What Is a Certificate of Reasonable Value (CRV) in Real Estate?
Learn about the Certificate of Reasonable Value (CRV), essential for VA home loans to ensure fair property value and protect borrowers.
A Certificate of Reasonable Value (CRV) is an official document issued by the Department of Veterans Affairs (VA) that provides an estimate of a property’s current market value. It is a specific requirement for purchasing a home with a VA-guaranteed loan. The CRV establishes the maximum amount the VA will guarantee for a home loan.
What a Certificate of Reasonable Value Is
A Certificate of Reasonable Value (CRV) is an official document generated as part of the appraisal process for VA-guaranteed home loans. Its core function is to establish the reasonable market value of a property, which then sets the ceiling for the VA loan amount. This document is also sometimes referred to as a Notice of Value (NOV).
The Department of Veterans Affairs requires a CRV to ensure the purchase price of a property aligns with its appraised value. This requirement protects both the veteran borrower from potentially overpaying for a home and the VA itself, as it guarantees a portion of the loan. The CRV is unique to VA loans and is not a component of conventional mortgage financing.
The Valuation Process for a CRV
The process of obtaining a Certificate of Reasonable Value begins when the lender orders an appraisal after a purchase offer has been accepted. A VA-approved appraiser is assigned from a panel to conduct the valuation. This appraiser is an independent professional trained and certified to evaluate properties for VA loans.
During the appraisal, the appraiser conducts a detailed inspection of the property’s interior and exterior. They assess the home’s condition, analyze comparable sales data from similar properties, and determine its fair market value. This assessment includes checking the property’s compliance with VA Minimum Property Requirements (MPRs).
Minimum Property Requirements are guidelines ensuring the home is safe, structurally sound, and sanitary. Examples of MPRs include functional electrical, heating, and cooling systems, adequate roofing without leaks, and safe drinking water with proper sanitation. The appraiser also checks for issues like lead-based paint in homes built before 1978 and ensures structural integrity, such as a stable foundation. After the appraisal, the CRV or NOV is issued, establishing the property’s value.
How the CRV Impacts VA Home Buying
The Certificate of Reasonable Value directly influences the financing and closing of a VA home loan. If the CRV’s determined value meets or exceeds the agreed-upon purchase price, the loan can proceed as planned. The VA’s guarantee is based on a value that supports the loan amount, allowing the transaction to move forward smoothly.
However, if the CRV comes in lower than the purchase price, several options become available to the buyer and seller. The seller might agree to lower the sale price to match the appraised value. Alternatively, the veteran buyer could choose to pay the difference between the CRV and the purchase price in cash, known as the appraisal gap. This difference cannot be financed into the VA loan.
Negotiation between the buyer and seller is common in such situations. The VA loan program includes an “escape clause,” which allows the veteran to withdraw from the contract without penalty if the appraised value is lower than the purchase price. If the buyer believes the appraisal is inaccurate, they can also request a Reconsideration of Value (ROV) or invoke the Tidewater Initiative, providing additional comparable sales data for review.