The nonprofit in charge of federal appraisal standards is reviewing an ethics rule after regulators slammed it as potentially allowing discrimination against protected classes, in violation of federal law.
The ethics rule in question, which some regulators argue doesn’t clearly state that housing discrimination against protected classes is illegal, was contested by eight federal agencies, including the Department of Housing and Urban Development, in a letter last week to The Appraisal Foundation’s Appraisal Standards Board, which, by Congressional authority, sets minimum standards for the appraisal profession, known as Uniform Standards of Professional Appraisal Practice.
The regulators that wrote the letter are responsible for enforcing nondiscrimination standards under the Fair Housing Act (FHAct) and the Equal Credit Opportunity Act (ECOA). The letter expressed concerns that the Appraisal Standards Board’s ethics rule and proposed changes to its fair housing guidance, known as Advisory Opinion 16, don’t make it clear that discrimination against protected classes is illegal.
“These provisions state that an appraiser may not rely on ‘unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familial status, age, receipt of public assistance income, disability, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value,'” the federal agencies wrote.
“However, these provisions do not prohibit an appraiser from relying on ‘supported conclusions’ based on such characteristics and, therefore, suggest that such reliance may be permissible,” the letter continues.
The letter goes on to state that the ban on discrimination in appraisals should be consistent with standards across all federal laws that apply.
The Appraisal Standards Board has since met with federal regulators to discuss the ethics rule and announced that the board will embark on a “comprehensive review” of the rule.
“We appreciate federal regulators bringing their concerns about the Ethics Rule to our attention,” said Michelle Czekalski Bradley, the board’s chair, in a statement.
“There is no place for discrimination in the appraisal profession, and we want to ensure that is clearly enshrined in our standards.”
In a statement, Dave Bunton, The Appraisal Foundation’s president, said the board would release another draft of proposed changes to USPAP focusing exclusively on the ethics rule.
“While USPAP has always prohibited discrimination against protected classes, we look forward to the opportunity to review the Ethics Rule and ensure this prohibition is crystal clear,” he said.
On Feb. 22, Congresswoman Maxine Waters sent a letter to HUD, the Appraisal Subcommittee, The Appraisal Foundation, and the Appraisal Institute, announcing her plan to introduce legislation to address ongoing appraisal discrimination. She included an email with the Appraisal Institute logo sent to Dr. Elizabeth Korver-Glenn, an academic who has studied racial discrimination in housing extensively.
In the email, an appraiser, Dave LaVigne of Lavigne Appraisals, implied that appraisers and lenders will deny business to racial minorities the more discrimination is reported and said minorities were paid to raise their “poorly educated,” illegitimate children.
“Racism is not as prevalent as you might think,” LaVigne wrote. “Im 62 and I live in the house I grew up in. the stret has hardly changed even wen you get to the poor black neighborhoods. The point is, not much has changed, and these neighborhoods are socially adapted based on social behavior people are attracted to.
“Come to NC, I will pay for your ticket, and I will walk your through your sociology degree and then ask you what you see after spending a week with me in the heart of the deep south where minorities are paid to raise their poorly educated kids illigitamant kids. Lets not forget the parents gave the kids obserd names that most employers immediately refuse to call. !!”
Hey @AI_National @TheAppraisalFdn, I just received this overtly racist email from an appraiser who claims MAI + AI-GRS designations. He seems to be angry about my research. What is your response? pic.twitter.com/JWwnPPN5if
— Elizabeth Korver-Glenn (@elizabethkaygee) January 26, 2022
Waters asked HUD to “initiate a systemic fair housing investigation into housing valuation discrimination.” She also called on HUD, the Appraisal Subcommittee, The Appraisal Foundation, and the Appraisal Institute to investigate LaVigne and determine what actions should be taken.
“Some may say that the words of one appraiser do not reflect or represent the profession,” Waters said in a statement. “However, years of data, ongoing research, and numerous settled lawsuits provide ample evidence to the contrary. The email I reference shines a spotlight on the racist stereotypes and harmful lines of thinking prevalent in an industry which systematically devalues the homes of Black people and other people of color.
“Given this email incident and ongoing reports of appraisal discrimination, I will be introducing legislation to address systemic appraisal discrimination.”
In an emailed statement, LaVigne told Inman that his email to Korver-Glenn was “private” and “[n]ot meant for the world to read,” but that Waters and HUD had “declared war on the appraisers” and that Korver-Glenn’s research “is grossly flawed.”
“There assumptions and analysis in fact are reverse racism,” LaVigne said. “Why, Dr. Korver-Glenn clearly has no understanding of the appraisal process. Appraisers are too busy and there are too many check points. The appraisal document is the result of no less than three levels of review. The appraisal is reviewed by a reviewer and then FNMA [Fannie Mae] data analytics.
