Under What Circumstances do First-time Homebuyers Overpay? — An Empirical Analysis Using Mortgage and Appraisal Data

Abstract

We study whether first-time homebuyers overpay for their homes and whether the magnitude of overpayment varies with the diligence of appraisers involved. We present a robust result that first-time homebuyers sort into smaller and cheaper houses, but that once observed and unobserved house characteristics are controlled for, they pay a premium compared to their more experienced counterparts. Our analysis additionally suggests that certain appraisals and appraisers might be able to mitigate this overpayment by inducing downward renegotiation. This research is among the first to contribute both theoretically and empirically to the literature on first-time homebuyers' sales transactions.