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

Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California
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Showing posts with label danny wiley. Show all posts
Showing posts with label danny wiley. Show all posts

Tuesday, February 14, 2023

Real Reasons Appraisers Come in Below Contract Price by AEI. It's not Racism, by Mary Cummins



AEI just released a report about appraisers coming in below contract price in areas with lower income buyers, lower priced homes and more blacks and Latinos. This is exactly what I've been talking about. Again, AEI proves it with science and facts. Just FYI AEI is considered a "conservative" source. 

"Our critique points out some significant shortcomings of these studies. Notably, they focus on entire
neighborhoods, when they should study the actions of individual appraisers. They use the greater share
of under-valuations as evidence of racial bias, when they should consider explanations unrelated to bias
that might account for under-valuations, including for example the greater share of first-time
homebuyers, who tend to overbid, or the greater presence of seller concessions, which will reduce the
appraisal amount when they are properly accounted for. They also fail to note the size of these undervaluations. Using the Aggregate Statistics Data File and Dashboards, our analysis indicates they are relatively small, averaging about $1,100 to $1,900.5 These levels are too high if they are in fact due to racial bias. However, our analysis finds multiple other plausible explanations for under valuations of this magnitude such as the greater presence of first-time homebuyers or seller concessions. We also note
that under valuations of this magnitude of are unlikely to depress entire neighborhoods and, they may
in fact provide a disproportionate consumer benefit to minority homebuyers.

We conclude with a renewed call on Fannie Mae, Freddie Mac, and regulators such as the FHFA to mass screen individual appraisers for racial bias and inaccuracies. We have already laid the groundwork for this research with a published working methodology." 

The most important issue which I've stated previously is they focus on appraisal value and contract price for purchases and no refinances. When doing an appraisal for purchase the appraiser NEVER sees, meets the borrower, buyer. We may see the seller or the seller's agent but never the borrower. The government study also doesn't know the race or color of the borrower, buyer AND appraiser. What if it's only black appraisers coming in low with black borrowers? A recent horrible unreliable "study" showed that the appraiser who came in the lowest for black people was themselves black. 

More important observations from AEI's study. Contract price does not equal market value. First time home buyers which are more likely in these lower priced areas are more likely to over bid. They don't always know they can negotiate. These same areas tend to have homes in lower condition. The appraiser adds more comps to appraisals which are below contract price. I do this to fully back up my work so everyone can understand the value. An appraisal that comes in below the contract price would not endear you to the AMC or lender. Appraisers HATE coming in below contract price but we do it because it's the right legal fair thing to do. The appraisal is to secure the loan not help a buyer or seller.

Some good snippets though you should read the entire report.

Fist time buyers offer over market value. "Shui and Murthy (2019) conclude that first-time homebuyers using Fannie Mae or Freddie Mac financing overbid for a home by approximately $3,000, or about 1% of the contract price for the average home compared to repeat buyers. They also find that FTBs with higher LTVs tend to overpay by more compared those with lower LTVs. FHA borrowers, who are disproportionally concentrated in minority census tracts and largely FTBs, typically have higher LTVs and lower credit scores and may thus be more likely to overpay than other buyers."

There are more seller concessions in these first time buyers, buyers using gov funding and these areas. If a home sells for $100,000 and has a $3,000 seller concession, appraisers subtract $3,000 from $100,000 in the adjustments. The net price is $97,000 which is under contract price now by 3%. There are more concessions to help buyers buy the property and because of condition.

There are more buyers for lower priced homes. This causes buyers to over bid for homes based on supply and demand. We saw this during the recent Covid runup. Buyers bid and paid over list price. They had to make up the difference in loan amount with a larger down payment. 

