Are VA Appraisals Low? Here’s What to Do About It

A VA appraisal is an assessment of a home’s value and condition, required when a buyer uses a VA loan. Its purposes are to establish fair market value and ensure the property meets safety and livability standards. This process helps protect both the borrower and the lender by ensuring the property is a sound investment.

Whether VA appraisals frequently come in low is a common concern for many involved in VA loan transactions. This perception arises because VA appraisals include unique requirements beyond a standard market valuation, which can sometimes lead to a lower appraised value than the agreed-upon purchase price or identify conditions needing repair. Understanding the VA appraisal process, its requirements, and potential outcomes is important for a smoother homebuying experience.

The VA Appraisal Process

The VA appraisal process begins after a buyer’s offer is accepted and a purchase agreement is in place. The buyer’s lender initiates the appraisal by submitting a request to the Department of Veterans Affairs, which selects a VA-approved appraiser from a rotating list. This ensures an independent assessment, as the lender does not directly choose the appraiser. The appraiser determines the home’s fair market value and verifies its compliance with VA Minimum Property Requirements (MPRs).

During the appraisal, the VA appraiser conducts an on-site visit. They assess the home’s interior and exterior condition, noting any deficiencies or necessary repairs. The appraiser also analyzes recent sales of comparable properties in the area to establish the home’s market value. This comparison involves looking at at least three similar homes that have sold recently.

Following the on-site inspection and comparable sales analysis, the appraiser compiles a report. This report details the home’s appraised value, its condition, and any required repairs to meet VA standards. The completed appraisal report is then submitted to the lender, usually within 10 to 14 days. The lender reviews this report to ensure it aligns with VA guidelines and supports the requested loan amount.

VA Minimum Property Requirements

VA Minimum Property Requirements (MPRs) are standards properties must meet to be eligible for VA financing. These requirements are distinct from a general home inspection and ensure the home is safe, sanitary, and structurally sound for the veteran buyer. MPRs protect both the borrower from purchasing an unsafe property and the lender by ensuring the loan is secured by a habitable asset.

MPRs include requirements for adequate roofing, ensuring it protects the structure from moisture. Mechanical systems, such as electrical, plumbing, and heating, must be functional and safe. For instance, a heating system must be capable of maintaining a temperature above 50 degrees Fahrenheit. The property must also have a safe water supply and an adequate method of sewage disposal.

MPRs also address potential health hazards. Properties built before 1978 with flaking or peeling paint are assumed to have lead-based paint and require remediation. Properties must be free from active pest infestations, such as termites, and any evidence of dry rot or fungus growth must be addressed. Access to the property from a public or private street is required. If a property fails to meet these MPRs, the appraiser notes the deficiencies, and these issues must be corrected before the loan can be guaranteed by the VA.

Reasons for a Low VA Appraisal

A VA appraisal might come in lower than the agreed-upon sale price for several reasons. One common factor is the appraiser’s interpretation of market data, particularly the availability and quality of comparable sales. Appraisers rely on recent sales of similar homes in the immediate area to determine value. If there are few recent sales of truly comparable properties, or if the most recent sales were lower, the appraiser may have limited data to support a higher valuation.

Market conditions also play a role in appraisal outcomes. In a rapidly shifting market, where home values are declining or stagnating, an appraisal might reflect this downturn even if the purchase agreement was negotiated during a more favorable period. A conservative appraisal could also be influenced by an oversupply of homes for sale, which can depress prices. While a VA appraiser’s conservatism is often perceived, it is driven by market realities and available data.

Beyond market dynamics, property conditions not violating MPRs can still impact a home’s appraised value. Outdated features, such as an older kitchen or bathrooms that are functional but not modern, might lead to a lower valuation compared to renovated homes. Similarly, excessive deferred maintenance, even if it doesn’t pose an immediate safety risk, can reduce the appeal and perceived value of the home. These aesthetic or non-structural issues can influence an appraiser’s final valuation, causing it to fall below the purchase price.

Options When a VA Appraisal is Low

When a VA appraisal comes in lower than the agreed-upon purchase price, several steps can be considered by both the buyer and seller. One avenue is to request a Reconsideration of Value (ROV). An ROV is a formal request to the VA for the appraisal to be reviewed, usually initiated by the lender on behalf of the buyer. To be successful, an ROV requires compelling evidence, such as additional comparable sales the original appraiser may have overlooked, or factual errors in the initial appraisal report.

Another approach is to negotiate the sale price. If the appraised value is lower than the purchase price, the buyer and seller can agree to reduce the price to match the appraised value. This adjustment allows the transaction to proceed without the buyer needing to cover the difference out-of-pocket, as the VA loan amount cannot exceed the appraised value. This negotiation can save the deal if both parties are motivated to close.

The buyer also has the option to cover the difference between the appraised value and the purchase price in cash. This scenario, often called making up the “gap,” means the buyer brings additional funds to closing to bridge the discrepancy. While this allows the sale to proceed at the original agreed-upon price, it requires the buyer to have sufficient liquid funds available beyond their initial down payment, if any, and closing costs.

If the low appraisal is due to property conditions or Minimum Property Requirements that need repair, the seller may agree to make the necessary repairs or offer concessions. For instance, if an MPR violation such as a damaged roof is noted, the seller might repair it to allow the VA loan to close. Alternatively, the seller could offer a credit to the buyer at closing to offset the cost of future repairs.

If the parties cannot agree on a resolution, the buyer may terminate the contract. VA loan contracts include an “escape clause” or VA appraisal contingency, which allows the buyer to walk away from the deal and retain their earnest money if the appraised value is less than the purchase price and the parties cannot reach a new agreement. This contingency protects the buyer from being obligated to purchase a home for more than its appraised value.