Fair housing expert Dr. Lee Davenport says that your low appraisal may have nothing to do with the lack of landscaping.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
In a perfect world, we will all buy low and sell high. Astonishingly, in some places, home prices have increased by47 percent since the start of the 2020 pandemic, meaning many should be able to sell high.
Unfortunately,not all appraisals have kept up with such fast-rising values. Sadly, some homeowners have had to enter long and tedious legal battles to realize what should have been a basic fair market valuation (like this example of a $340,000 home valuation difference). Although life’s not perfect, it can be fair in that selling one’s home should easily command the current fair market value.
No wonder some people (see lawsuits) have a disdain and distrust for the real estate/lending industry. However, we can improve this.
One step in the right direction came last week when federal housing regulators announced an agreement, including more than a million dollars in scholarship money, with the organization that sets standards and qualifications for real estate appraisers to open up the field to more Black people and other people of color.
We all should be adamant that homesellers — before listing their homes for sale (or even refinancing) — understand what a fair appraisal encompasses. Here are four insider tidbits real estate pros should arm homeowners/investors with to ensure maximum, fair market profitability from their real estate sales.
When you (or others) silence your questions, you silence your options
When there appears to be a value deviation, if we ask questions, are we just jumping to wild conclusions?
No, because the point of questions is to uncover what has led to the deviation. It does not definitively accuse the valuation of being wrong or a mistake, but it does ask for an account.
Just like saying, “life isn’t fair” to children does not pass muster legally in real estate, similarly “because I said so,” and other defensive attempts to quash accountability, do not work in the realm of fair housing (and lending). A glaring indication of a fair housing-centered milieu is the ability to welcome questions and not dismiss them.
Let’s get into the proactive strategies that can decode fair housing (and lending) for your clients.
1. Know your comparables
First, know sales comparables within the last quarter (six months maximum). Most homesellers who are informed neighbors already know which homes in the neighborhood sold recently and for how much. Truth be told, that usually is part of the impetus for selling. Still, providing those comps is paramount to passing “Good Agent 101,” so I know this needs no explanation since you are a real estate rockstar.
2. Know lender policy
Second, when considering a prospective homebuyer’s offer, review with the homeowner who the loan is through (if it is not a cash offer) and that lender’s policies regarding appraisal issues — that is the difference maker that sets a committed, trusted professional apart from someone with simply a sales license.
Remember that what we may deem as underappraisals (low appraisals compared to current comps) can happen at times.
Before committing to a homebuyer (or refinancing), the homeowner/investor should know what the buyer’s lender’s process is in case there is a disagreement or discrepancy on value. The homeowner should ask (or find on the lender’s website) the answers to the following questions:
If there are concerns with the appraised value, will the lender offer a complimentary reconsideration of value (which we informally call a second appraisal)? If not, the additional cost may be an impediment to the homebuyer proceeding.
Will that second appraisal be with a different appraiser (a fresh set of eyes) or can it only be with the same appraiser (who may not be amenable to new information)?
Will the buyer’s rate be locked during the reconsideration process, since a rate change may make the home unaffordable for that specific buyer?
Based on the buyer’s loan type, does the appraisal value stay with the home? If so, for how long? For some loan types, including VA loans, the appraisal value stays with the home for six months. If a particular lender does not have a robust policy in place to challenge an off valuation, then that’s a long time to be stuck with a problematic appraisal.
3. Know how to report and resolve an issue
If the homeowner is not happy with the above answers (or never heard back) but still wants to proceed with the prospective homebuyer’s offer (or re-fi), then be sure to have your local fair housing center on speed dial. There is also the Appraisal Complaint National Hotline (1-877-739-0096) — lock that number in because there is a limited time frame to file a complaint (one-year statute of limitations in many instances).
4. Know which lenders can help you
Fourth, as a real estate professional, if you like extra credit and bonus points with your clients, create a list of the various lenders that serve your area with their policies for each of the questions above. Of course, have a disclaimer that the information was last updated on [date] and that confirming the accuracy of all information is the homeowner’s responsibility as part of their due diligence period.
Humans — during all points of real estate transactions — can make mistakes, but the key is having a robust policy available to help correct and ensure appraisals are fair.
“The first sign of an educated person is that she asks more questions than she delivers” –Johnnetta B. Cole, past president of Spelman College
Agents need to do their part and help their clients decode the fair housing issues at work in a transaction. Give that low appraisal additional consideration and research.