First time buyers aren't just competing against other buyers but also against their rent. Many only compare what they are paying in rent to what their mortgage will be. Quick story. Friend of mine was buying a cheap mobile home. She wanted to buy a cheap home because the mortgage is less than her rent. She was buying it to save monthly expenses. Appraisal came in $20,000 below contract price of $85,000. She asked me for help. I told her appraisal value looked correct. I told her to ask seller to reduce price. She said "but it's actually worth $85,000! It's almost the cheapest house on the market! I will lose the home to someone else! I have to buy this home because the monthly payments are cheaper than my cheap rent!" She didn't care about the price but the monthly payment being less than rent. She only wanted to find a way to get $20,000 more cash for the down payment. Thankfully seller reduced the price. The appraisal gap prevented her from over paying for her first home. Many first time buyers in less expensive areas feel the same way. 

Buyers using government funding tend to overbid. They're buying the home with someone else's money because of lower down payment requirements.They just want the home at any price believing it will instantly go up in value and they will have thousands in equity to take eventually. The government told them this is the American dream.

The actual appraisal gap is small. There is almost no gap in Latino areas and 1% in black areas. The government made this huge stink about appraisal gap and there barely is one! "In our prior critique of Freddie Mac’s research note, we find that “there appears to be no gap [in home purchase appraisals] relative to White tracts for Latino tracts and a relatively small gap [in home purchase appraisals] of 1-2% for Black tracts.” They mean predominantly white, Latino or black census tracts. None are 100% white, black or brown. That means whites are having the same issues in those areas as blacks and Latinos. The gap is not a color issue because the same things happens to whites in the same area. 

AEI again debunks Andre Perry's "paper." Perry stated appraisers devalue black owned property by $48,000 per home. That's much more than the difference in contract price and appraised value of 1%. AEI pointed out that homes owned by poor whites are also valued less than homes owned by wealthier whites. It's not because of skin color but income, wealth and location.

Appraisals coming in below contract price can help lower income Latino, black buyers. They can renegotiate with the seller. The government didn't say the buyers never closed on the properties and the deals died. They're prevented from overpaying and ending up upside down. AEI state that the government is part of the problem. They help and allow buyers to over pay for  homes at the top of the market only to lose those homes later when the market tanks or they have a financial emergency. And you know who the government falsely blames for that? Appraisers!

This kind of reminds me of the destroyed apartment buildings in the Turkey earthquake. Their President bragged that he reduced earthquake requirements to allow the construction of 300,000+ homes for lower income people. That is one of the major causes of the high fatalities in the earthquake. The President basically killed people. FHA and the government like to brag that they helped low income people buy homes. Then they lose their homes because they over paid at the peak of the market and couldn't easily pay the mortgage. Also reminds me of our student loan problems. Latinos, blacks are the ones stuck with huge student loans while the government brags they helped them get an education. Most didn't even finish their education and get the degree or certificate. Most of the ones that did didn't even get the better paying promised job. Governments just want to brag that they "helped" people not caring that they actually destroyed them financially. If the government helped them find a way to earn more money, they could buy a home on their own and afford to stay in it. 

AEI suggest mass screening of appraisers to check for racial bias. I support this. If any appraiser knew of a racist appraiser who came in low on a black, Latino owned home because of their racial bias, they would love to take that appraiser back behind the wood shed. All appraisers are being attacked, vilified, defamed based on this false narrative of the "racist old white male appraiser." While racism sure as hell exists, not all appraisers are racists who lowball Latinos and blacks. If there are appraisers doing this, other appraisers would be the first to hold them accountable and strip them of their license. 

