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Cultural & Religious Effects on Value

By Danielle Corniero-Lopez

A few weeks ago a local Realtor contacted me about a unique situation with one of her listings; her clients attempted to sell their home at market price but to no avail. The seller is the original owner of the property since 1999, which is located in a planned unit development. So what, you might say?

The Realtor performed her due diligence and met with her prospective clients. After the inspection, she suggested a list price of $40,000 less than the average neighborhood sale price. The subject is of average condition. It suffers from an external obsolescence because it is adjacent to an active railroad track. As the Realtor explained this, my mind leapt ahead that the lower price was due to the location and proximity to the track and that I could easily prove this by matched paired sales analysis—especially in a planned unit development. Piece of cake, right? Wrong. The Realtor further explained the secondary obsolescence, a cultural condition and social influence. However, the Uniform Standards of Professional Appraisal Practice (USPAP) and Federal Law prohibit the use of characteristics such as race, color, religion, national origin, and more unless the appraiser’s conclusions can be supported. Even if there is enough supportable information to prove certain cultural and social influences, appraisers still often fear somehow they will be in violation.

The Realtor explained that the subject property is situated in a predominately Hindu neighborhood and the dwelling faces the southwest direction. As a result, buyers of this ethnicity, in this particular community, will never consider a property with this directional location based on their cultural convictions. As I listened to the Realtor’s concerns, I immediately thought of other communities I had worked in that also had their own cultural and religious beliefs that affect value and marketability. However, rules and regulations deter appraisers from reporting true neighborhood conditions based on race, religion, sexual orientation, familial status, etc. So what do we do?

The Hindu culture believes that the front door brings certain energy to the house; a property that faces southwest is the entry of the devil and brings struggles and misfortunes. This is known as Vastu. Vastu Shastra is a traditional Hindu system of architecture which literally translates to science of architecture. Vastu incorporates traditional Hindu and in some cases, Buddhist beliefs. The designs are intended to integrate architecture with nature, the relative functions of various parts of the structure, and ancient beliefs utilizing geometric patterns, symmetry, and directional alignments.

The Realtor went on to explain that the subject had been on the market for several months with no offers. It was also listed two years prior, again with no offers. Her feedback from other Realtors who showed the property all stated the same thing: “The southwest direction was ultimately the reason no offers were made.” Other Realtors had informed her that their potential buyers were willing to look past the railroad tracks, especially for a lower than average sale price. However, most buyers of this culture consult a compass when viewing properties. They even bring their elders and priests for approval. If the compass reads a west or southwest facing entrance, buyers quickly dismiss the property and show no further interest. This community is comprised of approximately 90 percent Hindu culture, which leaves little potential for alternate buyers. The sellers are non-Hindu and did not want to hear the Realtor’s thoughts and hard-facts. So the Realtor suggested an appraisal.

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The Ethics Rule under conduct states that appraisers “must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, and receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.”

I completed the assignment and used several paired sales analyses to conclude that the railroad tracks had little or no effect on value or marketability. I even went to the extent of contacting local builders and developers for their feedback on directional placement of properties. They confirmed that in this particular community, they consider cultural beliefs when developing properties similar to the subject’s community. In addition, when advertising new communities, home developers often state “East Facing Community” in order to attract more buyers because they understand the importance of directional location to Hindu homebuyers.

My conclusion of market value, however, did not include the southwest stigma information because I did not have enough supportable comparable sales to quantify an adjustment. This property was priced at market value and should have sold within reasonable exposure time, but in this Hindu community the property will most likely remain stagnant on the market until an alternate buyer of non-Hindu culture shows interest.

In our beginning appraisal education we learn to compile demographic information, but it is sometimes impossible to show the affect in value and marketability. This is true with most neighborhoods, however every now and again we come across communities that show the effects clear as day.

I know of one other market that is heavily populated by a certain demographic in which cultural beliefs skew value and marketability. Lakewood, New Jersey is an area heavily populated by the Orthodox Jewish Community. According to the 2010 United States Census: “the township had a total population of 92,843. The township ranked as the seventh most-populous municipality in the state in 2010 after having been ranked 22nd in 2000. The sharp increase in population from 2000 to 2010 was led by increases in the township’s Orthodox Jewish and Latino communities. Lakewood, NJ is a hub of Orthodox Judaism and is home to one of the largest Yeshivas in the world, the 6,500-student Beth Medrash Govoha, which was founded by Rabbi Aharon Kotler. “The large Orthodox population, which comprises more than half the township’s population, wields considerable political clout in the township as a voting bloc” (Wikipedia).

When I receive an assignment in this area, I know it will be difficult as I cannot state in my appraisal report that proximity to a synagogue or Hebrew school is an important factor in value and marketability. My hands are tied by federal regulations that forbid me to discuss race, ethnicity, and familial status in an appraisal report unless I have supported information. I have found, even if I have the supported information, the underwriters and lenders would rather not know about anything pertaining to race, ethnicity, and familial status. I assume because the loan would be harder to sell.

Due to the religious beliefs and practices of the orthodox Jewish community, proximity to a synagogue and Hebrew school is of the utmost importance. This is primarily because of the Sabbath, which prohibits members of this faith from operating any machinery, which includes driving a vehicle. Therefore, buyers know they must walk to their place of worship each week. The elderly want to be as close as possible, while a younger couple may consider a further walking distance. However, for a young family with small children, harsh weather conditions become a deterrent for walking. I completed market studies that would make absolutely no sense to an appraiser who does not know and understand this market. The prices of homes that are closer to a synagogue increase drastically even though they are not any more updated or superior by any means of comparison. The only difference between properties is proximity to the synagogue. But how can I explain this in my report? How do I accurately adjust?

