The residential real estate appraisal industry is staring at a fork in the road.
The latest reminder is a report released Wednesday from the Appraisal Subcommittee, a part of the federal government in charge of monitoring appraiser standards. The report gives the familiar litany of news stories about instances of alleged racial discrimination by appraisers and proposes as a solution a more diverse appraiser workforce, and, just in general, more appraisers.
“The appraisal profession lacks diversity and does not reflect the population of the United States,” reads the report. “Remedying this gap is not only likely to reduce the number of biased valuations, but also reduce the acute shortage of appraisers, which is impacting transactions across the country.”
The Appraisal Subcommittee recommends doing away with the requirement that an appraiser must apprentice with a supervisory appraiser for 1,500 hours. The report’s authors also question the wisdom of appraisers needing college degrees, or different licensing requirements for different states. They call for more uniform instruction on Fair Housing Act compliance. And they question the power of The Appraisal Foundation, a private, nonprofit group that has become the de facto maker of appraiser qualification standards.
The report was released as the Biden administration’s task force on appraisals – Property Appraisal and Valuation Equity, or PAVE – has yet to make their own recommendations. The Appraisal Subcommittee stated they have “closely coordinated to share findings with the President’s PAVE initiative.”
One wild card in designing new standards for the appraisal industry is the appraisers themselves. Appraisers are frequently described as “lone wolves,” but they have a trade group, the Appraisal Institute, and that group is aware the profession must change.
By the group’s own statistics, 78% of U.S. appraisers say they are male, 1.3% identify as Black and 4.3% as Hispanic. More than 70% of appraisers are over the age of 50.
The Appraisal Institute’s 2022 president, Jody Bishop, fits this demographic. He’s a white male who has appraised in Charleston, South Carolina since 1984. But Bishop believes the profession must become more diverse and aware of its role in the racial home valuation gap.
“I don’t want to say we’re archaic,” Bishop said. “But we’ve had to look inward a little.”
One specific change: Bishop would like to explore alternatives to the apprentice requirement. The Appraisal Foundation has signed off on it, but there still needs to be buy-in from state regulators.
Bishop spoke this week with HousingWire about what the Appraisal Institute would like to change about the profession, while still advocating for its members. Here’s an edited version of that conversation:
HousingWire: What are the challenges that the Appraisal Institute is facing now?
Jody Bishop: Where do we start? There are the allegations of appraisal bias. And we’ve got an industry moving into modern times. We’ve adopted a new strategic plan. We’ve had to look a bit at our process and internalize if there is anything we can do better, diversity wise. We have to make sure the face of the appraisal institute is a mirror of society.
HousingWire: What are you doing about racial bias allegations?
Jody Bishop: What I can tell you is that the Appraisal Institute is trying to address unconscious bias. We are trying to enhance our diversity recruiting. We are pushing for higher ethical standards. This is a work in progress.
I can tell you from personal experience that there are biases that enter my work. I don’t like those split-level homes, like the one in the Brady Brunch, and that was big in the late 60s and early 70s. I could be held out as being biased about that type of home.
That’s kind of what unconscious bias is. And we have to understand the actual events that have occurred.
Now, there’s an appraisal diversity initiative between the Appraisal Institute and Fannie Mae and Freddie Mac and the Urban League that’s playing a key role in helping to diversify the profession. JPMorgan Chase donated money to the initiative. Our membership is available to help mentor those folks into the process. We’re developing a diversity, equity and inclusion initiative to try and help with recruitment.
There’s also the implementation of PAREA (Practical applications of the real estate appraisal) and we have received a grant of half-a-million dollars to help build the program. Right now, if you want to be an appraiser, you have to find a supervisor. PAREA will provide a robust educational alternative. There will be a series of case study modules and we will have some mentors getting you through the process.
HousingWire: There are questions about PAREA being put in place, because while the Appraisal Foundation has approved it, state regulatory boards also must. What is your sense about states approving this alternative?
Bishop: We’ve identified 18-20 states that are willing to give 100% credit for PAREA – and some are looking at giving 50% or 25% credit. A lot of states are waiting to see how we put the process in place.
HousingWire: Let’s go back to bias. You have a chance in your role to address what part appraisers play in purportedly undervaluing homes of Black and Hispanic homeowners, or in Black and Hispanic neighborhoods. You mentioned putting in place a diversity, equity and inclusion initiative. Could you say more specifically what you’re doing?
Bishop: I’m spending time talking with different folks. I’ve personally met Dr. [Andre] Perry [of the Brookings Institutions. Perry is author of a 2018 study, The devaluation of assets in Black neighborhoods: The case of residential property] twice now. I want people to understand what the appraiser does, and that the appraiser component is part of an ecosystem, a whole industry.
There’s the lender, the appraisal management companies, and the appraisers are fitting in underneath all these folks. We are a small part of this process.
President Biden has the PAVE initiative, and we’ve been speaking with those folks, having them ride along on the appraisal. I think it’s extremely helpful to understand what exactly the appraiser does.
HousingWire: There are several automated valuation models on the market to value homes. Companies like CoreLogic and HouseCanary claim that their technology can help solve appraisal bias, partly because they can quickly produce 100 comparable houses to the home being valued, instead of three or four. And the Federal Housing Finance Agency is allowing desktop appraisals, that is appraisals that don’t require an appraiser physically examining the property, for some purchase transaction loans.
Are you concerned that technology to price homes is making the appraiser’s job less important, and, perhaps eventually, obsolete?
Bishop: AVM’s have been around for a long time. I don’t know exactly the ins and outs of CoreLogic and HouseCanary. But I think what happened to Zillow [winding down iBuying because the company said its pricing forecast model was off] was very telling on the notion that AVMs can be precise.
When I look at AVMs what they don’t do is that they don’t go see the house. There’s nothing like driving up to the house, driving into the driveway, getting outside the house, seeing it, and feeling it. There’s no substitute for that.
HousingWire: As a white male and veteran appraiser, you reflect your industry’s demographic. What is the Appraisal Institute doing to ensure that they are not just speaking with outsiders about making the profession more diverse but the group of appraisers who aren’t white men.
Bishop: Well, as I get older, our board is getting younger, and we have a lot more folks around 40 on our board. Also, one of our four officers is female, and five of our 20 board members is female.
At the lower levels, our leadership is much more diverse. There is a higher percentage of females and more minorities involved. We’re certainly not okay with our level of diversity. We always have to be aware of this and have appraisers that mirror our society.
** UPDATE 1/24/22: After speaking with an Appraisal Institute spokesperson, this phrasing was changed from “do away” to “explore alternatives,” as a more accurate characterization of Bishop’s view on apprenticeship programs.