FTR Dan Wiley of Freddie Mac stated this about their appraisal gap research. "We have not reached any conclusion for cause of the gaps or correlation. Our research showed that further studies are warranted." Danny Wiley and Freddie Mac are doing further research into the possible causes of the appraisal gap. They are looking at all the new data and reviewing all appraisals involved in the appraisal gap research. Of course that hasn't stopped Marcia Fudge, HUD, media... from running with Freddie Mac and other's inconclusive data about appraisal gap from stating it's allegedly caused by racial discrimination by appraisers. 

https://www.aei.org/research-products/report/exploring-alternative-explanations-for-appraisal-under-valuation/?utm_source=newsletter&utm_medium=email&utm_campaign=exploring_alternative_explanations_for_appraisal_under_valuation&utm_term=2023-02-14


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

Sunday, March 27, 2022

AEI reply to Freddie Mac's misleading study, American Enterprise Institute, by Mary Cummins



More great research from AEI. This is analysis of Freddie Mac's misleading and basically defamatory paper on Appraisal Gap. When government related entities release misleading information like this they are attacking and defaming real estate appraisers. The hate real estate appraisers have received because of this paper and Andre Perry's paper is relentless. 

Another problem with releasing misleading data and conclusions is that it actually hurts the people they are trying to help. Facts show that the real cause of the wealth gap between blacks, whites and Latinos is the income gap. It has nothing to do with appraisals or appraisal gaps. The government needs to help blacks, Latinos make more money. Offering help with down payments and reduced fee loans will not help these people long term. They end up in risky financial situations where they are more likely to lose their home. This causes more damage than not helping them at all. The government is setting these people up for failure which is a travesty. As noted in the report below "These polices are a violation of the FHFA’s (and HUD’s and the CFPB’s) obligation to Affirmatively Further the Goal of Fair Housing."

The government has done the same thing with student loans. The federal government gives more loans to blacks than whites based on % population. Blacks end up saddled with more debt. The government tells them to get an education and they can make more money. Instead they don't make enough income to pay off the student loan debts. This makes it difficult to pay rent and sometimes impossible to buy a home. If they do buy a home, they have huge levels of debt which can cause them to lose that home in an emergency. Helping or hurting? https://educationdata.org/student-loan-debt-by-race

Full report linked below.

"AEI Housing Center Critique of Freddie Mac’s Note on “Racial and Ethnic Valuation Gaps in Home Purchase Appraisals” November 15, 2021

Executive Summary:

While we applaud Freddie Mac for having undertaken an effort to assemble relevant data to investigate the topic of appraisal discrimination, it was premature to publish a note based only on “exploratory research” limited to a single race-based correlation, with no attempt to present a rigorous analysis regarding other potential explanations.  Merely stating that low appraisals resulted in “substantial appraisal valuations gaps” for minority versus White tracts provides an ominous sounding headline, but sheds little light on whether the gaps support a claim of systemic racism. Even worse, Freddie Mac’s research note was quickly seized by policymakers and the media as evidence of systemic racism.[1]

Rather than being due to racial discrimination by appraisers, we found Freddie’s claim of an “appraisal gap” is much more likely the result of would-be first-time buyer inexperience, socio-economic status (SES), or government actions (in particular a concentration of FHA lending in certain census tracts) with a disparate impact on protected classes.

Our analysis, which goes well beyond Freddie Mac’s “exploratory research”, can explain around 85% for Black tracts and 29% for Latino tracts of the gap through differences in socio-economic status (SES), leverage, and borrower characteristics. With the full set of controls, the Black gap disappears entirely, while the Latino gap falls by almost half.

In a robustness test, we found a sizeable FHA effect for majority White or White-only tracts. Thus, FHA lending, but also Equifax Risk Factor (ERS) and the one adult borrower share, is not simply substituting for minority borrowers.

Finally, research ignored by Freddie Mac has found a substantial consumer benefit to low appraisals:

Low appraisals provide enormous leverage to renegotiate the contract to a lower price. When buyers do renegotiate, subsequent to a low appraisal, they usually lower price by a significant share of the difference between contract price and appraised value. The new lower price reduces credit risk, costs to the borrower, and ultimately results in greater wealth for the buyer.[2]

