Foreclosure Discount, Homeowner Participation and The Effect of Biased Valuations

Gianluca Marcato, Are Oust and Endre Reite

ERES from European Real Estate Society (ERES)

Abstract: We study foreclosure discounts for all forced Norwegian house sales between December 2001 and February 2018. Micro-data from two Norwegian banks are further analyzed to shed light upon biased valuation methods. We estimate foreclosure discounts using an advanced statistical valuation model (AVM), repeated sales, and a real estate agent’s value estimate. We expand on earlier research by exploring how homeowner participation, centrality and the valuation method (human vs. automated valuation) adopted at origination are interlinked and contribute to the explanation of foreclosure discounts. Homeowners in rural areas are less likely to participate in foreclosure sales, and banks granting mortgages are less likely to employ AVM valuation. Our findings enrich research on biased valuations and link the bias in valuation methods with bias in banks’ valuation methods. Banks granting mortgages with a high loan-to-value ratio should exercise caution in rural areas while deviating from AVM valuation and calibrating their lending models considering risk differences.

Keywords: Forclosures; Housing Finance; mortgages; Valuation Methods (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2022-01-01
New Economics Papers: this item is included in nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
https://eres.architexturez.net/doc/eres-id-eres2022-260 (text/html)
https://architexturez.net/system/files/P_20220601115424_2607.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:2022_260

Access Statistics for this paper

More papers in ERES from European Real Estate Society (ERES) Contact information at EDIRC.
Bibliographic data for series maintained by Architexturez Imprints ().