Competition and Appraisal Inflation

  • James ConklinEmail author
  • N. Edward Coulson
  • Moussa Diop
  • Thao Le


In mortgage debt contracts, real property serves as collateral and the terms of mortgage financing are largely conditional on the certification of collateral value by appraisers. However, overstatement of collateral value is common in the appraisal industry, causing troubles in the mortgage market as observed in the recent crisis. In this paper, we examine whether competition in the appraisal industry affects appraisal bias. We model appraiser behavior given a loan officer’s preference for favorable appraisals (i.e. appraisal values at least as high as the transaction prices). As appraisers cater to loan officers to increase their probability of winning future business, our model predicts more inflated appraisals in more competitive markets. We confirm this prediction using a sample of purchase mortgages originated between 2003-2006 by a large subprime mortgage lender. Our results show that a one standard deviation increase in appraiser competition, measured at the MSA/year level, is associated with a 1.6–3.7 percentage point increase in the share of at-price appraisals. Furthermore, the effect is stronger in areas experiencing high house price growth.


Competition Appraisal bias Mortgages 

JEL Classification

G2 G01 G10 G18 D1 R2 



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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • James Conklin
    • 1
    Email author
  • N. Edward Coulson
    • 2
  • Moussa Diop
    • 3
  • Thao Le
    • 4
  1. 1.Terry College of BusinessUniversity of GeorgiaAthensUSA
  2. 2.UCI Paul Merage School of BusinessUniversity of California IrvineIrvineUSA
  3. 3.School of BusinessUniversity of Wisconsin-MadisonMadisonUSA
  4. 4.J. Mack Robinson College of BusinessGeorgia State UniversityAtlantaUSA

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