If the differences found by Freddie Mac are in fact, as our research indicates, largely due to factors such as differing rates of FHA financing and SES in the grouped census tracts, then addressing wealth inequities through the use of easier lending criteria and accommodative monetary policy create a systemic barrier to sustainable homeownership and wealth creation by subjecting protected class households to risky lending, unsustainable price boosts, speculation in land, and home price volatility as other AEI Housing Center research has shown.[3] These polices are a violation of the FHFA’s (and HUD’s and the CFPB’s) obligation to Affirmatively Further the Goal of Fair Housing. Thus, instead of Freddie Mac’s correlation being the result of systemic appraiser racism, it may well have been the result of government policies and actions which have a disparate impact on protected classes. We respectfully submit the following comments in an effort to highlight the above deficiencies and report on our research into other explanatory factors. We believe that our research could be quickly confirmed. We trust that this critique will help inform Freddie Mac, FHFA, policy makers and the public on this important topic.[4]"

https://www.aei.org/research-products/report/aei-housing-center-critique-of-freddie-macs-note-on-racial-and-ethnic-valuation-gaps-in-home-purchase-appraisals/

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

Monday, January 31, 2022

Diversity, Equity and Inclusion Webinar Series: Revealing Relevance for the Appraiser Profession by Mary Cummins

diversity, equity and inclusion webinar series, revealing relevance for the appraiser profession, mary cummins, real estate appraiser, los angeles, california, freddie mac, asa, ai, bias, january 31, 2022, robbie wilson, david doering, danny wiley, johnnie white, scott reuter, uad form,
diversity, equity and inclusion webinar series, revealing relevance for the appraiser profession, mary cummins, real estate appraiser, los angeles, california, freddie mac, asa, ai, bias, january 31, 2022, robbie wilson, david doering, danny wiley, johnnie white, scott reuter, uad form, 


Leading Real Estate Appraisal Organizations Come Together to Present a New Series of Webinars on Diversity, Equity, and Inclusion

Dec 14, 2021 ASA, Appraisal Institute (AI), American Society of Farm Managers & Rural Appraisers (ASFRMA), International Association of Assessing Officers (IAAO), MBREA, and National Society of Real Estate Appraisers (NSREA) have come together to present a new series of webinars on diversity, equity, and inclusion.

The first webinar, entitled “Revealing Relevance for the Appraiser Profession” will air Monday, January 31, 2022 from 1:00-4:00 PM ET. Registration for the first free webinar is available at: http://bit.ly/30CLfNb

Presenting experts David Doering, ASA, IFA, Robbie Wilson, ASA, RA, SRA, Scott Reuter, and Danny Wiley, SRA, will discuss the details of the Freddie Mac study, including questions/points from the research and what appraisers can do in light of the research findings; as well as how the three approaches of value inform an opinion of value; how comparable sale selection can lead to inadvertent effects on the opinion of value; and how neighborhood or market area determinations are made, and how this definition can cause inadvertent negative impacts.

Webinar Speaker Panel

David Doering, ASA, IFA, Missouri Property Appraisal, Inc.

Danny Wiley, Freddie Mac 

Robbie Wilson, ASA, RA, SRA, Advance Appraisal Group, Appraiser Instrutor.

Scott Reuter, Freddie Mac

This webinar will award 3.0 ASA continuing education hours. This webinar has not been approved by any state appraisal board for real property continuing education hours. A copy of the webinar video will be posted here when available.



Below are my personal notes from the three hour webinar. There were three main parts then Q&A at the end. Johnnie White of ASA was the host of the webinar. Left to right, top to bottom, Robbie Wilson, Johnnie White, Danny Wiley, David Doering, Scott Reuter. 

Left to right, top to bottom, Robbie Wilson, Johnnie White, Danny Wiley, David Doering, Scott Reuter.
Left to right, top to bottom, Robbie Wilson, Johnnie White, Danny Wiley, David Doering, Scott Reuter. 


1. Dave Doering and Scott Reuter were the first speakers talking about the Freddie Mac study. Scott Reuter wanted to clear up a few things. In the desktop appraisal there is a "floor plan" instead of a "sketch." The appraiser doesn't do the floor plan or sketch. It's provided by other sources. The desktop appraiser stays at their desk. Hybrid appraisals are basically a desktop appraisal with someone else providing some of the data for the property. 

