On June 20, 2019, Congress held a hearing under the U.S. House Committee on Financial Services called “What’s Your Home Worth? A Review of the Appraisal Industry.” The hearing was supposed to discuss solutions on topics such as: De Minimis Threshold for FRTs, appraiser independence, disparities in home values in minority communities, the role of technology in appraisals, and more” according to the Appraisal Buzz. Here’s a summary of the hearing and what it might mean for real estate appraisers in the future.
The hearing began with each panel member giving a 5-minute testimony. Despite some representation concerns, three members of the panel are also appraisers. While they also submitted longer, written testimonies, these spoken versions gave the main points.
*These individuals are or have been certified appraisers.
Mr. David S. Bunton, President of the Appraisal Foundation, spoke first, emphasizing the importance of evaluations being done by trained, qualified appraisers, not unlicensed/uncertified people or AVMs.
*Mr. Stephen S. Wagner, Sr. Appraiser, Terzo & Bologna Inc., on behalf of The Appraisal Institute, followed, talking about the disruptions that appraisers face today, including the decline in risk mitigation, technology (AVMs) disruption, cautioning against hybrid appraisals, and need to explore regulatory improvements.
*Mr. Jeff Dickstein, Chief Compliance Officer, Pro Teck Valuation Services, on behalf of The Real Estate Valuation Advocacy Assoc., urged for support to sustain and diversify the profession, as well as echoing that appraisals need to retain the human component–that technology should complement, not replace the human job.
Mr. Andre Perry, David M. Rubenstein Fellow at Metropolitan Policy Program at the Brookings Inst., spoke to the concern that racism is extracting money from homeowners, specifically 50% or more black communities being valued less–that racial bias is being reflected in price, and affects everyone.
*Ms. Joan N. Trice, Founder of Collateral Risk Network, emphasized the need to modernize and ensure credible appraisals.
Next, the hearing broke into 5 minute Q&A sessions between committee and panel members, ending with a “lightning round” of 2 minute Q&A.
The 3 Main Topics During the Hearing
The panel and the committee discussed three main topics during the rest of the hearing.
Disparities in Home Values in Minority Communities
Addressing one of the big topics, disparities in home values in minority communities, most of the panel, excluding Perry (who had research suggesting that there is racial bias in appraising), agreed that this issue is bigger than the realm of appraisal, and that appraisers are bound by ethics standards and simply reflect the market, not create it.
Technology & De Minimis Threshold
Talking technology, the panel agreed that AVMs and technology are not necessarily a good direction to go in. AVMs and their potentially inaccurate data cannot replace the human role in appraising. Using AVMs as a tool is good, but as Bunton put it “computers don’t buy houses, people do”, and a human appraiser needs to be involved. Speaking on the de minimis threshold potentially increasing from $250k to $400k, 3 of the 5 panelists said they are against it, the other two were neutral. Wagner stated that it is an indication of degradation in risk management, and that the median price of a home is nowhere near the $400k level.
Education of New Appraisers
The panel also campaigned for the need of appraisals to be done by trained, certified or licensed individuals, as opposed to untrained individuals, for example employees of financial regulators, and AVMs. Wrapping up, panelists wanted to emphasize the importance of humans in the appraisal process, making sure they’re professionals, and noting appraisal reform needs to be focused on safety and soundness.
We’ve put together this helpful summary for you, but if you’d like to really delve into the issues, it may be beneficial to watch the hearing. You can also check out the written testimonials submitted by the panelists for more information on their stances of the issues tackled at the hearing. Generally speaking, much of what was said by the panel seemed to be knowledgeable and in favor of appraisers, standing up for the profession, and much of the panel seemed to agree with each other on most issues. Some issues were harped on more than others, such as the disparity in home values in minority communities, and views differed amongst panelists and committee members over this topic. The panelists presented their cases, now we wait to see if the committee takes any actions based on what was discussed.