Mary Cummins, Real Estate Appraiser, Real Estate Appraisal, Los Angeles, California, Mary Cummins.

Mary Cummins is a real estate appraiser in Los Angeles, California with 38+ years of experience. Cummins provides real estate appraisals for banks, lenders, mortgage brokers, Appraisal Management Companies (AMCs), lawyers, Courts, factors and private parties for lending, lawsuits, probate, estate planning, divorce and all types of litigation. Cummins provides 1004, 1073, 1025 and other form reports, narrative reports and historical appraisals besides real estate research and appraisal advice.

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

UPDATE: 06252024 AppraisalBuzz stated there are 70,000 appraisers in the US. We have a population of apx 340,000,000. They stated 1/3 are eligible for social security which is about 62-65 years old.

05272024 I was fooling around in the BREA site and searched all appraisers. It said "14056 record(s) returned." These are all appraisers on record. Some could be expired, cancelled, dead ... and not active. I don't know when or why BREA would remove an appraiser from the list.

https://www2.brea.ca.gov/breasearch/faces/party/search.xhtml

I was in the site looking for AMCs. The total number of AMCs I assume including expired, cancelled in 2019 was 148. I printed out the list. Today it was 327 five years later. It could be more expireds or more AMCs now working in multiple states. It doesn't necessarily mean there are more currently licensed AMCs in California. Plus, some AMCs were taking over by others and are now DBA as the other AMC name.

02152024 As of November 6, 2023 there are 8,796 appraisers in California down from a 20,000 peak in 2007.

More stats:

59% are aged 50-69
65% are male

https://www.brea.ca.gov/pdf/23-493_BREA_Fall_Winter_Newsletter_web.pdf

Numbers for last 22 years or so are below:

2002 10943

2003 12167

2005 18854

2007 20100

2009 15625

2014 11868

2015 11189

2016 10852

2017 10742

2018 10562

2019 10056

2020 9630

2021 9461

2022 9374

2023 9012

2024 8796

08/01/23 As of June 15, 2023 there are 9,012 appraises in California down from 20,000 peak in 2007. https://www.brea.ca.gov/pdf/BREA_Spring_Summer_Newsletter2023.pdf

12/31/22 From the fall/winter newsletter. "As of October 1, 2022, there are 9,374 active appraisers. Eight percent are trainee level, 10% are residential level, 53% are certified residential level, and 29% are certified general level." Basically only 82% can appraise for federally backed bank loans. Number is down again.

05/06/2022 Number of licensed appraisers as of March 16, 2022 is 9,613. "Eight percent are trainee level, 10% are residential level, 53% are certified residential level, and 29% are certified general level." This is based on the newsletter below which I received 05/06/2022.

What's concerning is the number of certified residential is 4,988. You must have a Certified Residential appraiser for loan purposes if the loans are backed, insured by the federal government. You can also be a certified general but CR is the minimum needed. Number of trainees doesn't matter that much because business is way down now because of increasing interest rates. I doubt most get their final licenses because there won't be any work. You also need a minimum of two to three years of experience to get work. I wrote about this in a previous article about the problems with the trainee model.

https://brea.ca.gov/pdf/Newsletter%202022%20spring-summer.pdf

ORIGINAL: 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. This doesn't mean we don't have enough 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. Some got their license to appraise as a side gig. Licensees doesn't mean they are working appraisers or full time working appraisers.

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.

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 one of the reasons 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. We may not need more appraisers.

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.

Some lenders, AMCs, others are stating there aren't enough appraisers. This isn't true. There may not be enough appraisers today willing to do desktop appraisals for $65-$130. Most appraisers don't want to do desktops because of the liability issue. The law and form states we must agree that we have enough verified data to complete the assignment. If you don't do the inspection, drive the comps, you don't have enough data. What if there's a major defect in the property, area, comp photos are photoshopped... Then the appraiser is on the hook for any loss. It won't matter that you relied on the inspection by John Doe and comp photos on MLS. You're still liable. Why accept the same liability for 1/5 to 1/3 the payment?

Below is a cartoon about the issue. It's an older cartoon but it rings true today.

appraiser shortage, not enough appraisers,cartoon, lie, false, mary cummins, real estate appraiser

AMCs, Lenders, others want to make it super easy for new appraisers so they can recruit newbies to underpay. Some AMCs, Lenders are offering trainee hours in house. That looks like influence to me. Some want certain people to be able to easily get appraisal licenses for other reasons. There is an agenda.

