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.

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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.

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How to Avoid Being Accused of Bias in Real Estate Appraisal - Free Webinar by George Dell, Peter Christensen ... by Mary Cummins

how to avoid being accused of bias in real estate appraisal by George Dell, Peter Christensen, bias, discrimination, real estate appraisal, real estate appraiser, mary cummins, los angeles, california, brea, fha, hud

I attended the free webinar by real estate appraiser/instructor George Dell and lawyer Peter Christensen. Other speakers were appraiser Craig Gilbert who spoke about the new California bill AB 948 and Dave Towne. 

It was very informative and based on common sense. The main takeaway was choose appropriate comps/data, include an explanation on why you chose the comps you chose, save a copy of your search parameters and results to your work file, and fully explain and describe your adjustments and the values in a bullet-proof report. 

I'd like to add some other suggestions. Even though the intended users of the appraisal report are savvy, educated, experienced finance professionals write your report so that an average lay person with an average education can easily understand everything. The buyer, seller, borrower, agent, their cousin, all their social media friends ... will be reading the report. If they don't like or understand anything about it, they will be attacking the appraiser on social media, to the real media and leaving negative business reviews all over the internet. They may even file a frivolous complaint just because they don't understand something. A woman said an appraiser wrote "Marin city" for the city in the report. She said it was "code for black." The property legally was in Marin City. It wasn't code for anything. Not my appraisal. That's how sensitive this issue can be. 

For instance state that per government guidelines the appraiser must first search sold, pending, active comparable properties +/- 15% difference in GLA (gross living area) from the subject, within 1/2 mile radius, within the last three to six months with similar amenities and in similar condition. If you can't find enough comps and have to widen your search, state specifically why and how you did that. State that you need at least three sold, one pending and one listed comp, if you do. Cite USPAP, FHA and government regulations that govern our appraisals. 

If the GLA, bed/bath/room count differ from the actual size, state what is included in GLA per ANSI and permits. State what is not legal GLA in the home and why. I even include links to ANSI, government guidelines ... beyond what is in our limiting conditions. Some people think they are being "ripped off" because the Appraiser didn't give credit to the unpermitted elevated toilet they added in the garage or the closet/balcony/patio/carport/shed they illegally converted into a bedroom that would never meet code or basic safety requirements.

If they added what they feel are lots of improvements or additions that don't add real value to the home, specifically tell them why. Go into the math of return on investment, over improvement, under improvement, market reaction to improvements... I had a guy tell me he spent $150,000 adding palm trees to his back yard 20 years ago. He asked me why I didn't add $150,000 to the value of his $400,000 home. I told him specifically why it didn't add any value to the home. 

Sometimes lay people just don't understand the form. One person thought pg 1, "Improvements," "Condition of property" section had to do with the condition of the entire house even though it ONLY relates to the kitchen and bathrooms. The reader can't see the drop down menu items which state "kitchen," "bath." They only see the result which could be "no improvements within the last seven years." I added an explanation right in that section so people know what it is. 

Specifically describe each of the comps relative to the items in the grid. If there is an adjustment for any item, describe what it's for and how it was calculated. Readers don't realize that we use advanced math, regression analysis and statistics to formulate our adjustments based on lots of independent data from the various MLS and public records. It is probably a good idea to ever so briefly mention the appraisal theory of matched pairs analysis so they will understand the reason for the comps and grid. A brief mention of regression analysis would help so they can understand how we figure out the exact adjustments. Add charts from your xml spreadsheets to the report if needed. Like your math teacher used to tell you "show your work." Save all of your adjustment calculations, xmls, charts to your work file.

Your summary of the market comparison approach needs to be very clear and plain. Specifically state which comps set the upper, lower levels of value and why. Which comps carry the most weight and why. If you feel the property could be worth more but there just are no recent closed sold comps to support that value, state that. Sometimes it's best for a homeowner to wait until a similar home closes for a higher value in a week such as one of the higher listed or pending comps. People don't realize that we are generally limited by the highest recent closed sale. Even if our report were to come in higher, the AMC, underwriter, lender would send it back stating that it can't be higher than the highest closed sale. That has been happening a lot lately. 

