Three Essays on Real Estate Finance

This dissertation focuses on the mortgage default behavior and the valuation of distressed properties. Three essays are included.The first essay uses New Orleans foreclosure data, where each property has three appraisals, to investigate the factors affecting appraisal bias and accuracy, and to estimate the magnitude of appraisal accuracy for distressed properties. Our main finding is that the relation between the client and the appraiser affects valuation bias. Customer employed appraisers tend to give client friendly valuation than their court appointed counterpart. Experienced and licensed appraisers render less biased valuations; while appraisers specializing in lenders tend to give lender friendly valuation. Experienced and licensed appraisers also have more accurate valuation.The second essay conducts loan-level analysis to investigate the influence of expected foreclosure delay on a borrower's default propensity. The paper includes the actual foreclosure times in the analysis which also captures the dynamic nature of foreclosure duration over time. We document the increase in foreclosure duration in recent years. Consistent with the prediction of theory, we find a statistically and economically significant impact of foreclosure delay on borrower default behavior. The results are robust to various specifications such as state fixed effects, different measures for delays, and year fixed effects. For high initial combined loan-to-value ratio mortgages, the increase in delay has stronger impact on default and the effect is consistent across various loan types and borrowers with different credit scores.Expectations of housing prices play an important role in real estate research. Despite their importance, obtaining a reasonable proxy for such expectations is a challenge. The third essays proposes to use the transaction prices of Case-Shiller housing futures as an alternative "forward-looking" proxy. We compare the performances of four different expectation proxies in explaining borrower mortgage default behavior. The loan level analysis shows that the futures based proxy outperforms other measures by having the highest regression model fit as well as being the only measure that shows a significant negative effect on mortgage default behavior. In addition, the paper shows that futures contain additional information that is not present in the past housing prices.