While I feel the trainee system needs adjusting, we shouldn't get rid of it. We also shouldn't get rid of all education and experience requirements as some have been stating like Maxine Waters. That opens up the government, financial institutions and banks to huge levels of fraud. That would never pass Congress, thank god.

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

2022 9413

Below is where I got the data so you can see the actual dates. The 2007 data came from the quote above. As of December 1, 2021, there are now 9,388.

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

Mary Cummins

Mary Cummins of Cummins Real Estate Services has been in real estate since 1983, over 35 years. She is licensed by the Bureau of Real Estate Appraisers. Mary Cummins was an agent and broker licensed with the California Department of Real Estate selling residential income, commercial buildings, raw land and homes for Merrill Lynch Realty in Beverly Hills and Westside Properties in Los Angeles before concentrating on appraisals. Mary Cummins currently provides real estate appraisals, expert witness testimony, historical research, legal real estate research for mortgage brokers, banks, lawyers, factors, insurance companies, financial consultants and private individuals. Mary Cummins was born and raised in Southern California. Cummins attended Beverly Hills Good Shepherd Catholic School and Beverly Hills High School. Besides being on the Dean's list, Mary Cummins was a top ten national swimmer and competed on the men's water polo team. Mary Cummins began college at the age of 15 attending the University of Southern California on scholarship, majoring in Psychology/Sociology. http://www.animaladvocates.us http://www.facebook.com/AnimalAdvocatesUSA

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

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)

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.

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.

https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2021Q3_HPI.pdf

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

Tuesday, November 9, 2021

ASC Roundtable Event: Building a More Equitable Appraisal System - 2021 by Mary Cummins

"On November 9, 2021, the Appraisal Subcommittee (ASC) will convene its second ASC 2021 Roundtable: Building a More Equitable Appraisal System, to build upon the success of the first roundtable and address historical and contemporary factors that have contributed to the inequities challenging the appraisal system today. Please join us for the second event of this groundbreaking series, which will bring together leaders in government, finance, real estate, non-profits, and communities impacted by the appraisal system."

https://hopin.com/events/asc-2021-roundtable-building-a-more-equitable-appraisal-system

Schedule

November 09, 2021
10:30 AM - 01:00 PM

Main Session (Keynotes)

Please join us in the main session to hear keynote presentations and remarks from our featured speakers!

Speakers

Danny Wiley
Senior Director of Single-Family Valuation, Freddie Mac

Vivian Li
Quantitative Analytics Director, Freddie Mac

Erika Poethig
Special Assistant to the President for Housing and Urban Policy

Melody Taylor
Executive Director, Task Force on Property Appraisal and Valuation Equity

Congresswoman Maxine Waters
Chairwoman of the House Financial Services Committee

Jim Park ASC

11:30 AM - 12:30 PM

Sessions Area PAVE Listening Session

Speakers

Melody Taylor
Executive Director, Task Force on Property Appraisal and Valuation Equity

11:30 AM - 12:30 PM

Sessions Area Freddie Mac Report

Speakers

Vivian Li
Quantitative Analytics Director, Freddie Mac

Danny Wiley
Senior Director of Single-Family Valuation, Freddie Mac

Hosts

Jevin Hodge a politician running for office
Michael Akin a professional webinar organizer at Link Strategic Partners

My comments are in parenthesis "( )." All of the speakers read their opening remarks. There was a lot of happy positive speak and pats on the back for other members of the task force and government. A few said that they aren't saying appraisers are racist or appraise in a racist manner. A few others said "it's been shown that appraisers are racist and appraise in a racist, biased manner against black people. There have been media articles."

FreddieMac speakers went over the recent research on appraisal gap. Other speakers talked about the goals of the PAVE Task Force. There were quite a few appraisers attending asking good questions. Some of those questions were about some of the crazy ideas floated around about using comps from a different location, neighborhood than the subject. There were many comments about Practical Applications of Real Estate Appraisal PAREA and making it easier for trainees to become full appraisers.

At the previous ASC Roundtable Event black Cy Richardson stated to white host Michael Akin "Pale, male and stale. That's what appraisers are." The general consensus is that "pale, male and stale" is racism, sexism and ageism. Akin replied that he wasn't "stale." It appears he didn't want to be name called again so he had black Arizona politician named Jevin Hodge who is running for office on an equality platform be the second host today.

Jevin Hodge introduced the speakers to the main session in a very positive upbeat manner.

Speaker: Jim Park of ASC: I'm a certified general appraiser. I've been with ASC since 2009. Bias is not due to racist appraisers. The definition of "implicit bias" per ADL (Anti Defamation League ) is assumptions, stereotypes we make towards others, positive or negative, that is stored in our unconscious (subconscious).