“Dr. Korver-Glenn and the others rely on their data which is not clear. They are confusing social inequality with racism.”
Race, he said, is not part of the analysis in appraisals, where only the sales and property data are important.
“Appraisers do not care about race,” he said. “The physical inspection of the property has nothing to do with race. Nor do we know the race of the occupants of the properties used as sales. HUD’s objective and President Biden’s task force is for equity or reparations it appears. To destroy hard working families over a $500 [appraisal] fee is immoral and such a racist act.”
LaVigne’s statement said a person’s success is based in part on their “heritage” and “certain family traits” that background imparts.
“A person’s success is based on several factors, education, stable family environment, safe neighborhood, etc.,” he said. “While poverty is part of the equation, so is a person’s heritage. My wife is Japanese, and my lifestyle is heavily influenced as such. Asian families have certain family traits as do Western European as do those of African descent.
“Marriage and family are Christian concepts for Western European while Asian are none Christian and or Buddhist in some cases. Latin America has their sociological baggage as well.”
In a group letter, the American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, Appraisal Institute, International Association of Assessing Officers, MBREA|The Association for Valuation Professionals, and National Society of Real Estate Appraisers, denounced LaVigne’s email to Korver-Glenn.
“We, the undersigned professional appraisal organizations, condemn the thoughts, language, and tone of this email in the strongest possible terms,” they wrote.
“There is no place in our society for the kind of race-based vitriol expressed in this email, but these views are especially troubling coming from an appraiser. Appraisers are duty-bound to remain objective and unbiased in all aspects of their work and holding these views in any manner is antithetical to the very concept of appraisal practice.
“We wish to reiterate our commitment to working on the issues of bias and discrimination in a constructive manner, with respect for all views and participants in the conversation.”
The appraisal groups said they support the passage of H.R. 2553, The Real Estate Valuation Fairness and Improvement Act, which would establish an interagency task force on real estate valuation to harmonize underwriting standards for real estate valuations and to study racial disparities in valuation and price of some residential real estate. It would also create a grant program for states, nonprofits, and higher education institutions to promote diversity and inclusion in the appraisal profession.
The appraisal groups said they see the bill “as a durable path forward to addressing broad-based issues in the housing finance system.”
In a separate letter, the Appraisal Institute’s president, Pledger M. Bishop, said LaVigne was a designated member of the AI, but his views “are abhorrent and outrageous and do not reflect the views of the Appraisal Institute.”
AI’s designated members must adhere to a Code of Professional Ethics and the organization is looking into creating a “zero-tolerance policy” that would apply to an appraiser’s public remarks when he or she also references the AI marks or designations, according to Bishop.
“Our Board of Directors approved amendments to this Code relating to protected classes last year, and our Board of Directors is considering other proposals,” Bishop wrote.
“Complaints involving an appraisal report prepared by an Appraisal Institute Member, Candidate or Practicing Affiliate can be submitted to the Appraisal Institute Professional Practice Department for review. The comments expressed have raised serious concerns within the Appraisal Institute, and this example further reinforces the importance of these ongoing efforts.
“I have asked the Professional Practice and Guidance Committee to continue its focus in this area with the goal of establishing a zero-tolerance policy that would extend the realm of appraisal practice to public discourse when the appraiser utilizes or references the collective marks or designations of the Appraisal Institute.”
In 2020, the National Association of Realtors approved a somewhat similar –and controversial — hate speech policy that applies at all times and not just when the Realtor is doing their job.
While the majority of appraisers are likely to disagree with LaVigne’s views, the Federal Housing Finance Agency (FHFA) recently studied millions of appraisal reports and found thousands of overt references to race, ethnicity, and other protected classes, “indicating the continued presence of valuation bias.”
The agency found specific references to the percentages of racial and ethnic makeup of an area, foreign birthplaces of residents noted in a neighborhood’s description, the languages spoken in an area, amenities geared toward a particular protected class, and descriptions of an area’s diversity. Examples are:
- The ethnic groups that have immigrated to a neighborhood over the course of many years and noted it was “one spicy neighborhood.”
- A reference to a neighborhood being originally “White-Only,” before becoming a “White-Flight Red-Zone” to explain why the neighborhood is mostly “Working-Class Black” now.
- A neighborhood described as “predominately Hispanic” and that the residents have “assimilated their culture heritage” into the neighborhood.
“The racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family’s home,” the FHFA said. “Our observation of appraisals suggests that racial and ethnic compositions of a neighborhood are still sometimes included in commentary, clearly indicating the writer thought it was important to establishing value.”
Editor’s note: This story has been updated with comments from appraiser Dave LaVigne.