I think about appraising in a beach community. Typically dwellings located closer to the beach have a higher value. In the past, I’ve made adjustments not only for difference in blocks to the beach but also a difference in houses from the beach. The appraisals make sense. When doing an appraisal in a community like this, the appraisals appear to be skewed with outliers. I have struggled with this for years. I contacted Dr. Dianne Ashton, a professor from Rowan University, an expert in Judaism. She confirmed that “not only is proximity to a synagogue an important factor, but proximity to other Jews, a Jewish community center, or a synagogue (indicating that it is a Jewish neighborhood) is desirable because religious institutions (for worship, education, & community events) are only established where a population of Jews can support them. A sizeable local Jewish population would also indicate that there might be restaurants that serve kosher food or at least vegetarian food. It would also suggest that their children would not be hassled in school as Jews, which is an important consideration also. All of those factors would make an area attractive to Jewish buyers.”

All of the above are important factors to the majority of buyers in a market that is predominately of the same culture. For an appraiser to not consider such factors is equivalent to closing our eyes to the real market forces in a community. I hardly think any of these facts represent a bias of any kind. Figure 1 illustrates synagogues in a small radius. This is a proven fact that a certain culture and religious group is predominate in this particular area. How much and what type of support is enough when writing a defensible appraisal report?

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As communities are going through the real estate life cycle and there are often clear demographics in one area, appraisers should not be prevented from considering these factors. In reality, appraisers and real estate agents should clearly understand the driving factors of home prices in the community they serve. When we think of location we consider the obvious, such as adverse and beneficial externalities. We consider that living next to train tracks in a rural area may be an adverse factor while living within close proximity to a train in a more urban location may be beneficial for one’s commute.

As appraisers we gather information to study the market and determine if such externalities have any effect on value or marketability, which is all part of the appraisal process. But why is it limited only to the obvious? In the world we live in today, people are more conscious than ever of the differences in the beliefs and cultures of others. If builders and agents are considering these factors then why are appraisers not permitted to do so and why is the law written in such a way that appraisers are expected to not report the obvious? We fear our reports will be deemed unethical or that underwriters will “send it back” for revisions.

Recently, I learned that the Multiple Listing Service (MLS) in my area has added “direction” as a drop down tool in the MLS report. The reason for this is not only for energy purposes, as taught in the early classes of appraising, but also for cultural purposes. It saves buyers and agents time if the property does not face the preferred direction, which can also be another selling factor. This is not discrimination; it is simply knowing your market and the driving forces of value and marketability. USPAP states that a report must be clear and not be misleading. I believe that leaving facts such as this out of an appraisal is misleading to a reader. The reader would not know that the subject property faces southwest and why that makes it worth far less. The same could be said for a reader of a dwelling located almost a mile from a synagogue and less desirable in this particular community. The reason appraisers report neighborhood boundaries is because neighborhoods and communities change over time, which in turn changes driving factors. This is a fact.

Additionally, the effective date of the appraisal is very important because neighborhoods and markets change over time. In the beginning of this article, I explained the owners of the dwelling in the Hindu community were the original owners when they purchased twenty years ago. Over the past two decades the local demographics have slowly changed and a large migration of people of Hindu culture settled in this area. The owners consequently saw the value of their property suffer due to no other reason than cultural belief (associated with the new neighborhood composition). The railroad was there twenty years ago, as it is today. However, the cultural belief was not. Therefore, as of the effective date of the appraisal today, as opposed to twenty years ago, the neighborhood dynamics and culture should be indicated in the report to support market value on the subject property.

I understand that not every community is as extreme a case as the two discussed here, but these types of communities do exist. If you “know your market,” then you will know that there are often clear cultural and religious factors that have an effect on value and marketability. As appraisers, we should be able to accurately state our knowledge in the reports without fear of appearing unethical.

But most appraisers would steer far and clear from indicating any of this in a report—out of fear. I remember taking a USPAP continuing education class and when the Ethics Rule was a topic of discussion I raised my hand and stated my concern. I can remember very clearly the gasps in the classroom and other classmates mumbling: “Oh no, you can’t say that!” Not one person in the class wanted to touch this topic with a ten foot pole! They all knew or encountered a similar situation, but none would ever want to state anything that had to do with race, religion, sexual orientation, familial status etc.

So what might you say is the solution? Well, it appears the only “safe” option is to tiptoe around the hard facts. If a property, for example, is located closer to a place of worship and it is understood that there is an increase in marketability with this type of location, than stating the property is located in a more “marketable” location may be a good way to report and adjust for this in your appraisal. You can also add that “due to close proximity to neighborhood attributes this is considered a more marketable location.” One could also try and locate comparable sales with a similar location. This way no adjustment would be needed.

In the case of the southwest facing direction, the appraiser may also consult a compass while taking comparable photos. I recently did this on another appraisal in an area with similar cultural beliefs as the community mentioned above. I found when viewing the comparable sales on the MLS, there were a few outliers that didn’t quite add up. However while in the field I realized the direction was the only difference between some properties. Therefore, when selecting comparable sales, properties with similar “direction” may be an important factor to consider or give more weight to when reconciling value to the subject property. Unfortunately, until the laws and regulations are written in a way that appraisers feel less fearful of sounding biased and unethical, the unspoken truths of value and marketability will continue to be a mostly silent factor.

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About the Author
Danielle Corriero-Lopez is a Certified Residential Appraiser covering the State of New Jersey, with extensive experience appraising the Jersey Shore. She has been appraising for over 10 years and has run her own appraisal office since 2009.

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