Residential Real Estate Appraisal Bias in the Absence of Client Feedback

Abstract

Client and transaction price feedback, which implicitly includes client feedback, have been found to introduce an upward bias in appraisal judgments. However, new legislation such as the Dodd-Frank Act eliminates client influence on residential appraisers by introducing appraisal management companies as intermediaries between appraisers and lenders. In this study, we investigate whether the transaction price feedback-induced bias persists in the absence of client (lender) feedback. Using experimental design and residential expert appraisers, we find that the biasing effect of transaction price feedback on appraisal judgments has been eliminated. This indicates the effectiveness of the new legislation in reducing lender-induced residential appraisal bias.