Financial Literacy Seminar Series

October 19, 2017

3:30 PM - 5:00 PM

Seminar III | Relationship Contracts and Reputation: Evidence from Residential Appraisers

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Sumit Agarwal

William G. Droms Term Professor of Finance
McDonough School of Business, Georgetown University

FinLit Talks: Interviews with Financial Literacy Thought Leaders


George Washington University School of Business
Duquès Hall, Room 652
2201 G Street NW
(main entrance on 22nd Street between G and H Streets)


Sumit Agarwal is William G. Droms Term Professor of Finance at the McDonough School of Business and a Professor of Economics (courtesy appointment) at Georgetown University. Previously, he was the Vice-Dean of Research and the Low Tuck Kwong Professor at the School of Business and a Professor in the departments of Economics, Finance and Real Estate at the National University of Singapore. He is also a Research Associate at Research Associate, Institute of Real Estate Studies, Center for Quantitative Finance, Center for Behavioural Economics, and Risk Management Institute. Before that he was a senior financial economist in the research department at the Federal Reserve Bank of Chicago and prior to joining the Chicago Fed, he was a senior vice president and credit risk management executive in the Small Business Risk Solutions Group of Bank of America.Sumit’s research interests include issues relating to financial institutions, household finance, behavioral finance, international finance, real estate markets and capital markets. He has published over fifty research articles in journals like the American Economic ReviewQuarterly Journal of EconomicsJournal of Political EconomyJournal of Financial EconomicsReview of Financial StudiesReview of Economics and Statistics Management ScienceJournal of Financial IntermediationJournal of Money, Credit, and Banking among others. Additionally, he has co-edited a collected volume on Household Credit Usage: Personal Debt and Mortgages. He writes regular op-ed’s in the Straits Times and is featured on various media outlets like the BBC, CNBC, and Fox on issues relating to finance, banking, and real estate markets. Sumit’s research is widely cited in leading newspapers and magazines like the Wall Street Journal, The New York Times, The Economist, and the U.S Presidents Report to Congress. He also runs a blog on household financial decision making called Smart Finance.


First, we document 42% of appraisals are at or near the contract value, while only 7.5% of the appraisals are below the contract value. Next, we study possible explanations for this phenomenon. We analyze the relation between the length of a business relationship at the appraiser–lender level and the quality of the appraisals by exploiting the appraisal contingency clause in the sales contract. Our results support reputation concerns: Appraisers are rewarded for delivering “high-quality” appraisals that facilitate housing transactions and are punished for low-quality appraisals. When the long-term relationship between appraisers and lenders is broken down by appraiser management companies, there are fewer above-contract and at-contract appraisals, which further supports the reputation concerns explanation.