A few last pointers. Of course never discriminate against anyone even if the homeowner treats you horribly. If a homeowner is instantly very rude and attacks you when you arrive or during the inspection, just leave and cancel the appraisal. Get your research and trip fee and be done with it. It's not worth the headache. This has only happened to me a few times in 35 years. 

If things start to get iffy during the inspection but not to the point of leaving, take notes instantly. If they tell you what they think the property is worth, tell you a home a mile away sold for $1.2M, what value they need for their loan, how a recent "stupid" appraiser didn't know the area, recent appraisals came in too low, that they added $$$ worth of "improvements and upgrades"...instantly take notes of everything they are saying and doing. I do this on my iPhone note feature. I always ask if they've done improvements during the inspection. I tell them they can give, send me a list of the alleged improvements if they like. If they, the agent, whomever hand you comps, take them. You don't have to use them but it's good to see where their mind and reasoning is at so you know what you have to deal with. Once in a great while they may even give you a good comp. 

If the appraisal is for a purchase, search for comps before you accept the assignment. If you can't find any comps to support the contract price, don't take the assignment. Save everyone a big headache especially yourself. If it's a refinance, look at the current loan amount and figure out loan to value ratio. If their current loan is $1,000,000 but the home is only worth $900,000, you may have a problem which could be avoided before you accept or complete the appraisal. Better not to complete the appraisal then no one can file a complaint for biased appraising. 

Always be very polite, on time, look and act professional, be kind and answer their questions. If they request a Reconsideration of Value i.e., an appraisal appeal, be very thorough, kind and polite in your reply. Don't ever just reply with "no change." Supposedly this is the biggest reason people file a report for discrimination. Specifically state why you could not use the comps they provided going back to the government guidelines and underwriting limitations. Reply to each of their concerns in layman terms. 

If they give you good comps, use them and change your value. Very rarely you may not see a sold comp because it recorded the day of or after your inspection but you pulled comps the night before the inspection. Sometimes sold comps record days before they show up in public records. Feel free to call the agent of pending comps or even call title to see if they closed. With this crazy super quickly appreciating recent market the most recent comps are the best representation of the market. 

One very important last suggestion. Many people especially people of color, immigrants, people of different religions, sexual orientation, languages ... have been discriminated against for their entire lives. They may always be on the defensive. Their first thought might automatically just be "it must be discrimination!" Even though it's upsetting to be falsely accused of discrimination don't get upset or defensive. Respond politely and kindly to their ROV requests. Be understanding and thorough in your reply. Pretend you are talking to your sweet old grandmother who just doesn't understand all of the advanced math and statistics. Break it down into simple and plain language they understand. That could be the difference between having a calm conversation or a frivolous complaint filed against your license and business. 

If after you've responded politely and thoroughly someone still files a false or frivolous discrimination complaint against you, you need to take action. Obviously these false discrimination complaints are only coming in now when the appraised value is under contract or the unsupported expectation of the borrower, seller, buyer... No one complains if you come in at contract or above. In prior years with quickly appreciating crazy markets they just called us "deal killers" but now partly because of the current political climate they call it "discrimination." 

I hate coming in under contract because you know there will be a lot of stress and strife which is why I try to avoid those appraisals if at all possible. If they only filed the complaint with the lender or AMC, your reply to the ROV is your basic reply. No one has ever filed any complaint against me for anything even though I have had a handful of people in 35 years who weren't happy with the value. I replied via the ROV. 

I personally would reply to a discrimination complaint. What did they state that you did or said that was discriminatory? State exactly everything that happened on the phone, in email, text, voicemail, at the inspection... Always save all of this to protect yourself. If you feel they are trying to influence the value with the threat of complaint, actual complaint, instantly notify the AMC and lender of this fact. Per the Appraiser Independence Laws "it is unlawful for any person in the course of a mortgage transaction to improperly influence the development, report, result, or review of a real estate appraisal sought in connection with a mortgage loan." Each state has their own laws. California law Article 7 CIVIL CODE SECTION 1090.5 . Here are the laws for each state from the Appraisal Institute. 

