When Appraisers Go Low, Contracts Go Lower: The Impact of Expert Opinions on Transaction Prices

Hamilton Fout, Nuno Mota () and Eric Rosenblatt
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Hamilton Fout: Fannie Mae
Nuno Mota: Fannie Mae
Eric Rosenblatt: George Washington University

The Journal of Real Estate Finance and Economics, 2022, vol. 65, issue 3, No 4, 491 pages

Abstract: Abstract Using home purchase loan application data, we study buyer responses to the uncommon occurrence of the appraised value coming in below the contract price (i.e. a low appraisal), which sharply raises the probability of downward price renegotiation. We propose that two mechanisms drive the higher renegotiation rates. First, a liquidity channel, visible for financially constrained borrowers for whom a low appraisal impacts financing costs. Second, for financially unconstrained borrowers, we identify a news channel whereby the information content of the low appraisal alone induces borrower renegotiation. Importantly, we show that low appraisals result in lower renegotiated prices through these channels without a substantially lower likelihood of a loan application leading to loan origination or notably longer times from contract signing to sale.

Keywords: Mortgage Lending; Valuation; Collateral (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11146-020-09800-6

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