04/19/2024
From Cindy's desk
Last week I wrote about the science that explains the ways the human brain is hard wired for cognitive bias, and how appraisal practices are built on the disciplines needed to remove the effects of these biases. Identifying and studying cognitive biases, and the heuristics associated with decision making, mark some of the most important advances in social science, and they have taught us that it is hard to be fair and rational. Professions that depend on rational analysis must educate professionals well. We see this in the law, accounting, appraising, and other highly demanding, complex professions.
The kinds of biases to which humans are naturally prone, such as “loss aversion,” are completely different from what has been referred to, and has entered the cultural lexicon, as “Appraisal Bias,” which is, in its essence, a charge of racism. Racism is an abhorrent, learned, culturally reinforced, unjust behavior that reflects a persistent cognitive behavioral impairment (on the part of the racist). I have yet to meet an appraiser who is not appalled by racist behaviors, but I’ve met and heard from many who are deeply hurt that their profession, which they chose because they care very much about fairness, impartiality, and the importance of real property ownership, is now associated with racism in the minds of many.
Appraisers are trained and required by the force of federal and professional licensing standards, as well as professional ethics, to consider all data that is relevant to the appraisal at hand, and not to consider anything irrelevant, or what Kahneman calls “noise.” While bias is a pattern of errors in a certain direction (or average errors), “noise” is the word for specific or variable errors that reflect taking something, anything, irrelevant into account; noise is not the world of biases but mistakes. In appraisals that are flawed, it is typically not patterns of error that are the problem, (biases), but rather “noise” (mistakes).
Appraisal Institute
Appraisers are highly educated professionals, trained to avoid bias—predictable patterns of errors—as well as “noise,” reflecting irrelevant factors. Our designated professionals are the most educated in the profession, and often called upon to review the work of others, and here’s what they tell me they see. It is the mark of an outstanding appraiser to include everything relevant and nothing irrelevant; this is the heart of what a market analysis requires. This is important because the charge is that appraisals reflect patterns of terribly biased decisions, reflective of racism. Racism is a learned, persistent bias; it is not variable, so it shows up throughout behavior, and racism in appraisal would show up as a persistent wrong and unjust weighting over multiple assignments that reflected the appraisers taking into account race as a factor relevant to a valuation assignment. But we do not see this. Even with the exceptional scrutiny on the professional appraiser, the facts have not borne out the existence of such a fixed pattern of social bias in appraisals. On the contrary, the facts show us that better and worse appraisals are characterized by how well factors relevant to the appraisal are taken into account—the strength of the market analysis, and the absence of “noise.” Often these irrelevant factors are the result of the use of hasty methods such as template descriptions of market areas rather than careful individual treatment of every subject property. And this is why AMCs that offer jobs to the lowest bidder are such a problem, because shortcuts proliferate when fees are too low for the work required.
The fact that the public is now genuinely concerned about “Appraisal Bias” is deeply upsetting. Black Americans have been negatively impacted by racist public policies from redlining to “urban renewal,” and they are now further harmed by the fear and stress they experience based on this unfair narrative. The fact that market values of residential properties have been impacted by racist lending policies of the past and urban land grabs by the government is not the fault of the appraiser, nor can the appraiser correct for these issues. The appraisal must reflect market value using the most impartial process available, a market analysis.
And just as a generation of appraisers are poised to retire and need and want the next generation of diverse professionals to step up to learn from them, this false narrative makes it harder to attract the very people most wanted as appraisers. What appraisers learn makes not only for a good career, but a potentially great path to wealth creation available for any person who is analytical and impartial and fair.
The appraisal professional has been an easy target and slow to respond effectively in part because it is a small, fragmented, profession of analysts (estimated at 75K and falling) without deep pockets for lobbying and with a commitment to their communities based on their role in maintaining the public trust in real property valuation. The Appraisal Institute must speak up for all appraisers. “Facts do not cease to exist because they are ignored.” And with that nod to Aldous Huxley’s Brave New World, its “newspeak,” “taboo words,” and “technological enforcement,” let’s talk about why there has been a myopic focus on banning certain words as a way to monitor appraisals for bias, when there is no evidence that pernicious biases exist.
Appraisal is fact-based work that is transparent and subject to intense review. Appraisers must show their work and they must keep their workfile for review by a second market lender or in case of a challenge or lawsuit. “Banned words” are being used as a standard of fairness in large part because they are easy for data mining “tools” to pick up. They are easily flagged, easily reduced, and “technologically enforceable” just like in Brave New World. This frightens appraisers and makes them seem and feel more like “box checkers,” when they are highly skilled professionals.
Analyzing a market is the crucial skill appraisers need, not avoiding banned words. To develop the skills to be a professional appraiser takes time, commitment, a sharp mind and high ethical standards, and for professionals like that, it can be a rewarding career. Just like AMCs bidding out jobs without reference to quality, the increasing use of untrained data collectors, and major for-profit players putting short term gain in front of long-term economic health, politicians and regulators focusing on “banned words” and cynically representing that they reflect racist behaviors is damaging a professional practice committed to the public trust and restricting opportunities for the communities they claim to defend. We want all appraisers to use best practice, and dealing with this false narrative is a terrible distraction from developing best practice education for all appraisers, particularly education focused on ways that appraisers' irreplaceable human judgment and skills can be best augmented by the use of rapidly developing new technologies that can improve market analysis.
Appraisers often remind me how badly the Appraisal Institute has done in years past at addressing the issue above and defending the profession. I agree. There is a tremendous amount of work ahead of us, but we are taking the first and most important steps: by beginning to tell appraisers' story, as a profession and as committed professionals and by advocating for the truth with facts and reason. Next up, in the third of this three-part note, facts and data relevant to our discussion, cultural bias, and the way forward together.
Cindy Chance, CEO of the Appraisal Institute