It's also a violation of Federal law 15 U.S. Code § 1639e - Appraisal independence requirements. If the lender is notified that they tried to influence the value, they will not get a home loan, i.e. "It shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence." I would try all other means of resolving the situation before you make such a complaint as the outcome would not be good for anyone. Talk to the AMC who can talk to the lender who can talk to the client and explain the regulations in detail. 

If they file a false or frivolous complaint to a government agency such as you state licensing board or HUD, contact your E&O insurance and a lawyer. In order to prove discrimination or bias, they MUST show evidence and prove that you intentionally discriminated against them in the appraisal. They must show that you appraised their home vastly differently than any home you've appraised in the past based on discrimination. They must show you perhaps violated USPAP, pulled the wrong comps, refused to look at better data they sent to you... They would have to show more than just mistakes or say poor judgment in the selection of comps. They must show evidence of "intent to discriminate" and "discriminatory behavior." I don't know if any individual appraiser has ever been found to have discriminated against anyone in an appraisal report in a lawsuit or formal government complaint more recently. I'll keep searching. I'm sure lenders, banks, agents have definitely discriminated against people in the farther past. I know some AMCs, lenders have settled some cases without admitting any guilt such as the recent Chase case. You don't need to prove as much evidence with lenders. Chase still stands by the appraisal. They settled to avoid litigation costs and bad press. 

In summary, always do the most thorough and best appraisal possible. Pick the most similar comps and let them do your work for you. Save all of your work, notes, emails, voicemails, texts, photos, sketches, math, charts, xml files... to your work file. Explain everything in layman's terms assuming regular non finance people will be reading the report. Be polite, kind and understanding with everyone. Treat them like your grandmother. Always thoroughly reply to any ROVs. That appears to be one of the main causes of discrimination complaints. If they give you a better comp, other better data, use it and change the value if the new data or comp supports it. Most importantly, never discriminate against anyone ever for any reason. Discrimination, racism, sexism... is hateful and harms everyone and our society. 

From the class information page. 

"Save the DATE!

Join us on Friday October 8th at 12 Noon Pacific Time for a free 1.5-hour webinar on

How to Avoid Being Accused of Bias

This is NOT a hands-on class. No Continuing Education credit will be offered.

We emphasize underlying principles and logic."

"About George Dell: About George Dell and Valuemetrics.Info

George Dell, SRA, MAI, ASA, CRE, LAI, of San Diego, CA, is the creator and developer of Evidence-Based Valuation (EBV©) which optimizes computer algorithms with trained valuation judgment. 

His signature workshop, Stats, Graphs and Data Science1 initiates new appraiser products and services – by combining appraiser expertise with data science tools and critical thinking skills.  It has been presented to various appraiser groups and professional organizations. For more information, check out Valuemetrics.info for upcoming classes.

Mr. Dell has been published multiple times in The Appraisal Journal, and other publications. His most recent articles include, “Common Statistical Errors and Mistakes” in 2013 Fall Edition, “Regression, Critical Thinking, and the Valuation Problem Today” in the 2017 Summer Edition, the Feature article in Appraisal Buzz, September 2019, "Red Door, Blue Door, Doggie Door Value" and many articles in Ann O'Rourke's paid newsletter, Appraisal Today.

George Dell’s free weekly blog raises often-controversial (but forward looking) issues.  He is the editor and author of The Asset Analyst Report (TAAR)©.  The EBV curriculum -- for appraisers and credit analysts -- is taught through Valuemetrics.info.

About Peter Christensen,

Attorney & Principal at ValuationLegal.com

Peter is member of the California and Washington state bars, as well as a licensed insurance broker. After earning his BS and JD degrees at U.C. Berkeley, he began his career at Latham & Watkins LLP. He later served as general counsel to the largest provider of professional liability insurance to appraisers and valuation businesses. He’s based near Santa Barbara, California, but enjoys traveling the country to meet with professionals and firms, and he’s has made it to 48 states so far."

