The results presented in this paper provide new evidence to explain the large overvaluationof Spanish real estate assets. The current appraisal mechanism relies on the incentives of banks and appraisal companies. While the average loan to appraisal value was 82%, close to the maximum level recommended by the Bank of Spain, the average ratio of loan to marketprice was around 110%. This divergence is based on the overvaluation bias derived from theuse of appraisal values, which can be explained by two factors: i) the incentives of appraisalcompanies, and ii) the application of the valuation methodology. Official housing pricesincorporated this overvaluation bias, generating spillover effects that exacerbated the housingbubble. A possible solution could be to limit mortgages to 80% of the Registry price.