Do VA Appraisals Come in Lower Than Conventional?

When purchasing a home, many wonder if appraisals for Department of Veterans Affairs (VA) loans result in lower valuations than conventional loans. A VA appraisal is a specialized assessment of a property’s value and condition for veterans, active service members, and eligible surviving spouses using their home loan benefit. Conversely, a conventional appraisal determines a property’s fair market value for a traditional, non-government-backed mortgage. These differences stem from their distinct purposes and requirements.

The VA Appraisal Process

The VA appraisal process involves an independent, VA-approved appraiser who evaluates the property, ensuring it meets the Department of Veterans Affairs’ Minimum Property Requirements (MPRs) in addition to determining market value. MPRs are specific standards for health, safety, and structural soundness, requiring, for example, a functional electrical system, adequate roofing, and safe water access. The appraiser identifies any conditions not complying with MPRs. Upon completion, a detailed report culminates in a Certificate of Reasonable Value (CRV). This CRV establishes the VA’s determined value for the property, representing the maximum amount the VA will guarantee for the loan.

The Conventional Appraisal Process

The conventional appraisal process focuses on determining the property’s fair market value for the lender; a licensed appraiser conducts this assessment to ensure the loan amount aligns with the collateral’s value and to assess mortgage risk. Conventional appraisers analyze recent comparable sales (comps) to establish market worth. They also consider the property’s condition, location, and features, noting defects that could impact value. While safety hazards are observed, the conventional appraisal does not adhere to the detailed property standards of a VA appraisal. Its objective is to provide an unbiased opinion of value reflecting what a willing buyer would pay in the current market.

Comparing VA and Conventional Appraisal Outcomes

VA and conventional appraisals differ in focus. A conventional appraisal prioritizes market value, and minor deficiencies might not significantly affect the valuation if typical for the area. In contrast, a VA appraisal strictly enforces MPRs, meaning any identified health, safety, or structural issues must be addressed. If a property requires repairs to meet VA MPRs, the appraiser may factor the estimated cost of these repairs into the valuation or stipulate that repairs must be completed before closing. This can result in a lower “as-is” value or a conditional valuation, as the VA’s stricter property condition requirements ensure a safe and sound living environment for the veteran.

Addressing a Lower VA Appraisal

When a VA appraisal is lower than the agreed-upon purchase price, specific procedures address the discrepancy. One mechanism is the “Tidewater Initiative.” If the appraiser anticipates the valuation will fall below the contract price, they may invoke Tidewater, notifying the lender or agent. This provides a window for parties to submit additional comparable sales data to support a higher purchase price. If the CRV is issued below the contract price after Tidewater, a formal appeal, a Reconsideration of Value (ROV), can be pursued, allowing the buyer or seller to challenge the appraisal by providing new, relevant comparable sales or pointing out factual errors. Other options include the seller lowering the purchase price to match the appraised value, or the buyer paying the difference in cash.