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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Alleged racial discrimination case in Oakland, California, real estate appraisal, Saleem Shaheed, Sunnyside - by Mary Cummins

Saleem Shaheed, 9821 sunnyside, oakland, california, racial, discrimination, real estate, real estate appraiser, appraiser, appraisal, fha, mary cummins, los angeles, alameda, loan, lender,

Here is another alleged case of discrimination in a real estate appraisal in Oakland, California covered by Julian Glover. Saleem Shaheed purchased a Cape Cod Colonial home at 9821 Sunnyside for $430,000 Nov 26, 2019. It was listed at $475,000 for over a year and a half. It appeared to be a fixer home based on pics. At the time he got a $417,000 first loan which is a 96% loan to value ratio. He put down $23,000. Nov 2020 the home was appraised for $575K. Jan 2021 while applying for an FHA loan which has much stricter requirements for the home the value was $480K. Shaheed then ordered a third appraisal April 2021 which came in at $630,000. These values are as per Shaheed. 

Shaheed claims the second appraiser didn't give credit for the second bath. He also claims that appraiser clicked the box that said "no updates in last 15 years." Shaheed said that was incorrect because he added a new roof. A new roof is a maintenance item. It's not an update. The home per photos had roof damage and needed a new roof when he bought it, see photo below. An update, upgrade would be a fully remodeled new kitchen with new appliances and new bath of higher quality. It would include new electrical system and new plumbing. I would agree with the appraiser if the kitchen, bath were the same that I saw in the 2019 listing photos. The home does not have a legal second bath, see below. Shaheed complained, appraiser didn't change value and Shaheed filed a claim of discrimination against that appraiser's license. 

I'll first deal with the actual physical home in question. Address is 9821 Sunnyside St, Oakland, California 94603 in Alameda County parcel number 46-5463-8-2. On taxes and in public government documents it's listed as a 2 bedroom 1 bathroom home with 1,343 sf. Keep in mind Saleen Shaheed stated it's a 3 bed 1.5 bath home. An extra bedroom and bathroom makes a huge difference in value.

I got comments doubting the bed, bath count. Here is an ad for the house from 1967. It's a two bed, one bath home. "2 plus" means two legal bedrooms. 

The top image came from the MLS listing. It was listed at $475,000 from at least March 12, 2018 to November 26, 2019 with agent Jasmine on the MLS. It's listed as a 2 bed, 1 bath home with 1,343 sf. Then the agent made a video where she states it's 3 beds, 2 baths with 1,609 sf. Screen shot from the video below. The agent Jasmine Sunkara is a liar which is probably why she removed her website below. She listed the real bed, bath count and size on the MLS. Based on government records this home is legally 2 beds and 1 bath. That appears to be the main issue in this case. Saleem Shaheed bought a 2 bed, 1 bath home which he is now trying to pass off as a legal 3 bed, 1.5 bath home in order to get a higher valuation. The home is also across the street from an elementary school which negatively affects value compared to homes not next to an elementary school. 

Saleem Shaheed, 9821 sunnyside, oakland, california, racial, discrimination, real estate, real estate appraiser, appraiser, appraisal, fha, mary cummins, los angeles, alameda, loan, lender,

I looked at the pics of the bedrooms in the video. They are not all bedrooms. Below are the pics of the alleged bedrooms. Two top pics are of the same bedroom. 

A legal bedroom should have a real closet and not just an armoire or clothing rod on a wall if it's not a very old home which was built without one. A legal habitable room must be legal minimum height in order to be included in the total gross living area. While older homes with sloped walls on the sides are common the angled area where it slopes under six feet is not included in the gross living area. At least half the room must be 7' or taller. That room doesn't meet that criteria. It's not a bedroom.

