Examining omitted variable bias in anchoring premium estimates: Evidence based on assessed value

A new assessed value approach is proposed to control for the amount of persistent unobserved quality. The approach to a well‐established two‐stage framework developed by Genesove and Mayer (GM, 2001) is applied, who test the effect of an expected loss on final transaction prices in the housing market. It is shown that the assessed value model effectively mitigates the omitted variable bias and produces similar results as GM when the first‐stage residual is included. Importantly, the model does not rely on repeat sales and therefore provides a powerful new tool for estimating market value. Results are robust to alternative specifications, to controlling for loan‐to‐value ratios, to replacing final sale price with listing price, to alternative fixed effects, to subperiods, to different holding periods, to simulated quality, to excluding flippers, and to controlling improvements between sales.