Information losses in home purchase appraisals
Abstract: Home appraisals are produced for millions of residential mortgage transactions each year, but appraisals are rarely below the transaction price. We exploit a unique data set to show that the mortgage application process creates an incentive to substitute the transaction price for the true appraised value when the latter is lower. We relate the frequency of information loss (appraisals set equal to transaction price) to market conditions and other factors that plausibly determine the degree of distortion. Information loss in appraisals may increase the procyclicality of housing booms and busts.
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2015-03-06
Pages: 37 pages