Opportunities to Improve the Value of Appraisals

Consumers pay for a property appraisal as part of obtaining a mortgage to finance the purchase of a home. The goal of an appraisal is to provide an unbiased estimate of collateral value that will help creditors and secondary market investors more accurately measure the risk of the mortgage. However, given that more than 90 percent of appraisals value the home at the contract price or higher, it is not clear the extent to which appraisals provide a meaningful check on risk. Additionally, accurate appraisal values should alert borrowers to situations where they have overpaid – with appraisal values below contract price disrupting some deals but also offering homebuyers opportunities to renegotiate to lower prices.

In two papers from Fannie Mae, we consider the issues of appraisal integrity and borrower protection. Hear from the authors in a related Perspective, and read the papers below.

Contract Price Confirmation Bias: Evidence from Repeat Appraisals (PDF)
Housing Market Effects of Appraising Below Contract (PDF)

The Version of Record of this manuscript has been published and is available in The Journal of Real Estate Finance and Economics August 13, 2019