What Does a VA Appraisal Consist Of?

A VA appraisal is a mandatory step for properties financed with a VA home loan. This evaluation determines the fair market value of the property. It also confirms the property meets specific safety, sanitation, and structural soundness standards established by the Department of Veterans Affairs. This process is distinct from a home inspection, as it primarily serves the interests of the lender and the VA, rather than solely the buyer.

The Purpose and Scope of a VA Appraisal

The primary goal of a VA appraisal is to protect both the veteran borrower and the Department of Veterans Affairs. It safeguards the veteran from purchasing a home that is unsafe, unsanitary, or structurally unsound. Simultaneously, the appraisal protects the VA by ensuring the property serves as adequate collateral for the loan.

While the appraisal assesses the property’s condition against baseline habitability standards, an appraiser focuses on readily apparent deficiencies that impact safety, sanitation, or structural integrity. The appraiser’s role is to confirm the property meets minimum requirements and is worth the loan amount.

Key Elements of the VA Appraisal: Minimum Property Requirements

The VA appraisal evaluates the property against the VA’s Minimum Property Requirements (MPRs). These standards ensure the home is safe, sanitary, and structurally sound. Appraisers look for issues that would compromise these fundamental aspects of the home.

Safety requirements address various potential hazards within the property. The electrical and heating systems must be safe and functional, with an appraiser looking for issues like exposed wiring or inadequate heating. Structural integrity is assessed, examining the foundation, roof, and walls for significant defects like large cracks or leaks that could impact the home’s stability. Additionally, hazardous materials such as visibly deteriorating asbestos or chipping lead-based paint in homes built before 1978 must be addressed due to health risks.

Sanitation standards focus on ensuring a healthy living environment. This includes verifying a potable water supply, whether from a municipal source or a well that meets quality standards. Proper sewage disposal, via a public sewer system or an adequate septic system, is also checked to prevent health hazards. Proper drainage around the foundation is observed to prevent water accumulation and potential damage.

Soundness requirements encompass the overall condition and functionality of the property. The appraiser looks for evidence of active pest infestations, such as termites or carpenter ants, which can compromise structural elements. All utilities, including water, electricity, and gas, must be in working order. The property must have adequate living space and safe access from a public street or permanent easement.

Assessing Property Value and Marketability

Beyond property condition, the VA appraisal also determines the property’s fair market value. This ensures the purchase price is justified and protects the veteran from overpaying. The appraiser uses the Uniform Residential Appraisal Report (URAR) form and relies on the sales comparison approach.

This approach involves analyzing recently sold comparable properties in the same market area. Appraisers seek at least three comparable sales that are similar in size, age, and location. Adjustments are then made to the comparable sales prices to account for differences in features, such as the number of bedrooms or bathrooms, lot size, cosmetic condition, and specific amenities.

Marketability also considers factors influencing a property’s appeal to a typical buyer. While MPRs cover basic habitability, marketability reflects whether the property could be easily sold in the future. This assessment ensures the property not only meets safety and structural standards but also holds value in the broader real estate market.

Understanding the Appraisal Outcome

Once complete, the Department of Veterans Affairs issues the Notice of Value (NOV). This document outlines the property’s appraised value and details any required repairs or conditions based on the appraiser’s findings regarding MPR compliance.

Several outcomes are possible following the issuance of the NOV. The property may meet all MPRs and appraise at or above the purchase price, allowing the loan process to continue. In other cases, the NOV might stipulate that repairs are necessary to bring the property up to MPR standards.

A separate scenario arises if the property appraises below the agreed-upon purchase price. For such discrepancies, the VA Amendatory Clause protects the buyer. This clause allows the buyer to withdraw from the contract without penalty if the appraised value is less than the purchase price, unless the seller agrees to lower the price or the buyer pays the difference in cash.