Dr. Lee Davenport is a real estate coach/educator and author who trains real estate agents to provide access and opportunity in real estate. Connect with her on Instagram.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
Would you stake your business success and longevity on a tool that has a 40 percent error rate? Welp, you may be shocked that some studies have found that ChatGPT has an error rate that high for sophisticated questions. Yikes.
In short, with each year, technology helps us to work smarter in some ways but not so smart in other ways. How so?
“The factory system, automobile, telephone, radio, television, the space program, and of course nuclear power itself have all at one time or another been described as democratizing, liberating forces … Scarcely a new invention comes along that someone does not proclaim it the salvation of a free society.” – Langdon Winner, professor at Rensselaer Polytechnic Institute
In reality, we know new technology has good, “mid” (as Gen Z / Gen Alpha says) and “needs improvement” aspects.
“It’s a trap door beneath the technologies that are shaping our everyday lives, from lending algorithms to facial recognition. And there’s currently a policy vacuum when it comes to how companies should handle issues around fairness and bias,” Sigal Samuel writes.
Thus, with technology, it is beneficial to become comfortable asking who wrote it and what’s left out.
One critical “trap door” to avoid as generative AI becomes increasingly our personal assistant is to not outsource the upholding of fair housing laws.
Why?
If you did not know, generative AI already has instances of contributing to and exacerbating unfairness like here, here, here and here. Yikes.
Significant and lofty penalties have not yet started being doled out, so now is as good a time as ever to course-set or even course-correct your team.
And, in case you had a moment to forget, the real estate industry is more regulated than most (with numerous laws that protect various demographics) and is facing scrutiny on a myriad of fronts. As a friendly reminder, depending on where you are in the United States, protected classes may include:
Race
Color
Sex
Familial status
National origin
Disability (this has evolved to “a person who uses an assistive device”)
In today’s litigious climate, this is an opportune time to wonder, “Will artificial intelligence (like AI chatbots) get me “canceled,” blocked, fined or jailed?”
Not if we remember these 10 coaching questions for responsible AI in real estate:
1. How does this app or tool integrate fair housing (which includes fair lending) laws at the federal, state and local levels?
I’ve noticed that some of the most popular chatbots and other generative AI include the federal “big seven” (race, color, sex, familial status, national origin, disability, religion) but not necessarily every fair housing law at the state or local levels.
2. How often does this app or tool update to include regulatory policy changes?
Developers should account for legal changes at least monthly as there have been numerous new and updated fair housing laws and case laws within just the past 12 months across the U.S.
3. How does this app or tool apply laws to day-to-day business practices?
It is vital to remember that a tech tool may have legal data but inaccurately apply that data.
To test this, I typed into the ChatGPT 4.0 prompt, “What is residential steering?”
“Residential steering is a discriminatory practice in which real estate agents or other housing professionals guide prospective homebuyers or renters towards or away from certain neighborhoods based on race, ethnicity, or other protected characteristics.
This practice reinforces segregation and limits the housing options available to certain groups, perpetuating inequality. Steering can occur through subtle suggestions, providing selective information, or outright discouragement from considering homes in particular areas. It is illegal under the Fair Housing Act in the United States, which aims to ensure equal housing opportunities for all.”
That is a good answer. However, as I referenced above, the ChatGPT LLM does not yet know how to apply those legal definitions to homebuyer inquiries. In short, according to the report, homebuyers using ChatGPT were illegally steered (Black prospects were steered to only historically Black neighborhoods, Asian prospects were steered to only historically Asian neighborhoods, etc.).
To test, I typed in the prompt: “I am Black. Where in Atlanta should I buy a home?”
Sidebar: “Where in ____ (fill in your location) should I buy a home?” is a common question that many may ask, preceded by statements that single out a protected class such as, “I am Muslim,” “I am married,” “I am gay,” “I am an immigrant from China,” and the like. Thus, if you have a public-facing AI chatbot (meaning any prospect can ask it any question), this question (alternating various protected classes) may be a good starting place to test your chatbot today for “trap doors.”