You'll notice the home is listed as 1.5 floors. It's not two stories. The second floor is not a full floor with full height wall to wall. Notice the dormer windows. Notice the angled, sloped walls in rooms. A legal room must have a heat source connected to the main part of the home and should have insulated walls and ceilings. Attics generally don't. Below is a pic of the side view of the home. You can see it's not a full two story home. The two bedrooms are on top on either side of the "2nd" floor. The main part of the first floor of the home is about 23' x 32' (762') based on Google measure minus average sized roof eaves. The 2nd fl could be about 581'. You can't add area of the stairs on the second floor. 2nd fl definitely not the same size as the first floor. The rear extended part of the home looks like an unpermitted enclosed porch maybe. The one car garage is on the other side of the home. 

I'm assuming the green room is also considered a bedroom. Notice the odd closet with a window in it. It almost looks like part of the second floor was an attic-like area that was converted. See the little low door that goes to a storage area. That area in there is probably angled. 

The last turquoise blue pic is not a bedroom. That is not a third bedroom. The walls are angled, roof is low and there is barely any walking floor space. I'm going off the video and listing. 

I saw only one pic of a bathroom in the video. It was just a close shot of a toilet and window so I'm assuming the bathroom is small. Just found a pic of the full bathroom. It's the main bathroom.

I don't know what the full or half bath looks like. As the extra bed is not legal I'm sure the extra half bath isn't legal either. The problem with non legal rooms built without permits and not to code is that Building and Safety could order them removed at any time if they are reported. If you are the bank you want to make sure the loan is covered by the value of the home. A legal 2 bed 1 bath home is worth less than a legal 3 bed 2 bath home even if they are the same size. A legal 2 bed 1 bath home is worth about the same as a 3 bed 2 bath home where the extra bed and bath are not legal. Anyone can report the owner today and he'll probably have to rip out the extra bed and bath. Please, don't report the guy. 

In every day appraising we see unpermitted additions especially in areas with more affordable homes. We generally note whether or not they were built to code and built in a workmanlike manner. We also mention if they pose a health and safety hazard and include photos. Some lenders allow the appraiser to count them as beds, baths and some do not. One thing to consider is if you were offered a legal 3 bed, 2 bath home and a legal 2 bed, 1 bath home with unpermitted extra bed and bath, which home would you choose for the same price? You'd choose the legal one because someone could report the unpermitted rooms and you'd have to remove them. Clearly the home with legal beds, baths is worth more. 

Just for a wide range of values below are the three main robot appraisal values. The values are based on a mathematical formula which is the same as what real estate appraisers use. We search homes +/- 15% legal gross living area within a half a mile from the subject sold within the last 3 months or max six months if there are no recent comparable homes sold. We then choose the most similar comparables based on size, bed/bath count, amenities, condition, view... 

Everyone knows garbage in, garbage out (GIGO) with computer software. Flawed, or nonsense (garbage) input data produces nonsense output. That's what we have here with our robot values. The first two went by the false MLS information stating it's 3 bed, 2 bath. The last one is based on the tax data and is 2 bed, 1 bath. The difference today between a 3 bed, 2 bath home and a 2 bed, 1 bath home is about $130,000. These values are as of June 15, 2021 which is later than any of the appraisals. There are eight months between the first and third appraisal. I'm sure the value increased significantly in the last eight months. 

Zestimate/Trulia $666K range $619K - $764K 3+2 1343 sf

Redfn $669K 3 + 1.5 1370 sf

Real AVM $533K range $469,216 - $597,184 shows as 2 bed + 1 1343

Back to the three appraisals, i.e. November 2020 $575K, January 2021 $480K FHA appraisal, April 2021 $630,000. Shaheed has a problem with the six month old $480K appraisal which was for an FHA loan. FHA loans are very restrictive on the type and condition of homes on which they will lend. They would count legal beds, baths. The FHA appraiser did not give credit to the second bath which could be proper based on condition, permits. There can be no health, safety issues or major code violations. A regular loan might allow an appraiser to consider unpermitted beds, baths. I obviously have not seen the home. I don't know the condition or if it's changed. Shaheed states he added a new roof and redid the kids' bedrooms. The roof is a maintenance issue. Redoing bedrooms doesn't add that much value to the home. The pics of the alleged bedrooms are pretty funky. 

