Attribute (Mis)Reporting and Appraisal Bias
38 Pages Posted: 31 Mar 2020
Date Written: March 12, 2020
Property appraisers can purposefully inflate valuation estimates by misreporting the underlying attributes of subjects as well as comparable transactions selected to base their estimate. A property-level panel of appraiser reported attributes associated with 3.5 million loan applications from 2013 to 2017 is created to test whether attributes of the same property are consistently reported. We find that 98% of properties had at least one-of-seven attributes inconsistently reported, and that reporting errors were often consistent with systematic misreporting in order to inflate the valuation of subject properties. Our strongest evidence of purposeful misreporting was when an appraiser inconsistently reported attributes of the same comparable transaction selected to value different properties. We estimate highly leveraged borrowers whose appraisals had inconsistently reported attributes were 5-to-23% more likely to become seriously delinquent in their loan payments. This evidence indicates that appraisal bias is common and has significant consequences for lenders.
Keywords: appraisal, real estate market, mortgage, collateral valuation
JEL Classification: R31, G21, G28, K1
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