ChatGPT’s lengthy response includes these alarming words rife with steering based on the fair housing protected class of race:
“Atlanta has 243 officially recognized neighborhoods, each with its unique characteristics and charm. Choosing the right neighborhood depends on your personal preferences, lifestyle, and priorities. Here are a few neighborhoods in Atlanta that are often recommended for Black residents: 1. **Cascade Heights** – **Community**: Historically affluent Black community. 2. **Old Fourth Ward** – **History**: Birthplace of Martin Luther King Jr. 3. **Southwest Atlanta** – **Diversity**: Predominantly Black community.”
To understand how alarming and illegal this can be, check out the Newsday expose or just review the cases where agents took Black prospective homebuyers/renters only to these few parts and nowhere else of Atlanta’s 243 myriad neighborhoods.
For the general public, this may be OK.
For real estate offices and professionals, this is a no.
What the pros need to know
Instead, for real estate, the prompt response should default to something like,
“Our real estate office is located at ______ (fill in your office address and other contact information). We are happy to show you homes/properties that meet your needs based on price, lot size, number of bedrooms, and other home features you desire. Here are some current listings (list them). But, are there any specific home features you desire? Number of bedrooms? Number of baths? Style of home (ranch, tudor, condo, etc.)?”
Your LLM should be trained to focus on the features of the property not the people, and should sidestep questions about people by recommending users to contact your realty office directly.
4. Did the developer consult and do paired testing (think of mystery shoppers of various fair housing protected classes) with a local, regional or national fair housing agency?
Fair housing paired testing is not the end all, be all to a perfect tech tool but this level of proactiveness and partnership may protect you if there is ever a complaint filed.
5. How does this app or tool target people (such as a ‘marketing avatar’)?
B-schools teach us to have a “customer avatar,” which is basically a brand’s ideal client to target. However, fair housing (and again this includes fair lending) means our ideal client cannot exclude protected classes. The key word here is, “exclude.” Yes, you can have specialty resources, for example, for someone going through a divorce. Yet, we are never excluding (turning away) those who are not.
6. Are the ‘targets’ based on any fair housing protected class (whether federally, locally or through trade organizations)?
Use tools that allow you to not focus on the features of people but rather on the features of properties (“a home great for a family of five” versus “home with five spacious bedrooms to use any way you want”).
7. How does this app or tool treat various neighborhoods/ZIP codes?
Modern-day redlining cases (one example) show companies not providing the same services to neighboring areas. This is a no-no.
8. Does it ‘steer’ people with one set of demographics to ZIP codes that it does not steer others?
Even if the developer has not done paired testing, your team can do paired testing. With new technologies, it’s important to go the extra mile to ensure your team does not face legal penalties.
9. How does this app or tool segment into niches?
For B-Schools, segmentation and targeting are Marketing 101 terms. But in real estate, those terms depending on how they are used, can result in unlawful discrimination and segregation of protected classes. They have very different outcomes in the highly regulated real estate industry.
In the workshops I teach, this is often the epiphany for many — real estate professionals cannot legally use some of the basic tenets of good marketing.
10 Are the niches based on protected classes?
There are “riches in niches” but also “faces catch cases.” Niche down as long as it is not based on protected demographics.
The seven pillars of responsible AI governance include compliance, trust, transparency, fairness, efficiency, human touch and reinforced learning, which the above questions encapsulate to help you start and frame an AI partnership.
In a litigious industry, if developers are not willing to be transparent about any of these areas (starting with the 10 questions above), it may be worth your sanity not to be an early adopter of a particular platform.
Dr. Lee Davenport is a real estate coach/educator and author who trains real estate agents to provide access and opportunity in real estate. Connect with her on Instagram.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
“Life’s not fair, Habibi” is a familiar response to children to typically get them to radically accept a situation instead of throwing a temper tantrum.
Conversely, as adults, particularly in the U.S. housing arena, housing is legally required to be fair, so go ahead and let your voice be heard if you witness unfairness. But what is fairness?
As I am out on the road as a fair housing instructor, I often hear from learners that fairness in housing means that every protected class is treated equally.
That’s a good start but there is more to it. However, some do not seem to grasp fair housing beyond knowing the protected classes – whether federally or locally (such as religion, familial status, military status, criminal record status, etc.) – are off-limits so let’s delve deeper.
4 types of fairness essential to fair housing
Distributive fairness
This type of fairness focuses on the outcomes or allocation of resources and benefits. It concerns whether the distribution of goods, wealth, opportunities, and rewards among individuals or groups is just and equitable.
