In most U.S. schools, teachers are evaluated using observation of teaching practice (OTP). This study investigates rater effects on OTP ratings among 421 principals in an authentic teacher evaluation system. Many-facet Rasch analysis (MFR) using a block of shared ratings revealed that principals generally (a) differentiated between more and less effective teachers, (b) rated their teachers with leniency (i.e., overused higher rating categories), and (c) differentiated between teaching practices (e.g., "Cognitive Engagement" vs. "Classroom Management") with minimal halo effect. Individual principals varied significantly in degree of leniency, and approximately 12% of principals exhibited severe rater bias. Implications for use of OTP ratings for evaluating teachers' effectiveness are discussed. Strengths and limitations of MFR to analyze rater effects in OTP are also discussed.