What Does a VA Appraisal Look for?

A VA appraisal is an important step in securing a VA home loan. This evaluation ensures the property meets specific standards and is appropriately valued, safeguarding both the veteran borrower and the Department of Veterans Affairs (VA). Unlike a general home inspection, a VA appraisal focuses on confirming the home is safe, structurally sound, and sanitary, while also establishing its market value.

Minimum Property Requirements

A VA appraisal centers on the VA’s Minimum Property Requirements (MPRs), which are the fundamental standards a property must satisfy for VA financing. These requirements protect veterans from purchasing homes with health risks, significant repairs, or lacking basic functionality. Appraisers examine the property’s interior and exterior to ensure compliance.

Safety

Properties must be free of immediate hazards to ensure safety for occupants. Issues include exposed electrical wiring, inadequate or missing handrails on stairs with three or more risers, and tripping hazards like buckling concrete. Homes built before 1978 with peeling or chipping paint require remediation for assumed lead-based paint. The property must also be free from pests like wood-destroying insects, fungus, or dry rot that can compromise structural integrity.

Sanitation

Sanitation requirements are also a significant component of MPRs. The property must have a continuous supply of safe, potable water for drinking and other household uses, along with domestic hot water. An approved method for sewage disposal, public or private, is mandatory. All bathrooms and sanitary facilities must be functional and in good condition.

Structural Soundness

Structural soundness is paramount, ensuring the home provides adequate shelter and long-term viability. The foundation must be stable, without significant cracks or ongoing settlement. The roof must be free of leaks, have a reasonable useful life, and protect the home from weather conditions; if it has three or more layers of shingles and needs repair, old layers typically must be removed before new ones are added. Walls, windows, and doors must be intact and functional, free from major defects. Basements and crawl spaces should be dry, clear of debris, and properly ventilated to prevent moisture and allow access.

General Habitability

General habitability standards ensure the property is suitable for daily living. A permanently installed heating system capable of maintaining a temperature of at least 50°F in areas with plumbing is generally required, though exceptions may apply in warmer climates; if a home has a wood-burning stove as a primary heat source, a conventional backup heating system is often necessary. While air conditioning is not typically an MPR, if an existing system is present, it must be operational. The home must have sufficient living space for basic functions. All mechanical systems, including electrical and plumbing, must be safe, operational, and meet local codes.

Accessibility and Location

Accessibility and location considerations also fall under MPRs. The property must have safe, year-round access for vehicles and pedestrians from a public or private street with an all-weather surface. If a private road is shared, a permanent easement and a maintenance agreement among users are typically required. The property should not be subject to excessive noise, hazards, or located in areas prone to natural disasters without appropriate mitigation, such as proper drainage to prevent water pooling or flood insurance in special flood hazard areas.

Valuation Considerations

Beyond the physical standards of MPRs, a VA appraisal also establishes the fair market value of the property. This valuation is a separate, yet equally important, component of the appraisal process. An appraiser determines this value primarily through the sales comparison approach, analyzing recent sales of similar properties in the local market.

Appraisers typically use at least three recently closed sales of comparable properties, ideally within the last six months, and generally not more than 12 months old. These comparable sales should be geographically close to the subject property and share similar characteristics such as size, age, style, and features. Adjustments are then made to the sale prices of these comparable properties to account for any differences, such as variations in square footage, number of bedrooms or bathrooms, quality of construction, or amenities. This process helps the appraiser arrive at an unbiased estimate of the subject property’s value.

Current market conditions, including supply and demand, also influence the appraiser’s assessment of value. The overall condition and appeal of the property, distinct from the basic safety and functional aspects covered by MPRs, contribute to its market worth. The appraiser’s goal is to determine a “reasonable value” that reflects what a qualified appraiser, free from personal interest, would recommend as a proper price in prevailing market conditions. Lenders will finance the lesser of the purchase price or the appraised value.

Addressing Appraisal Findings

Once the appraisal is complete, findings related to either MPRs or the property’s valuation may arise, requiring specific steps to move forward with the loan. If the appraiser identifies that the property does not meet certain MPRs, repairs are typically necessary. The appraiser will note these deficiencies in the report, and either the seller or the buyer must agree to complete the required repairs. A re-inspection is usually conducted by the appraiser to verify that all mandated repairs have been completed to VA standards before the loan can close.

If the appraised value comes in lower than the agreed-upon purchase price, this is known as a “low appraisal.” The VA has a specific process, often referred to as the “Tidewater Initiative,” which may be invoked by the appraiser. This initiative allows the lender and real estate agents a short window, typically 48 hours, to provide additional comparable sales data or market evidence that supports the higher contract price before the appraiser finalizes the Notice of Value (NOV).

Should the appraised value, as stated in the NOV, remain below the purchase price, several options become available. The buyer can attempt to renegotiate the sales price with the seller to match the appraised value. Alternatively, the buyer may choose to pay the difference between the appraised value and the purchase price in cash, though this amount cannot be financed into the loan. The VA loan program includes an “escape clause,” which permits the borrower to withdraw from the purchase agreement without penalty if the appraised value is less than the purchase price. If the Tidewater process does not lead to a sufficient increase in value, a formal Reconsideration of Value (ROV) can be requested through the lender, providing new or disputed data to support a higher valuation.