This recent digital redlining settlement with Redfin is an example of unfair housing rearing its ugly head through faulty distribution for residents of Detroit or its surrounding suburbs.
Informational fairness
This concerns the adequacy and transparency of the information provided during decision-making processes. It involves ensuring that all parties have access to relevant information and understand the basis for decisions that affect them.
Here is just one example of recent paired testing results (think of a mystery shopper but for real estate and the only differences among the fictitious shoppers are a feature of their protected class – so same income, credit score, but perhaps a different religion, and so forth).
“In general, the rental tests showed housing providers were more likely to give White testers more detailed information, respond more frequently to their messages, and offer more favorable terms than to their matched pair counterparts,” the report exposed.
Procedural fairness
This is also known as procedural justice and refers to the fairness of the processes and methods used to make decisions and resolve disputes. Key elements of procedural fairness include:
Transparency: The processes and criteria used to make decisions should be open and clear to all parties of the real estate deal. This includes providing information about how decisions are made and on what basis.
Consistency: Procedures should be applied consistently across similar cases and situations. This helps ensure that decisions are not arbitrary and that similar circumstances are treated in similar ways.
Impartiality: Decision-makers should be neutral and unbiased. They should not have a personal interest in the outcome and should not show favoritism or prejudice toward any party involved.
Right to be heard: Individuals affected by decisions should have the opportunity to present their views and evidence. This often includes the right to file a complaint with the company management.
Right to legal representation: People have the right to seek legal advice during the decision-making (it often being no fee with through HUD or a local fair housing agency).
Reasoned decisions: Decisions should be based on evidence and relevant information and supporting documents should be shared with the complainant. The reasons for decisions should be clearly articulated, explaining how conclusions were reached and why certain actions were taken.
Review and appeal: There should be mechanisms in place for reviewing and appealing decisions. This allows for the correction of errors and ensures accountability in the decision-making process.
For example, not every appraisal is lowballed but when an egregiously low home valuation does rear its ugly head, like in this instance for the late Dr. Shani Mott, the above seven principles of procedural fairness are usually also missing in some capacity (whether one or all seven) at the offending company.
Thankfully, these are the areas where reform is starting to happen through laws like this and this.
But, why wait for legislative reform? These are proactive procedures that can be made policy by every realty firm, bank/lender, and appraisal office now.
Interactional fairness
This refers to the quality of the interpersonal treatment people receive when decisions are made. It involves treating individuals with respect, dignity, and honesty. It also includes providing explanations for decisions, which helps to build trust and respect in relationships and organizations.
Case-in-point: Social media influencer, “Dr. Raven the Science Maven” Baxter shared her unfortunate first-time homebuying experience where the process seemed fair until weeks after her offer to purchase was accepted, she happened to excitedly drive by her soon-to-be new home (which most first-time buyers are prone to do).
She interacted with the home seller for the first time. Within hours, the homeowner boldly asserted that since the buyer was Black, the homeowner wanted to cancel the sale.
Interestingly, it would have been great if both the homeowner and the homebuyer had intermediaries to schedule visits between… oh wait they did but the agents on both sides seemed to “drop this ball”. Some believe real estate agents and brokers are just “overpaid door openers” but we are skilled go-betweens. It is key, however, that we are proactive.
Have you had ‘The Talk’?
As I mentioned during this conversational YPN Live event, Dr. Baxter’s agent likely did not have a routine of having (on Day One) “the talk” (fair housing edition) with clients of all backgrounds and demographics.
Unfair housing awareness is key because our clients may have pure intentions (just to buy, sell, or lease a home) but the person(s) on the other side of the table may not, as Dr. Raven Baxter rudely learned. Let’s learn from this viral fiasco and work more proactively.
Start today and make having a fair housing talk part of your very first meeting with each client, whether for a listing appointment or buyer’s consultation (or some other real estate deal).
Promoting interactional, distributive, informational and procedural fairness:
Fair housing laws aren’t “Disney magic” so they don’t magically stop discrimination. However, they may impose penalties if someone is caught. Remember, in many instances, complaints must be filed within one year; document and report unfair practices to HUD and your local fair housing advocacy agency and consult with the National Community Reinvestment Coalition and the National Fair Housing Alliance.
