Appraisal overvaluation: Evidence of price adjustment bias in sales Comparisons

Abstract

Home appraisal came under scrutiny for contributing to the home‐price bubble and enabling the origination of risky mortgages that led to the post‐2006 foreclosure crisis. Subsequent regulations tried to minimize or eliminate conflicts of interest and improve valuations. Nonetheless, our study of appraisals completed in 2015 and 2016 find that appraisal bias still occurred. Our analysis delves into the underlying appraisal development to identify causes of appraisal bias. Contributing factors are that comps are generally higher valued than the subject property, and appraisers are more likely to comparatively adjust upward lower priced comps but less likely to adjust downward higher priced comps.