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Alternative Theories of Appraisal Bias

Author

Listed:
  • C. Y. Yiu
  • B. S. Tang
  • Y. H. Chiang
  • L. H. T. Choy

Abstract

This paper reviews the literature on appraisal bias and summarizes three hypotheses for systematic bias: behavior contention, options-value, and different-base-of-valuation. A case study based in Hong Kong is presented that portrays empirical evidence of appraisal bias in land premiums. Land premium appraisals are analyzed because they can help keep the depreciation factor constant and provide good pairs of transaction price and estimate. These appraisals are collected from published estimates, which eliminate the client-agent heuristic. Among the 343 appraisals of land premiums for 109 auctions of land in Hong Kong from 1991 to 1999, evidence of an 8% systematic appraisal downward bias is found in appraisers' estimates against the final bid prices. Although it can be explained plausibly by appraiser-behavior contention, there is also empirical evidence supporting the other two hypotheses.

Suggested Citation

  • C. Y. Yiu & B. S. Tang & Y. H. Chiang & L. H. T. Choy, 2006. "Alternative Theories of Appraisal Bias," Journal of Real Estate Literature, Taylor & Francis Journals, vol. 14(3), pages 321-344, January.
    • Handle: RePEc:taf:rjelxx:v:14:y:2006:i:3:p:321-344
    DOI: 10.1080/10835547.2006.12090188
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