Your Guide to the VA Loan Appraisal Process
Unlike a home inspection, which is optional but staunchly encouraged, a VA appraisal is mandatory when you’re buying a property with a VA loan. Once you’re under contract, your lender will contact the VA, which, in turn, will send out one of its certified appraisers to ensure that the home is on a par with the minimum property requirements set by the U.S. Department of Veterans Affairs. The appraiser will also verify the property’s market value, in other words, what the home is worth. They’ll do this through a thorough inspection and by comparing similar recently sold homes in the area. No doubt, you’ve heard your real estate agent mention “comps” on several occasions during your home search. The term stands for “comparable sales,” and it gives you a pretty accurate fair market value of the home because you’re comparing apples to apples and not to oranges. You want the house you’re buying compared to a similar split-level, three-bedroom home in your neighborhood, not a five-bedroom ranch with a swimming pool on a half-acre lot on the other side of town. As you can see, the appraisal serves two critical purposes: ensuring that the property is worth what you’re paying while verifying that it meets the VA guidelines along with those of your lender.
VA appraisal process
Now that you have an idea of the value of a VA home loan appraisal, let’s take a closer look at what’s involved in the process.
Scheduling an appraisal
Generally, your lender will request an appraisal early on in the loan process in case there are any issues found on the property that need addressing before the loan can move forward. But the VA takes care of actually scheduling and assigning an appraiser to the property.
The VA determines the turnaround time for appraisals, and it varies by state. However, no matter what state you’re in, appraisers have between five and 21 business days to complete their reports. Note that this doesn’t mean that the appraisal process is done within that timeframe. In a perfect world, yes, but the reality is that if the appraisal report shows that repairs are required to bring the property up to VA guidelines, then you can count on the process taking longer. And lenders have no say in the VA appraiser’s timeline or their conclusions.
VA appraisal fees
The VA sets the appraisal fees, but the property location and condition determine the amount. To give you an idea, in South Carolina, you’d pay about $425 to have a single-family home appraised while you’d have to shell out $1000 in Colorado. Condos, manufactured homes, and multi-family dwellings will cost more. You can check the maximum allowable fees in each state on the VA website.
The appraisal fee is part of the upfront fees for which you as the buyer are responsible. However, you can negotiate with the seller to see if they will reimburse you at the closing.
The appraiser’s report
The appraiser’s duties rely on attention to detail, and the final report will reflect that. VA appraisers must thoroughly inspect the property inside and out. For example, they must include perimeter sketches and photos of the home, and a location map. Appraisers typically look for structural issues or any other problems that could impact the property’s purchase. In addition, the appraiser must provide an itemized list of any repairs needed to get the VA loan approved.
Along with repairs, the list has to include the necessary corrections to make the property comply with VA regulations. Each appraised home must meet a series of standards established by the Veterans Administration known as minimum property requirements (MPRs). These include but are not limited to adequate roofing, working heating, cooling, and electric, and the property should be free of lead-based paint. Although the VA prefers that homes be move-in ready, unless the borrower found a newly built house, that’s often not possible. However, the appraiser must deem that the home is safe, sanitary, and structurally sound.
On the other hand, the appraiser can’t overreach. For instance, according to the VA guidelines:
The appraiser should not recommend repairs of cosmetic items, items involving minor deferred maintenance or normal wear and tear, or items that are inconsequential in relation to the overall condition of the property. While minor repairs should not be recommended, the appraiser should consider these items in the overall condition rating when estimating the market value of the property.
Simply put, the appraiser can’t ding a home’s value because he doesn’t like the color of the carpet or because the filter in the air conditioning unit hasn’t been changed in a few months.
To complete the report, the appraiser makes the estimated value of the property and then signs off.
Notice of Value (NOV)
According to VA requirements, every appraisal gets reviewed by either a VA staff appraiser or a lender’s Staff Appraisal Reviewer (SAR). When reviewing the appraisal report, the SAR determines whether the appraisal is complete, if it conforms to VA requirements and if the property value is reasonable. After assessing the appraisal report, the SAR usually has about five days to issue a Notice of Value (NOV). Of course, if the SAR has to request additional information from the appraiser, you can expect this process to exceed the five days.
The Notice of Value makes the home’s value official for the VA’s purposes and lists any issues that need correcting before the loan gets cleared for closing. Typically, these repairs must be completed and inspected again before the loan receives the green light to close. Check with your lender to see if it’s possible to make the repairs after closing.
What if there’s a problem with your VA appraisal?
No one ever said buying a house was a hassle-free venture. But, more often than not, you’ll get from point A to Z without any significant hitches. However, when complications arise, it’s best to be prepared. Here are a few hurdles you might have to clear to close.
The house doesn’t meet minimum property requirements (MPR)
If your appraiser determines that your future home doesn’t meet minimum property requirements, you’ll need to have those repairs made before you secure your VA loan. If you’re lucky, the seller will agree to pay for the repairs, but they’re under no obligation to do so. If they refuse, you have a few choices. You can either pay for them yourself, see if the seller will at least split the costs, or walk away and kill the deal. Your VA loan officer can help you weigh your options.
The appraisal came in lower than expected
The Department of Veterans Affairs guarantees VA home loans, so it wants to make sure the property you’re borrowing for meets its standards. If a VA appraisal comes in lower than the loan amount, that’s an issue. However, it’s not insurmountable. For instance, if the VA appraisal comes in $15,000 under the offer you made and the seller accepted, then the amount the VA will finance just dropped by $15,000. As the buyer, one option is to make up the difference between the price you buy the house for, and the appraisal amount out of pocket. That’s not an easy ask for most buyers. You might be able to negotiate with the seller to see if they would drop the price, but if you’re buying in a hot market, that seller won’t have the incentive to lose $15,000. That tactic might have a better chance if the house has been sitting on the market for a while. You might also try getting a Reconsideration of Value (ROV). Essentially, an ROV is an appeals process made available because the VA admits that not all appraisals are error-free. An ROV is not a new appraisal.
To initiate an ROV, first, speak to your lender and present evidence to support your request. Try to justify why the assessment of the property’s value might be wrong. For example, you could ask your agent to find comps closer to your expected price range. Also, make sure that no errors were made in valuation. Was the square footage calculated accurately? Were renovations and improvements taken into consideration? Does the home have a terrific view that might set it apart from a similar home that overlooks the neighbor’s garage? You could argue that there’s added value that should bump up the price. Depending on the evidence you provide, the appraisal could change in your favor. But if it doesn’t, then you’ll have to decide if the house is worth the extra money or if maybe you should cut your losses and look for another property. Either way, make sure you’ve discussed all of your options with your lender and real estate agent. They can help you determine your best course of action.
Final thought: Get your A-team in place
By the way, glitches like these are why you should work with a military-friendly real estate agent who understands the needs of a VA home buyer and who can help circumvent potential calamity. Between a lender who specializes in VA loans and a real estate agent well-versed in the particular needs of VA home buyers, you’ve surrounded yourself with a team that has your back when the appraisal process zigged when it was supposed to zag.