Self-Reported Dwelling Valuations – How Accurate Are They?

Owners' valuations of dwelling prices are central in construction of price indices, empirical research of housing markets and households' economic behavior. Previous studies show that, on average, owners tend to overestimate the value of their dwellings by 5% relative to market valuation. We analyze the variation of the bias over the distribution of dwelling sale prices, using a unique dataset of more than 22,000 observations from Israel's Household Expenditure Survey, from 1997 to 2008, merged with the national sample of housing sale transactions by census tract. We find that self-reported estimates of dwelling values are, on average, 27% higher than the mean market prices of houses in the corresponding census tracts. Strikingly, the valuations of inexpensive and costly dwellings are biased in different directions: estimates reported by people who occupy dwellings in the lowest eight deciles of the price distribution are upward-biased, whereas those who live in the most expensive dwellings more typically understate the value of their homes. The self-reported valuation bias is systematically associated with owner's traits as well as with dwelling and neighborhood characteristics. The frequency of dwelling sales in the respondent's tract was found to have an effect on the self-reported valuation bias.