We need to change the recruitment training model. We don't want to alienate people (appraisers) to solve this problem. We must be careful not to blame dedicated professionals who perform this work day to day.

Speaker: Danny Wiley of FreddieMac. I've been an appraiser for 40 years. We (at FreddieMac) looked at 12 million reports from 2015 to 2020 (during a time of appreciating values when there is more likely to be an appraisal gap) to see how often the appraisal value came in below the contract. We call this the appraisal gap. We compared appraisals of homes in census tracts with mainly white occupants against those with mainly blacks and Latinos. We have not reached any conclusion for cause of the gaps or correlation. Our research showed that further studies are warranted. (They only used purchases and not refinances. The borrowers for purchases are the buyers. Appraisers NEVER see or meet the buyers. It's impossible for us to be biased against the buyers. In fact their research showed there was no difference in the gaps if they only looked at race of the borrower. Gaps happen in quickly appreciating markets such as mainly minority areas which are revitalizing or as others say gentrifying. Appraisal values are based on sold comps which means the value could be two months behind the market from contract date to escrow closing to recording time.).

Speaker: Vivian Li also of FreddieMac: (It was difficult to understand her accent. Wiley and Li basically just talked about this research here) Media articles have shown appraiser, appraisal bias against blacks. (So much for not blaming appraisers) There were appraisal gaps from many appraisers (47%). We worked with BetterMortgage (a private for profit mortgage broker with a pro racism agenda and Jillian White. They worked with Andre Perry who released the early results of their study July 15, 2021. They also worked with Urban League. All of these people, groups publicly state and support the false narrative that appraisers are racist) to better understand them.

Speaker Erika Poethig: The Federal Government had a role in discrimination. The government reinforced housing segregation with redlining and discrimination against people of color. Blacks, Latinos rely more heavily on their home for their wealth. The great recession caused POC to lose their homes. The black home ownership rate is the same as it was in 1968.

The first goal of the current government is to stop foreclosures caused by the pandemic. The second goal is to expand access to credit more broadly. There will be more credit options for 2-4 units. We hope to root out discrimination in housing.

Speaker Melody Taylor with HUD: Joe Biden started PAVE task force to deal with racial inequity. PAVE has four core objectives... (she read this list https://pave.hud.gov/about/objectives)

We will also focus on the ROV Reconsideration of Value and lack of diversity in the appraisal profession. Your voice matters. Thanks.

Congress person Maxine Waters: When black families leave portraits of their black family members up in their house they get a lower appraisal. They have to put up photos of white people to get a higher value and the appraisal jumps. These are not just anecdotes. The appraisal gap is real. People of color have been locked out of low rates and being able to buy homes due to appraisal bias. There is unequal values of homes in black areas. Discussions haven't solved the problems. 2019 had the lowest black home ownership rate ever. 76% of whites own a home. That's over 27% more than black or latino homeowners. The Build Back Better Act will increase the supply of housing. We must help more POC become homeowners. The big boy appraiser companies run the show. Smaller appraisal businesses are locked out. We must break up the big boys. Thank you. (I like Maxine Waters. I'm near her district. Someone has filled her head with nonsense and false, misinterpreted information on this issue. She needs some education by someone who knows the issues. Who are the big boy appraisers?)

Breakout Sessions. I went to FreddieMac first then PAVE.

FreddieMac with Dan Wiley, Vivian Li.

Wiley: We only used purchases for our research because there is a "true north." 99% of the time the contract price will reflect the true value. (Assumption) We didn't use refinances for this reason.

We didn't consider any contracts with concession 3% or more. We got rid of other outliers such as a home having five stories, ten bedrooms...

Li: We excluded distress sales and non arms-length sales.

Wiley read my question which was "To Lee, Wyley: Did you compare the appraisal gap and price of the homes? Based on my experience I've seen more gaps in lower priced properties which correlates w/ Black, Latino area."

Li: Great question. We looked at it. We broke it into five brackets. We saw similar patterns overall. (but similar amounts, %? It would have been good for them to post that information even if it showed no effect. I appraise in these areas and others because I speak Spanish. I see more of a gap in these areas. It could be because these areas are being revitalized or as some say gentrified. Homes are appreciating quickly which always causes a gap like the common current appraisal gap. Others pushed out of more expensive areas into more minority areas also tend to over pay as do first time buyers desperate for homes in these areas. They looked at sales 2015-2020 which is during a time of faster appreciation when there is more likely to be a gap. They're also only looking at FreddieMac loans and not all loans. FreddieMac only buys conforming loans under a certain amount so this doesn't effect all loans.)

