J Real Estate Finan Econ (2012) 44:153–166 DOI 10.1007/s11146-010-9290-z Distressed Properties: Valuation Bias and Accuracy Shuang Zhu · R. Kelley Pace Published online: 16 November 2010 © Springer Science+Business Media, LLC 2010 Abstract Using New Orleans foreclosure data, where each property has three appraisals (borrower, lender, and referee), we are able to investigate the factors affecting appraisal bias and accuracy for distressed properties. Un- conditional analysis shows that on average lender appraisals are higher than referee appraisals, while borrower appraisals are lower than referee appraisals. Much of the bias could be explained by various client and appraiser character- istics. The relation between the client and the appraiser affects valuation bias. Customer employed appraisers tend to give more client friendly valuations than their court appointed counterparts. However, experienced and licensed appraisers render less biased valuations. The appraisal bias does not appear to depend on neighborhood and demographic characteristics. In addition, expe- rienced and licensed appraisers provide materially more accurate valuations. Unlicensed, inexperienced appraisers have an error rate approximately four times worse than licensed, experienced appraisers. Keywords Appraisal bias · Appraisal accuracy · Distressed property · Foreclosure S. Zhu (B ) · R. K. Pace Department of Finance, E.J. Ourso College of Business Administration, Louisiana State University, Baton Rouge, LA 70803-6308, USA e-mail: szhu4@lsu.edu R. K. Pace e-mail: kelley@spatial.us