Attribute (Mis)Reporting and Appraisal Bias

Abstract

We assemble a property-level panel of appraiser reported attributes associated with 4.6 million loan applications from 2013 to 2017 to test whether attributes were consistently reported. Appraisers have an incentive to misreport property attributes to justify higher appraised values to ensure associated mortgage loans are approved. We find evidence of discrepancies in reported attributes consistent with an intention to inflate valuations, even when restricting to those recently reported by the same appraiser. Purposeful misreporting is identified in cases where appraisers who report attributes of the same comparable transaction as inferior when the associated subject property's contract price exceeds alternative value estimates. We estimate that highly leveraged borrowers whose appraisals had inconsistently reported comparable transaction attributes were 13.3-14.3% more likely to become seriously delinquent in their loan payments.

Keywords: appraisal, real estate market, mortgage, collateral valuation

JEL Classification: R31, G21, G28, K1