Wiley: We only considered appraisal reports. We didn't consider everything like whether the area had potable water or not.

Li: Potable water may affect valuation. We didn't look into it. I can look into it further.

Wiley: We didn't check to see if the appraisals were accurate or not. (That would have been the better test). We just compared it to contract price. We know if the appraisal comes in low the contract gets renegotiated so we only looked at the appraisal and first contract not later contracts.

Joseph Mier: I've been an appraiser for 30 years. We all know location, location, location when it comes to value. I'm concerned the discussions could harm consumers and the profession if don't use local comps. If appraisers are using local comps, that is the proper data.

Wiley: You haven't heard that from us. We need to know what we can actually sell the property for. We're in the collateral business. We look at risk.

Mier: We must be careful to not leave data behind. There is a risk if you're not using certain comps.

Wiley: Agreed. It gets dangerously close to crossing the line to advocacy. We are supposed to measure bias in the market. Bias is just preference. Buyers prefer some areas over others by being willing to pay more. The job of the appraiser is to be an objective observer of market bias and not driving it. We're not exploring that.

Question: Why not use a comp in a white area to appraise a home in a black area instead of using a comp in the same black area?

Wiley: We are only concerned with what we can sell the property for today. We should use the most similar comp sales in the subject neighborhood. There is no reason to go to another area. We are concerned with two things, the objective measurement of current value. The other is the long term effect of discriminatory policies from the past and how to rectify that. We support that. We don't believe the answer to that problem is to tweak the appraisal in some way. We need to affect long term change. We don't think the appraiser is the engineer of that process.

Question: Why did you only look at, report about white, black and latino groups?

Li: Most data is for black, latinx groups. The gaps for these two groups stand out the most. (How would she know unless she looked at the other groups?)

I moved to the PAVE breakout session

John Brenan of Clear Capital: PIREA, we support it. It must be approved by all states. We need diversity among appraisers. That is what we're trying to do, recruit more diverse appraisers.

Joseph Mier: Trainees can't do site inspections. Using trainees will bring more professionals into the profession. We should use local comps because value is based on location, location, location. We shouldn't use comps from outside of the area.

Melody: If you want to send a comment, information, email pave@hud.gov

David Bunton: Appraisers must now take two hours on bias in the seven hour USPAP update. It would be good to know how many bias complaints there are and what are the results of investigations. (I sent in a FOIA request for the results of the two most well known recent complaints. I'll post them when I get them.)

Melody: We were given 180 days to formulate and write a response with an action plan for the PAVE task force. (Task force announced June 1, 2021. First meeting was August 5, 2021. December 1, 2021 the reply is due?)

Summary end of meeting.

Jim Park: This is not about how to get rid of appraisers but how to make appraisals more reliable, credit worthy and to diversify the profession. The bureau of labor statistics showed that appraisers are last (when it comes to diversity with 96% white).(The statistics are based on someone calling someone's house, asking one person about the professions of all the different people in the house and their different races. They're calling land lines. Not very reliable stats. Per AI 76% of appraisers are white. That's very close to the same percentage as real estate agents which is 75% and the general population overall which is 72%). We will do a third roundtable by ASC but not this year. It'll be first quarter next year.

The video should be posted here. I still haven't found the video from the last meeting. I even emailed twice asking where it was and no reply.

https://app.hopin.com/events/asc-2021-roundtable-building-a-more-equitable-appraisal-system/replay

______________________

Some screen grabs from the session.

Some questions asked in the chat.

Fontana Pete

Congresswomen Watters mentioned getting rid of the "big boys" in the appraisal process! Can you elaborate on who she is referring to as the big boys? AMC's, banks, GSE's? Thanks kindly

Kennedy Chester

Question 3: What areas of regulation and policy could be improved to have an impact on eliminating bias in property valuations?

Kennedy Chester

Question 2: What role can private sector and the appraisal regulatory system play in advancing equity and diversity in the appraiser workforce?

Kennedy Chester

Question 1: How do lenders, regulatory agencies, GSE, HUD and VA policy affect the frequency and outcomes of ROV cases, and how might these regs and policies be improved?

Sergio Johnson

In regards to the range option. Who would make the decision on the point of value being used for the lending decision in the range? (You probably still need a point of value to determine LTV etc)

Tanya Bates

Building relationships = A better understanding of the appraisal profession and in turn relevant ROV. Falls in line with what Bill is discussing.

