Appraising home purchase appraisals

Real Estate Economics - Tập 49 Số S1 - Trang 134-168 - 2021
Paul S. Calem1, Jeanna Kenney2, Lauren Lambie‐Hanson3, Leonard I. Nakamura4
1Bank Policy Institute Washington District of Columbia
2University of Pennsylvania Wharton School Philadelphia Pennsylvania
3Federal Reserve Bank of Philadelphia Consumer Finance Institute Philadelphia Pennsylvania
4Federal Reserve Bank of Philadelphia Philadelphia Pennsylvania

Tóm tắt

AbstractHome appraisals are produced for millions of residential mortgage transactions each year. In addition to preventing fraudulent transactions, an important benefit of appraisals when they report a value below the contract price is that they help borrowers renegotiate prices with sellers. However, appraised values are rarely below the purchase contract price: Some 30% of appraisals in our sample are exactly at the home price (with less than 10% of them below it). We construct a simple but intuitive model to explain how appraisers’ incentives within the institutional framework that governs mortgage lending lead to information loss in appraisals (i.e., appraisals set equal to the contract price). We also present new empirical findings relevant to the issue of appraisal accuracy, based on analysis of appraisal and contract price data and analysis of mortgage default patterns. One new finding—that the frequency of appraisal equal to contract price increases at the loan‐to‐value boundaries (notches) typical of mortgage pricing schedules—is, in fact, implied by our model. In addition, consistent with information loss or, more broadly, with the view that appraisals often artificially confirm the contract price, we find that mortgages with appraised value equal to the contract price are more likely to default.

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Real Estate Economics

Tập 49 Số S1

134-168

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