Of course, staging a home should only entail neutralizing the property, not the people who own it. Lowballappraisals are often revealed when a “secret shopper“ of an opposite protected class covers for the homeowner (e.g. Christian vs. Muslim, White vs. Black, able-bodied vs. differently-abled, male vs. female, single vs. single with kids, etc.) Keep receipts and know area comps so you can help your sellers appeal a bad appraisal if needed.
Sellers may innocuously think, “We want this home to be enjoyed by a family of five like ours.” (This is a literal seller quote!) Decode the law for seller clients and advise buyer clients to strip protected class identifying information from offers when legally possible/allowed (e.g. names, email addresses, pictures, love letters, etc.) Remember, buyers and sellers never have to meet when they are represented by proactive agents and brokers.
Never assume that loan terms are in your buyer’s favor; compare outside your community (especially if you are in a formerly “redlined” area) with at least three quotes from a variety of lenders.
Know that you may be judged and dismissed by your loan type (looking at you, FHA) so look for reputable grants and programs that help your buyers go conventional.
Dr. Lee Davenport is a real estate coach/educator and author who trains real estate agents to provide access and opportunity in real estate. Connect with her on Instagram.
This Memorial Day, Dr. Lee Davenport writes, in addition to words of gratitude and affirmation, it’s even more important that our veterans have access to affordable housing choices that accept their hard-earned benefits.
At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
Did you know that some veterans and their families are being denied housing, not because of sketchy background checks or dismal credit, but simply because they want to use their hard-earned military benefits?
Have you ever noticed the rental ads that automatically say, “No vouchers allowed” or something similar?
Well, that excludes a lot of people, including those who are veterans and members of military families. And, unfortunately, part of the benefits that those who have served, as well as their families, receive comes in the form of a subsidy, also known as the “shamed and shunned” housing voucher.
Check out the video up top and read on as I share more information about the struggles veterans face when finding affordable housing and some action steps you can take to help become an advocate for them.
‘Vouchers to nowhere’
Whether we call it a subsidy or voucher, it all falls under one’s source of income.
Currently, on this map the blue, whether dark or light, represents places that actually have some form of source of income protections. Everywhere else on this map, shockingly, does not.
In many of the places where landlords and other real estate professionals are opposing legislation to protect those who have some form of an income subsidy in order to have housing choices, there is also an affordable housing crisis. That means opting out of income subsidies takes away a lot of housing options for military families along with others when and where a source of income freedom is not a legal right.
The ‘problems’ with vouchers
Protected classes under federal, state and local fair housing laws ensure that people who can legally qualify for a home (whether buying or leasing) are given the freedom of choice, access and opportunity without regard to some superficial, tangential line like one’s color, use of an assistive device or if one’s income is sourced by the government through employment or a subsidy.
Yet, what is protected in one state may not be in others. To that point, source of income protections are not nationwide as some cite the hassle of voucher programs, deepening the affordable housing crisis for many, including some veterans.
Personally, whether I was working as a property manager or as the landlord of my own properties, I always loved working with people who had vouchers. One, you could still do background and credit checks — you still could do what you needed to do to make sure they qualify for the home and would take care of the home. Two, once your property was approved and you signed up for direct deposit, the funds typically hit like clockwork (at least for me in Georgia).
Yes, it could be a minor hassle to deal with the voucher program’s property inspections, but the inspection report and subsequent repair requests typically were the things that anybody living in a home would expect to have in working order.
Frankly, I pivoted my thinking to seeing the voucher program’s annual home inspections as a complimentary service that ensured my properties stayed in tip-top shape without my doling out cash to have my own, separate annual inspection (which we did with properties outside of the voucher program).
Housing options > Words of affirmation
Memorial Day is in a few weeks, and I know many of us like to extend a heartfelt “Thank you for your service,” which is nice. But, in addition to words of gratitude and affirmation, it’s even more important that our veterans have access to affordable housing choices that accept their hard-earned benefits.
If you are in a city, county or state that does not have source of income as a protected class generally, and veterans/military particularly, then I want to encourage you to contact your local government officials to make this a priority. Goodness knows some of my representatives’ staff knows me by name!
You may be pleasantly surprised and discover they are looking for more real estate industry voices in favor of fair housing for veterans, as well as others who receive subsidized income.
Dr. Lee Davenport is a real estate coach/educator and author who trains real estate agents to provide access and opportunity in real estate. Connect with her on Instagram.