Sergio Johnson

Bill, the problem there would be that in the lending world, many UW's report to folks who are part of the originations side. You'd have to revise the laws for that piece of it.

Lori Noble

With millions spent toward PARREA and alternatives while small businesses dedicated to mentorship are paying the price. The anti-competitive practices are prevalent and obvious in our regulations.

Mary Cummins

Saturday, November 6, 2021

Why Real Estate Appraisers Blur Photos in Appraisals by Mary Cummins Real Estate Appraiser

"A former Green Beret and one-time congressional candidate arrested last month for his alleged participation in the Capitol riot was illegally stockpiling explosives prior to being jailed on charges related to the Jan. 6 pro-Trump siege, according to an FBI search warrant filed Friday in Washington, D.C. federal court. When federal agents searched 47-year-old Jeremy Brown’s Florida home in October, they reported finding a short-barrel rifle, a sawed-off shotgun, more than 8,000 rounds of ammunition, and two hand grenades. But it was a picture included in a sales listing for his house on Zillow that led to his latest troubles. In a photo from “what appears to be Brown’s office,” FBI agents spotted a whiteboard with columns labeled “Food,” “Clothing,” “Shelter,” “Currency,” “Communicate,” “Move,” and “Shoot,” the warrant states. In the “shoot” column, it continues, “there are numerous firearms listed and explosive devices such as ‘flash bangs.’” The entry on the whiteboard indicated that Brown had the flash bangs “on hand,” the filing says, adding that Brown “is not registered to possess explosive devices.” "

In this case a real estate agent or maybe just a photographer did not blur any photos or remove items in the listing of a home for sale on Zillow. This was not for an appraisal or loan. While real estate agents cannot discriminate I don't believe Zillow or the agent have a responsibility to blur out images of personal items in listing photos so others can't discriminate. I do know that real estate agents generally tell all of their clients to remove all items of a personal nature especially photos for the listing photos and showings if not until the home is sold. This is for staging purposes so the buyer can envision themselves in a clean and less cluttered home so the home will sell more quickly and for a higher price.

Appraisers on the other hand have to blur out photos of all people and personal items. We blur out people in photos, people in paintings, any religious items, personal collections such as gun collections, yard signs, political signs and other items of a personal nature in the home.

I would have blurred out the guns but probably not the list of items on the wall because I wouldn't have noticed it. I don't really look at personal items when I'm appraising as I'm concentrating on the structure. I only notice the photos when I'm writing the report and adding the photos. Then I intentionally look for anything personal so I can blur it. I would assume that someone would hide something they really, really don't want anyone to see in their home before they enter. I'm assuming the guy just didn't realize people would know who he was and put two and two together.

The purpose of blurring images of all people, religious items ... is so no one can say that the lender's decision to loan or not to loan was based on discrimination based on race, color, sex, religion, national origin, marital status.... Appraisers are also not allowed to discriminate against the home owner, borrower, or state anything that might be considered discriminatory in the appraisal report. There is no law that states Appraisers have to remove or blur these items. It's the lender instructions to the Appraiser. Obviously we see the images and items and sometimes people in person so blurring them from photos won't remove them from our memory.

I found this regulation about discrimination in relation to lenders. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. It's based on Fair Lending Laws and Regulations per the Fair Housing Act. The link below goes into more detail about fair lending and discrimination.

https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/4/iv-1-1.pdf

The reason for blurring the photos is because the lender does not want a discrimination complaint or lawsuit even a frivolous one. If the lender is a bank it's even more important. Banks have to comply with many complex regulations related to non-discrimination of borrowers. They must have so many branches in areas which are predominantly low income and of color if they want to operate a bank even if the branches lose money. One complaint even a frivolous could harm the bank's legal standing as a bank and it's reputation and business.

The alleged January 6 rioter appears to be a not too bright criminal. I've found people who believe in conspiracy theories such as the "stolen" 2020 election, Pizzagate, JFK is still alive, are not the sharpest tools in the shed. They lack critical thinking and common sense which is a shame for everyone.

Mary Cummins

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

Tuesday, December 28, 2021

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

Friday, November 12, 2021

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

Thursday, November 11, 2021

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

Tuesday, November 9, 2021

ASC Roundtable Event: Building a More Equitable Appraisal System - 2021 by Mary Cummins

Saturday, November 6, 2021

Why Real Estate Appraisers Blur Photos in Appraisals by Mary Cummins Real Estate Appraiser