Hot Topics in Real Estate Appraisal: Heavy Demand, Industry Changes, and the Question of Bias

Tim Andersen shares thoughts on some of the biggest issues facing the appraisal industry this fall.

A Good Time to Buy – or Is It?

Our friends the real estate brokers have a mantra: “Now is a great time to buy a house!”

Of course, they don’t get paid if we don’t take money out of our pockets, so they might be a tad biased.

Despite the brokers’ optimism, here’s a Newsweek article with a different perspective: “Only 35 percent of consumers believe it is a good time to buy a home, according to a National Housing Survey report released by home financing giant Fannie Mae in June,” writes Samantha Lock.

So maybe it’s not a good time to buy a house just because our broker friends say it is.

(source: “Is Now a Good Time to Buy a House?” by Samantha Lock. Newsweek, 7/28/21.)

Housing Issues: Supply, Affordability, Discrimination

Counselors of Real Estate(R) [CREs] tend to deal only with commercial properties. They aren’t well known in the residential appraisal arena. However, because they tend to look at issues from the 10,000 feet, rather than at ground level as we do, they see things differently. That’s why it’s worth checking out the CRE website — have a look at the 10 issues that article raises. Pay extra special attention to #6. I’ll wait.

In this era of pandemic lockdowns and other upheavals, housing supply and affordability are massive issues that aren’t going away. And whether you agree or not, neither is the issue of housing discrimination. It’s a topic some of real estate’s finest minds are struggling with (and have not yet solved). What’s the takeaway? What are your thoughts?

The Future of Appraisal

This 2020 article from the Motley Fool has a savvy take on the likely future of real estate appraisal: “…it’s likely an appraiser will spend less time at a property using their expertise in the field and more time behind a desk finalizing a property valuation using data gathered by other professionals, such as Realtors or property inspectors,” writes Liz Brumer. That said, she predicts that demand for appraisal services will grow 7 percent over the next ten years, even as the work of appraisal may be changing dramatically. Don’t panic!

(source: “The Appraisal Industry Is Changing: What’s the Future of Real Estate Valuations?” by Liz Brumer. Millionacres, The Motley Fool, Sep 07, 2020.)

And Speaking of the Future…

Check out this post I found on the site of the private real estate analytics firm, Cape Analytics. It’s about ideas for how tech innovations might help the industry deal with the high demand for appraisals right now, potentially speeding up turnaround times … and cutting costs.

As the post author points out, the technology already exists to <corporate blather alert> “… remotely and instantly gather geospatial property condition data on tens of millions of homes across the US—delivered with the speed and coverage of traditional property record data. This includes access to neighborhood, census tract, zip code, or CBSA data, both current and aggregated over time to unearth trends that might otherwise be extremely hard, if not impossible, to do with any traditional appraisal model.”

Please note the euphemistic reference to the “traditional appraisal model,” which, the article seems to insinuate, is outdated. The author adds that appraisers’ expertise is valuable (why thank you!) but also subjective (scratch that).

What will these “process improvements that allow non-traditional valuation services” mean for us plain-English-speaking, human appraisers?

I find it interesting that such data and analytics are available to anyone capable of paying for them — except for appraisers, of course, who can’t afford such data. What are your thoughts on this?

(source: “Viewpoint: The FHFA and the Future of Real Estate Appraisals,” Cape Analytics)

The Demise of Appraisal — Greatly Exaggerated?

When it comes to the demise of residential real estate appraisal, my friend Dustin Harris, The Appraiser Coach, has a different outlook. He (and his correspondents) opine that the future is not as woebegone as some might think. Of course, Dustin does admit to being an optimist. And the post is from the Time Before, when the world felt a little less crazed.

(source: “Is It The End Of the Appraiser?” by Dustin Harris. The Appraiser Coach Blog, 8.30.2017)

A Note on Bias

I’m hesitant to add anything more on real estate appraisal bias, but here goes. What I find disturbing is not so much the number of articles in the media on this, but the fact that the mortgage lending industry is happily letting the real estate appraisal profession “…take one for the team,” even though lenders and appraisers are not on the same team on this.

Back in the day when lenders, and the FHA, were busy redlining certain neighborhoods to protect themselves from what they perceived as excess risk, the appraisal industry was not the architect of that design. Not then and not now. To whatever degree appraisers and agents played a role in a discriminatory system — and we should take an honest, hard look at this — we did not spearhead it. For that, you can look to New Deal-era government housing programs, the FHA, the big banks, the Home Owners’ Loan Corporation. These policies came straight from the top, and the results were the segregation of housing in U.S. cities for generations to come.

We describe the market as we see it; we do not define it. It’s not our job to measure risk. Underwriters do that. It’s not our job to make policy. Lenders and public officials do that. Clearly, appraisers must work to rip out any discrimination there may be in any appraisal. But why are lenders, underwriters, and AMCs not taking more of the heat on this?

We can’t solve this massive societal problem if we just keep passing blame down to appraisers.

(To learn more about the history of redlining, see this exhaustive study, Mapping Inequality: Redlining in New Deal America, complete with lots of sadly illuminating HOLC neighborhood maps.)

Some Words on Words

Speaking of avoiding bias (how’s that for a smooth transition?), you’ll want to read this article on words Fannie Mae says we shouldn’t use anymore.

Actually, she’s right.

Saying that “the subject is in a desirable neighborhood” communicates nothing (and foretells a lack of supporting analyses). What’s also missing from that boilerplate sentence is a summary of how and why the appraiser reached that conclusion. Remember, per SR2-3, every statement of fact in an appraisal report must be both “true and correct” or it is likely misleading (and USPAP’s current definition of misleading is draconian!).

And besides, the words “desirable neighborhood” call forth some old notions it’s time we put aside for good.

(source: “Why Fannie Mae Doesn’t Want Home Appraisers Calling Neighborhoods ‘Desirable’,” by Brentin Mock. Bloomberg, July 23, 2021.)

And Now for a Shameless Plug

I want to see you at the annual Appraisal Summit, please! I’m ready to shake your hand and see your face up close and personal (in other words, not on a ZOOM screen!) It’s happening on November 6 – 9 at Planet Hollywood in Las Vegas, and the National Association of Appraisers (NAA) and the Columbia Institute have a real blowout planned for us, with special events for supervisors and trainees.

See you there! (Full disclosure: I’m on the NAA board of directors.)

What are your thoughts on these and other hot-button issues our industry is facing this fall? Share them in the comments below!

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About the author:

Tim Andersen is an AQB-certified USPAP instructor, consultant, and reviewer. He travels throughout the US teaching USPAP. His other areas of expertise include writing, producing, and presenting webinars on all areas of real estate appraisal. Find out more about his mentoring, consulting, writing, and podcasting at his site, The Appraisal Advocate.