Scott Reuter, FreddieMac: Typically we are going to use closed sales transactions which are going to lag current trends. We're not here to beat you (the appraiser) up. (He was referring to the Freddie Mac paper about appraisal gaps.) We have made no conclusions stating there is bias in appraisals. We are just seeing different results from different areas. 

While reviewing appraisals we noticed that currently there is about an 18% appreciation rate yet appraisers are only adjusting 5-6%. (My comment. We still can't go over the highest closed sales so even if we adjust for a full 18% appreciation, it won't change the final value. Maybe it will at least appease the borrowers)

There was an issue of language in reports. The two problems are discriminatory language which you just can't use and subjective language. What does "desirable neighborhood" mean anyway? It's vague. All areas are desirable or they wouldn't exist. Instead you can say the median price in one area is higher than surrounding areas.
















2. Robbie Wilson. Understanding the Three Approaches to Value. It was very difficult to understand what he was saying. I put in both ear buds, upped the volume, leaned forward and still had a problem. All the other speakers were very clear and understandable.

He explained value and the three approaches to value as if the viewers were not appraisers. He said appraisal technique has nothing to do with bias. Only people can be biased using the technology and methods just like the saying 'guns don't kill people. People do.' (Appraisers kill people? Not the best analogy. Now I realize why he posted a disclaimer at the beginning of his presentation saying everything is his own personal opinion only.)(Previously people were saying that the sales comparison approach/method was biased against black people because it relies on the sale of similar properties in similar areas. Andre Perry said this. Others said the resultant values were a product of redlining from years ago. Glad to see that Robbie doesn't agree with that idea.)

We need to do something about racism because of money. TAF said they would do something but they've done nothing. Redlining comes from these same government agencies. There is a mountain of evidence of systemic discrimination in housing. Everyone backs me up. Some are saying appraisers are not biased. Appraisers are biased. We need to kick them out. (He had 49 slides. Here are a few)















Robbie said maybe a sign like this hanging in the office would help. (Who has an office where a borrower would see it?)






3. David Doering, Residential Appraiser. Appraisal Considerations in the Selection of Comparable Sales.

Our current regulations already preclude bias. It's an ethics violation. Definitions of objective and subjective bias. USPAP regulations preclude being subjective. They are now including protected characteristics besides just protected classes. Protected characteristics are for example gender expression. 

There have been numerous isolated incidents of bias in the media. We don't know cause but it's a matter of public awareness. 

Everyone knows the three major determinants of value are location, location, location. You can use comparables from a similar neighborhood if needed. A subdivision is not a neighborhood. You can use comps outside of the same subdivision (I missed a few minutes)















Q & A

To Robbie Wilson: Q: Can an AVM be biased? A: The program writer can be biased. 

To Danny : Q: Will appraisers be involved in the UAD redesign? A: They already are. 

To Danny: Q: What is the difference between the sketch and floor plan? A: Interior walls must be drawn in floor plan. Appraisers don't do the floor plan. It comes from someone else. The redesign of the UAD form will come out 2024. The last redesign was 2005.

To someone: Q: Are property data collector standards being developed? A: I'm sure they are. (He didn't understand question about hybrid data collectors so Danny answered) Danny: I think he's talking about hybrid data collectors. We have data standards and training requirements. They're not Uber drivers and delivery guys. We are testing our data standards. 

To Robbie Wilson: Q: Any advice to anyone falsely accused of being biased? A: Facts will exonerate them. 

Danny answering above question. Your workfile is your friend. 40% of the time (in investigations) appraiser didn't have a true copy of the final appraisal report. They didn't save the last copy, version.

To Robbie Wilson: Q: There are not that many female appraisers. How can we get more female appraisers in the profession? A: Recruiting. 

I'll post the link to the video of the webinar here when it's available. 



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