VA Appraisals: Everything You Need To Know
In the real estate world, VA appraisals have a bad reputation. The majority of these ideas are based on misconceptions about the VA Loan. The appraisal will look at two things when it comes to the property you’re buying. Appraisals are performed primarily for the lender to ensure that the home is worth the amount of money being loaned to you and that the property meets VA home loan requirements.
An appraisal’s main purpose is to determine “fair market value.” Lenders will only lend based on the home’s value. The lender will determine your loan amount based on the lesser of the appraised value on the property or the purchase price of the home after the appraisal is returned. If your appraisal is higher than the price you gave for the house, your loan will be based on the purchase price. If the appraised value of the home is less than the purchase price, the financed loan amount will be determined by the appraised value of the home.
Comparable properties are created by VA appraisers looking at homes that are similar in size, age, and location to the one you’re buying. The goal of an appraiser is to have at least three homes that are comparable to the home you’re buying. They’ll utilize these properties to determine the home’s fair market value. Variations in property condition, size, and other factors will be taken into account.
What If The Appraisal Is Low?
If an appraisal for a VA loan comes in low, you have two choices for regaining the home’s value or purchase price listed on the contract. Those two choices are Tidewater and Reconsideration of Value.
When the appraised value of a home falls below the buyer and seller’s agreed-upon purchase price, the Tidewater Initiative (or Tidewater for short) is implemented. . If the VA appraiser believes the property value will fall short of the purchase price, the Tidewater initiative will be Invoked. As a result, it’s simply a request for more information. The home hasn’t been given a value at this point as the appraiser could use the information the buyer and/or their Real Estate Agents Provide.
Reconsideration of Value (ROV)
What if the appraiser made an honest mistake, not only in factoring dissimilar properties but also in miscalculating or ignoring any value-adding characteristics such as a remodel? What if the square footage was merely miscalculated? Humans make mistakes all the time. Fortunately, a Reconsideration of Value is the option of an appeal for an assessment argument. You’ll need to consult with your real estate agent and your lender on how to proceed with an ROV.
There are a few options for presenting your case. You may provide three comparable sales in the area that were not included in the first appraisal and closed before the appraisal report was completed (in other words, homes that sold recently). They’ll need to be entered into a specific Reconsideration of Value grid, along with MLS printouts and a brief narrative that explains why the comparisons you’re choosing are more relevant than the comps the appraiser used.
You can also point out any flaws in the appraisal report, such as arguing that the appraiser’s comparable properties were not comparable to the property you’re trying to buy. You could say, for example, that the two properties are not the same size, age, or condition. A letter from the borrower explaining why the appraised value should be enhanced is also required by the ROV.
What are your choices if the appraisal is still low?
- Request that the seller reduces the price. Given that their home is worth less than what you offered to pay, you can ask the seller to reduce the sales price. Most sellers do not want to lose a motivated buyer, so they may be willing to make a minor price reduction.
- Seek a Value Reconsideration. Because the VA recognizes that appraisal values can be faulty, buyers can request a Reconsideration of Value. Your lender and real estate agent will need to provide more recent comparable home sales that were not included in the original appraisal.
- Make up the shortfall in cash. You can also choose to pay the difference between the appraised and loan values in cash. Before grabbing this straw, use caution. Paying more than a home is worth may not be a wise investment.
- Get out of the deal. Because of the VA Amendment to Contract, prospective VA buyers can walk away from a contract with their earnest money intact. This document protects a VA buyer’s earnest money if the property’s appraised value is less than the purchase price.
This contract protects a VA buyer’s earnest money if the property’s appraised value is less than the purchase price.
Property condition will also be an important factor in the appraisal. The VA minimum property requirements, sometimes known as MPRs, must be met by all properties. The purpose of a VA appraisal is to guarantee that homes are structurally sound and free of health risks. This means that the veteran must be able to move in immediately, with working water, electricity, and other important systems.
MPRs are made up of
- A sufficient amount of heat to sustain a temperature of 50 degrees Fahrenheit
- Utilities are in good working order throughout the property.
- There are no signs of termites or other wood-destroying insects.
- The roof must be in good condition.
- If there’s a basement, there can’t be any signs of moisture.
- Crawlspaces must be accessible and free of debris and moisture.
- There is no Lead-Based Paint.
- There are no potential hazards, such as faulty or non-existent stair railings or exposed wiring.
- Access to the house and property is easy.
- Physical flaws in neglected property maintenance are not present.
An MPR form will be completed by the appraiser and included in the appraisal. This can be compared to a home inspection for a VA buyer. While a home inspection is not necessary for a VA loan, the basic property requirements are in place to guarantee that now the veteran is obtaining a safe and habitable house. If any of these items are not up to VA Standards they will need to be repaired prior to the VA Loan being approved by the lender.