There is one issue most homeowners don't understand. Most underwriters, lenders will not allow the final appraised value to be higher than the highest recent sales price of a similar home in the area. It's possible there were no recent higher sales of a similar 2 bed, 1 bath home when the 2nd appraisal came in at $480,000. There are few homes on the market so there aren't that many sales. Maybe most homes in the area are newer legal 3 bed, 2 bath homes. It's also very possible that there were some recent higher sales of 3 bed, 2 bath homes when the 1st and 3rd appraisals were done. I haven't seen the appraisals. 

Based on the legal bed, bath count the second appraisal would have been within the range of value for the home at that time for an FHA appraisal. Based on 3 beds, 2 baths the first and third appraisals would have been within the range of value for the home at the time of those appraisals. That would appear to be an 8% appreciation within eight months between appraisals one and three. That sounds about right for the market. Home values have been rising quickly in that area. Cheaper areas such as Oakland have seen a larger increase. People can't afford the nicer areas so they are moving to Oakland where homes are more affordable. That is quickly driving the price up sky high. Because I haven't seen the home I can't get more specific about the value of the home. I can say there are issues with the home that would cause a wider range of values, namely the legal bed, bath count and condition. 

A last issue is that most loans are declined due to credit worthiness of the borrower, their income, assets, debts and not the appraisal. It's up to the lender to approve the loan as a package comprised of the borrower and the collateral. The appraiser has no say in the loan approval. If the last appraisal was done April 2021, any loan should have closed by now. Shaheed stated he still doesn't have a loan. Shaheed said the value of the last appraisal was "good" so one can only surmise that the borrower is the issue. If he goes ahead with the loan now, he now may have to have the appraisal updated. 

*Disclaimer. I haven't seen any of the appraisals. I do review appraisals for banks. I am not appraising this home. I haven't seen this home in person. 

**All real estate appraisals completed on the 1004 form state the appraisal is only for the use of the client. The client is the AMC or lender. The appraisal cannot be used for any other purpose by other parties. The borrower is not the client or owner of the appraisal. The purpose of the appraisal is to make sure there is sufficient equity in the property to cover the loan balance and costs to foreclose the property by the lender. The borrower is entitled to look at the appraisal. The borrower cannot use the appraisal for their own use. 

Below is the video tour of the home. Agent removed one version of it within an hour of me posting the article. I saved a copy.
 

https://www.facebook.com/watch/?v=1856674971289556

Below is the original article.

https://abc7news.com/home-appraisal-discrimination-oakland-homeowner-beats-low-housing-sunnyside/10790373/

Original real estate agent's website which was removed.

http://jasminesellsrealestate.com/

Jasmine Sunkara 916.501.3393 #calbre#01855557 #NMLS#112033

Photo of roof before sale. It needed a new roof. 

Photo of living room. You can see water damage to the wall most likely from the roof damage.

Kitchen.

Government city, county, state property record for subject. 

I just checked permits. There was no permit to add a bedroom or bathroom. There were two permits the current owner pulled to add solar but it was never completed. There was no permit for a new roof. You need a permit to replace the roof. They need to make sure people use roofing material and application methods which are up to code and fire proof. 

08/12/2020

Permit Inactive

SE2000661

Solar Electric Panels

9821 SUNNYSIDE ST, Oakland CA 94603

Install roof-mounted 3.30 kW PV solar system with 10 modules.

08/12/2020

Permit Inactive

RE2001806

Residential Electrical - Alteration

9821 SUNNYSIDE ST, Oakland CA 94603

Install 13.5 kWh Energy Storage system, 225 amp Main service panel, load center, and backup gateway.

2019 the sewer and sidewalk were repaired. 

Mary Cummins of Animal Advocates is a wildlife rehabilitator licensed by the

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

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