Are VA Appraisals Typically Low? What You Can Do
Demystify VA home loan appraisals. Learn how they work, what influences value, and your options if the appraisal is unexpected.
A VA home loan offers significant benefits to eligible service members, veterans, and surviving spouses, enabling home purchase with favorable terms. A fundamental step in this process involves a VA appraisal, which assesses the property’s value and condition. This appraisal ensures the investment is sound for both borrower and lender, protecting against financial risks.
Understanding VA Appraisals
A common question is whether VA appraisals typically result in a low valuation. The VA appraisal process establishes the home’s fair market value and confirms it meets the Department of Veterans Affairs’ Minimum Property Requirements (MPRs). MPRs ensure the property is safe, structurally sound, and sanitary.
The VA assigns a licensed appraiser from an approved panel, who works for the VA, not directly for the buyer or seller. This independence provides an unbiased opinion of value. While the appraiser determines fair market value based on VA guidelines, this valuation is distinct from a home inspection. An appraisal does not guarantee a home is free of all defects, but it confirms the property meets basic habitability standards.
The appraiser’s objective is to protect the veteran borrower from overpaying and ensure the home meets VA standards for safety and livability. This process can lead to an appraised value different from the agreed-upon purchase price, but this does not mean the appraisal is “low” compared to the actual market value for a property meeting VA standards.
Factors Influencing a VA Appraisal Value
A VA appraiser considers several elements when determining value, with comparable sales being a significant factor. Appraisers analyze recent sales of similar homes in the area to establish a baseline for market value. These comparable properties should be recently sold, geographically close, and share characteristics like size, age, and property type.
Adherence to the VA’s Minimum Property Requirements (MPRs) also heavily influences the appraisal. MPRs cover aspects such as functional electrical, heating, and cooling systems, and a roof in good repair with reasonable remaining life. They also require a clean and continuous water supply, sanitary facilities, and freedom from lead-based paint, wood-destroying insects, or significant structural defects. If a property fails to meet MPRs, the appraiser will note required repairs that must be completed before loan finalization.
General property condition, age, and location characteristics also play a role in valuation. Appraisers assess the home’s overall state, noting visible deficiencies or necessary updates. Market trends, including supply and demand in the local housing market, also influence the appraiser’s final determination of value.
Navigating an Appraisal Below Purchase Price
When a VA appraisal comes in below the agreed-upon purchase price, several options are available. The VA Amendatory Clause, mandatory in VA loan agreements, protects the buyer. This clause states the veteran is not obligated to complete the purchase or incur penalties, such as forfeiture of earnest money, if the property’s VA appraised value is less than the contract price. The buyer retains the option to proceed with the purchase.
The Tidewater Initiative is often triggered by a low appraisal. If the appraiser determines the property may appraise for less than the contract price, they notify the lender, allowing the buyer’s agent to provide additional comparable sales data for consideration before the final report is issued. This initiative provides an opportunity to raise the appraised value.
If the appraisal is finalized at a lower value, the buyer can request a Reconsideration of Value (ROV). This formal appeal process is initiated through the lender and requires providing new, strong comparable sales data that the original appraiser may have overlooked, or evidence of factual errors. While an ROV does not guarantee a higher valuation, it offers a chance to present additional market information for review. The process takes a few days to several weeks.
Beyond formal appeals, negotiation strategies between buyer and seller are common. The seller might agree to reduce the purchase price to match the appraised value, or the buyer could pay the difference, known as the “appraisal gap,” in cash. Sometimes, the buyer and seller agree to split the difference. If the home requires repairs to meet MPRs, the seller might complete them to facilitate loan approval. If an agreement cannot be reached, the VA Amendatory Clause allows the buyer to terminate the contract without penalty.