Publications

Housing Market Effects of Appraising Below Contract

A new Fannie Mae Housing Working Paper studies the causes and impacts of low appraisals relative to contract prices for potential purchase transactions in the period from September 2011 to August 2012. Using a unique data set that includes appraisals from both realized and unrealized sales, the authors find that 8.2 percent of all appraisals in this period came in 2 percent or more below the contract price. Compared to appraisals at or above contract, a low appraisal dramatically raises the probability that the buyer can renegotiate a better price, from 8 percent to 51 percent. The probability that the sale is delayed or canceled rises from 25 percent to 32 percent. The authors also find that low appraisals are partly driven by a lack of available comps, appraisers lagging recovering markets, an increased reliance on distressed sales, and atypical property characteristics that may be more difficult to accurately evaluate. Across the top housing markets, it is estimated that low appraisals have potentially decreased home prices by on average 0.2 percent (but as much as 0.8 percent) and resulted in, on average, 0.3 percent fewer purchase transactions (but as much as 1.3 percent) over the period studied.

To learn more, read our latest Fannie Mae Housing Working Paper: Housing Market Effects of Appraising Below Contract (PDF).