiased. We rely on data, numbers and facts only. Appraising is a math formula. 

When I see some lay people claim appraiser bias I feel that they believe this 100% even though AEI's research based on government data proved this is not true. Racism and bias definitely exist. Sadly blacks, Latinos and others have been and continue to be discriminated against in our country. It appears to be human nature or confirmation bias to assume that past biased behavior will always be repeated. I took the mandatory class on bias for my license. People will automatically assume anything they don't like MUST BE the result of racism, discrimination and bias. They will falsely assume any phrase must be code for a discriminating term like "Marin City" in the Marin case. They assumed it was code for "black area." It was just the name of the subject's city. Here's another. "Security bars must be removed from bedroom windows" must be code for "black area." No, it's California building and safety law because people can burn to death in a fire.

I've seen this in many areas besides appraisals. A black woman said a white man told her to smile. She claimed he was racist wanting her to smile like old black minstrels to entertain him. I told her that all men tell all women to smile. I've been told the same in the past and my skin is white. It's not about racism but control, harassment, flirting...  Because the woman was black she automatically assumed it was only because she was black.

Now that we know that the public is biased against real estate appraisers what do we do about it? Hopefully the next parts of this letter will answer those questions. We know Automated Valuation Methods AVMs are not the answer. They are more biased than human appraisers because they don't have all the information needed to do a full valuation. They don't know condition, upgrades, lot type, view, specific location in a neighborhood or if the home even exists. Zillow doesn't even use nearby comps if there are no recent ones of a similar size. They'll go two miles away into a neighborhood worth twice as much to find recent, similar sized homes. I have my own suggestions that may help a little. 

Write your appraisal report knowing biased lay people will be reading and sharing it publicly. Don't use abbreviations or subjective terms. Explain everything in clear simple language at a fifth grade reading level like most newspapers. Show your math. Include your regression charts if necessary. This is especially important if the subject doesn't conform to the median home in the area. I've noticed most of the big media cases of alleged appraiser bias were nonconforming homes with major issues on the edge of two very different neighborhoods. Of course they wanted their home to be worth as much as the larger, upgraded homes with views in a different neighborhood that sells for twice as much even though they initially bought it at a huge discount.

If you are given comps and they are not comparable, mention all of them in your report. They'll end up in a Reconsideration of Value ROV anyway. Specifically state why they are not comparable. State why they are worth more than subject, i.e. larger, fully remodeled, full ocean view, cul-de-sac, different neighborhood... 

If anyone has any suggestions on how to counter bias against appraisers and their reports, please, leave a comment. This is a huge problem that affects us all.

"From Cindy's Desk

I’ve heard from many appraisers, particularly residential appraisers, that the Appraisal Institute should have done better at standing up for them by making the public aware of their skills and professional discipline. I agree. Sweeping, sensationalized claims of “bias” about our profession ignore appraisers’ core skills, ethical standards and professional disciplines. The valuer is the only party to a real estate transaction without a financial interest in its outcome; moreover, the appraiser’s duty is to uphold the public trust, by providing an unbiased, impartial opinion of value based on a rigorous process that is continually refined and improved by the profession. Appraisers are heavily regulated to ensure quality standards, held to a rigorous ethical professional code of conduct, and our SRA and MAI designations reflect the profession’s highest standards. Why then has it been difficult for appraisers to respond effectively as a profession to unfair accusations of bias?

One reason is that claims of bias are antithetical to what appraisers do. (In case you’re interested, philosophers and linguists call this a “failure of presupposition,” and it is hard to address because it assumes something that is not actually the case.) As of now, the public is hearing from the media and politicians about a certain terrible kind of bias. What they need to know is that professional real estate appraisal has long been built on eliminating all kinds of irrational bias. Appraisers, ironically, have been ahead of the curve in working continuously to identify and eliminate every kind of bias from their professional analysis.

Thanks to Daniel Kahneman, who died recently at the age of 90, and his partner Amos Tversky, the scientific community has recognized for over half a century that there is a normal human tendency toward bias, which they termed “cognitive bias.” Their research showed that cognitive bias is part of the way all our brains work normally. In fact, our survival depends upon it.

These Nobel Prize winners (followed by several more in the following decades) demonstrated that our rationality is a myth and bias is the norm, and it has been a good thing for humans, evolutionarily speaking, because bias allows us to not have to think too much in cases where a quick judgment increases our odds of survival. Roughly defined as “any predictable error that inclines your judgment in a particular direction,” bias is a natural feature of the way humans think.

It’s easy to recognize some of our most common biases that reflect what is “normal.” We are naturally more averse (two times more!) to negative consequences than we are attracted to positive consequences. This is called “loss aversion,” which helps explain why we don’t like to change, even when things are going poorly. Being twice as likely to avoid downside as to pursue upside helped kept us away from poison plants and cliff edges, but it also often keeps us from pursuing the best courses of action. There are many, many such examples of normal (not good, but normal and understandable) cognitive bias, including “anchoring bias,” the tendency to rely too heavily on the first piece of information one receives, “availability heuristic,” our tendency to overestimate the importance of information we remember easily, and “confirmation bias,” the tendency to focus on information that confirms our pre-existing hypothesis.

Cognitive bias is powerful and can only be managed through the application of methodologies and procedures that require disciplined analysis of data and information (sound familiar, appraisers?). In fact, cognitive bias is why we depend on professionals trained to be unbiased specifically where our proneness to irrationality could create serious problems, such as science, finance, and economics. Appraisers’ impartial analysis protects the public from our hard-wired, everyday biases that would undermine the healthy function of the real estate industry.

Appraisers are essential to a healthy economy because there are all kinds of opportunities for cognitive bias to infect real property valuation; real estate is a context ripe for “loss aversion,” “anchoring bias,” ”availability bias,” “conformity bias” or “conflict avoidance,” to name a few. Appraisers are trained not to fall into these irrationality traps. Appraisers are continually trained to adjust their opinions of value based on data and professional discipline, precisely to avoid cognitive biases to which homeowners, loan officers, and all of us are susceptible. And in case you think machine learning and AI will save us, it is worth noting that AVMs and AI-generated results are not more rational; on the contrary, machines proliferate biases reliably, that is, unless there are educated appraisers who are regularly producing inputs to correct them.

In reality, appraisers have a great story to tell, but we have a long way to go to refocus the terribly flawed “appraiser bias” narrative onto facts and science. With facts, fairness and science all on our side, and with your help, my team and I have committed to advocacy and communications built on each member’s commitment to doing the right thing, the right way.

There’s more to say about bias. That’s why this is part 1 of a 3-part series on bias…next up…the normal biases of homeowners and loan officers, “noise” and bias, cultural bias, the GSEs, and “banned words”…

Cindy Chance, CEO of the Appraisal Institute"

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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