More appraisal censorship is here! Have you noticed this new regulation that censors California appraisers and flat out appears to prohibit accepted sound appraisal methodology and practice?
Editor’s Note: A Guest Post from Bruce Hahn, CCIM, MAI, SRA
Consider California Business & Professions Code Section 11424(a) which says:
Licensees shall not base, either partially or completely, their analysis or opinion of market value on the basis of race, color, religion (creed), gender, gender expression, age, national origin (ancestry), disability, marital status, source of income, sexual orientation, familial status, employment status, or military status of either the present or prospective owners or occupants of the subject property, or of the present owners or occupants of the properties in the vicinity of the subject property, or on any other basis prohibited by the federal Fair Housing Act.
This code was added to the Statutes effective January 1, 2022, because of the passage of Assembly Bill 948 in 2021 to address discrimination. Unfortunately, this law’s language appears to be missing important words referencing “not to discriminate” within the intent of this specific section of the law. Instead, the language appears to entirely prohibit the consideration of highly relevant demographic information as might be appropriate in the analysis of different kinds of real estate.
For instance, if you are appraising a day care center licensed for pre-school children between the ages of 2-5 years old, you may not consider age in your analysis of the real estate. Even though a review of US Census data showing how many 2 to 5-year-old children are located within the subject market trade area, as well as for each of the comparable data points, are highly relevant and should be analyzed!
Evaluating a retail property to see if the trade area has sufficient income and population demographics to support the retail use would be reasonable. Solutions such as the CCIM’s Site to Do Business utilize ESRI’s Business Analyst module which looks at a variety of demographics that include education, age, income, and many other factors to determine disposable income and potential market capture. Nope!! Can’t do that now!
Appraisal methodology for single family residences analyzes a market to determine base employment and overall employment trends. Does that constitute employment status as described above?? Hard to determine as the language is very broad and not very specific.
Appraising a church? Does a prohibition against the consideration of Religion by appraisers limit you from considering the number of members of the church you are appraising, that of other nearby religious facilities, or the market saturation for religious facilities? It appears so, but again the language isn’t very clear!
Why do agencies keep censoring appraisers and limiting their ability to effectively analyze markets for appropriate factors that influence real estate value? Are these restrictions or censorship efforts, in and of themselves, discriminatory to appraisers when they limit or prohibit the use of accepted and sound methodologies for market analysis necessary to develop a credible opinion of market value? Asset Analysts do best when left to follow accepted valuation practices in market analysis without censorship!
December 20, 2023 @ 8:05 am
Ask the Appraisal Foundation how to write an appraisal under these restrictions. The new USPAP won’t help us. So, the solution is to not write the appraisals.
My state just passed Middle Housing laws that restrict the ability of most licensed and certified residential appraisers to do appraisals because most urban residential zones now allow more than four units per lot, requiring complex highest and best use analysis. So, the solution is to not write the appraisals.
Let the system break. Or maybe that is the goal of those who write these laws.
December 20, 2023 @ 8:05 am
Discussion on this topic in this forum is positive and provides benefits to us all. Thank you for creating this content.
While I agree in principle with author’s line of logic, I believe the issue is much more complex and there is a tremendous amount of over simplification taking place on all sides of this topic. Does the use of a word or citation of demographics throw up a red flag to be accepted as a determinant of the presence of bias in the development of the appraisal results? No it does not. It does identify the presence of a term or information that may be perceived as increasing the risk for the introduction of bias. The role of the appraiser is to provide information, analysis and conclusion. The appraiser creates value when those elements are useful to the intended users and benefactors of their services when addressing the appraisal problem. I believe the problem that people are trying to address is to have appraisers be more effective and relevant with their communication. Communication is often challenging for people in general, let alone appraisers, particularly at a time when the lending industry has a focus on bias and reducing the potential for bias.
To offer an answer to the question about relevancy of demographics when appraising a church, I offer this question, is the word “church” appropriate? The Oxford Dictionary defines church as “a building used for public Christian worship”. Is the appraiser required to only use data that is relevant to Christian worship?, or when approaching this problem ask question is the term “place of worship”, a term common in the nomenclature of land use ordinances, more appropriate and relevant?
Now while there may be a deed restriction that limits the use of the property to a more defined use such as a “church”, deed restrictions can be lifted or struck down, and if the appraiser limits their research to capture only specific demographics, in this case “Christian”, in a location that may be having a shift in their demographics or a shift may occur in the foreseeable future, is that appraiser providing a misleading appraisal?
Keep up the good work!
December 26, 2023 @ 9:35 am
Appraised a property in Garden Grove, CA near a Temple whose sect did not allow parishioners to “drive” to service, they had to walk. Therefore, proximity to the temple had financial consequence. Additionally, the property being appraised for a purchase was selling 20% below what would appear to have been market value and neither of the agents were accepting a commission. Upon investigation it turned out the property was at the apex of a “T” intersection and in this particular religion considered to be the worst possible location for a home beyond just having headlights shining in the front door at night, but a true negative spiritual impact. The agents believed that if they were to profit from the transaction by placing a family in the home, their own economic circumstances would be negatively impacted for years, and the discount from market value was a true market reaction. Think along the lines of a community land trust, people that purchase these properties do so to be close to the temple because they have no other way, but when they sell, they don’t want to receive significant “profit” from capital gains for the same reason that the agents would not accept a commission.
The number of “unacceptable” issues by the standards at that time made it more than slightly challenging, but today nearly impossible. However, to help with this thread here is a part of how I handled it.
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Subject is located proximate to a non-residential use property which is integral to residential property valuation within the neighborhood as evidenced by the graphs and charts within the addenda pages of this report. Subject site is negatively impacted by its location at the apex of a “T” intersection which is supported by historic paired sales analysis shown in the tables in the addenda. Listing and Selling agents involved in the transaction have waived their commissions for the transaction. The reason for the agents’ decision is personal but consistent with actions of other agents in this market segment involving transactions of properties in a similar location to that of the subject. That said, the appraiser has confirmed that the transaction is an arm’s length transaction. All location, physical characteristics and transaction arrangements and their impact on the valuation have been supported by market data within the addenda of this report. Any additional detail or information regarding this transaction would violate lender/appraisal guidelines as well as fair housing guidelines, therefore, any additional information can only be supplied by the principles to the transaction.
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Obviously, you need to make sure all your market data supporting your conclusions and analysis is found within the addenda. Lenders now want an aerial photo of the subject and the “nearby properties which of course I made sure included the non-residential property in question, and my “neighborhood boundaries map” supplied via google maps identified the structure which I verified with the client (UW) would be acceptable since I was not referencing it in the appraisal and the map came from a public data source that also showed proximity to local shopping and employment. Nowadays I expect that the building identification on the map would have to be blurred out.
Hope this helps others with how this ridiculous situation can be handled in a manner that is (was) acceptable without spending a bunch of time moaning and groaning about it. Trust me, I have done enough for all of us.
May you enjoy each day in the manner with which you celebrate it.
i.e. Merry Christmas
December 26, 2023 @ 11:56 am
Just became a Certified General Appraiser a few years ago, pretty bad luck, already looking to change professions. Anything is better than this.
December 27, 2023 @ 7:49 am
An old saying that I have always subscribed to….” the best way to get rid of a bad rule, is to enforce it”…
February 25, 2024 @ 10:35 am
With regard to deed restrictions. How does that effect HBU with legality? It must then be considered the probability of having the deed restriction “lifted or struck down”. Deed restrictions must be considered in HBU analysis.