Real Estate Appraisal and Transaction Price: An Empirical Evaluation of Alternative Theories

Carl Gwin, Seow Ong and Andrew Spieler

Journal of Housing Research, 2004, vol. 15, issue 1, 29-39

Abstract: Mortgage appraisals are often required before a loan is approved. If information on the transaction price is available and lenders compensate appraisers, a principal-agent problem may arise. As a result, appraisers tend to overstate the value of a property because of their incentive to set the appraised value to be equal to (or greater than) the transaction price (Gwin and Maxam, 2002). This paper offers an alternative theory that generates a different empirical prediction. The theory is predicated on the updating appraisal process ala Quan and Quigley (1991) and a signaling modification to Gwin and Maxam (2002). Empirical tests to the theoretical moral hazard model postulated by Gwin and Maxam and the alternative theory herein is conducted using appraisal and transaction data from a lending institution in Singapore. The results support the alternative specification.

Date: 2004
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DOI: 10.1080/10835547.2004.12091961

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