Appraising Home Purchase Appraisals

Paul S. Calem, Lauren Lambie-Hanson and Leonard Nakamura

No 17-23, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Home appraisals are produced for millions of residential mortgage transactions each year, but appraised values are rarely below the purchase contract price. We argue that institutional features of home mortgage lending cause much of the information in appraisals to be lost: some 30 percent of recent appraisals are exactly at the home price (with less than 10 percent below it). We lay out a novel, basic theoretical framework to explain how lenders? and appraisers? incentives lead to information loss in appraisals (that is, appraisals set equal to the contract price). Such information loss is more common at loan-to-value boundaries where mortgage insurance rates increase and appears to be associated with a higher incidence of mortgage default, after controlling for pertinent borrower and loan-level characteristics. Appraisals do, in some cases, improve default risk measurement, but they are less informative than automated valuation models. An important benefit of appraisals reported below the contract price is that they help borrowers renegotiate prices with sellers.

Keywords: Information; Mortgage; Regulation; Appraisal; Mortgage Default; Foreclosure (search for similar items in EconPapers)
JEL-codes: D81 G14 G21 G28 L85 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2017-07-31
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2017/wp17-23.pdf (application/pdf)

Related works:
Journal Article: Appraising home purchase appraisals (2021)
Working Paper: Appraising Home Purchase Appraisals (2018)
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:fip:fedpwp:17-23

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().