What Will Fail a VA Appraisal on a Home?

A VA appraisal is a key step in the homebuying process for veterans. This assessment ensures the property meets specific safety, structural soundness, and minimum value requirements established by the Department of Veterans Affairs, aligning with standards necessary for VA loan approval.

Key Property Condition Requirements

The VA appraisal focuses on the property’s physical condition, adhering to the VA’s Minimum Property Requirements (MPRs). These requirements ensure the home is safe, structurally sound, and sanitary. Properties failing to meet these standards will not be approved for VA financing until necessary repairs are completed.

Safety issues are a concern for VA appraisers, as they directly impact occupants. Hazards like exposed electrical wiring, missing handrails, or inoperable smoke and carbon monoxide detectors can cause an appraisal to fail. Peeling or chipping paint in homes built before 1978 is an issue due to potential lead-based paint, requiring remediation. An unsafe outbuilding can also be flagged.

Structural integrity is another area reviewed by the appraiser to ensure the home’s long-term durability. Issues with the foundation, such as significant cracks or signs of settling, are noted and can require expert evaluation. The roof must be free of leaks, have adequate protection, and possess at least a few years of remaining useful life. Severe damage or signs of collapse in walls and ceilings, indicated by large cracks or water stains, also raise concerns.

Health and sanitation standards are enforced. Plumbing systems must be functional, without active leaks or non-functional fixtures, and sewage disposal must be safe and effective. Non-functional heating and cooling systems, or the absence of a permanent heat source capable of maintaining a minimum temperature (e.g., 50°F in plumbing areas), can lead to a failed appraisal. Evidence of pest infestations, such as termites, rodents, or excessive mold growth, requires treatment.

Essential utilities must be functional for the home to pass the appraisal. This includes a continuous supply of safe, potable water, working electricity, and proper sewage or septic systems. A property lacking these services is considered uninhabitable and will not meet MPRs. The appraiser checks if water and sewage systems are connected and operating.

Accessibility and proper drainage around the property are evaluated. The home must have safe pedestrian and vehicular access from a street with an all-weather surface. Proper drainage that directs water away from the foundation is necessary to prevent water damage and structural issues.

General condition and livability are considered. Severe deferred maintenance often indicates a home is not move-in ready. Broken windows are required to be repaired due to their impact on energy efficiency and safety. Homes must have sufficient living space for basic daily functions, including living, sleeping, cooking, and dining. Inaccessible attics or crawl spaces can be flagged if they prevent the appraiser from assessing the full condition.

Valuation and Market Considerations

A VA appraisal confirms the property’s adherence to Minimum Property Requirements and establishes its fair market value. The VA loan amount cannot exceed the lesser of the appraised value or the agreed-upon purchase price. If the appraised value comes in lower than the contract price, it can result in a failed appraisal from a lending standpoint, even if the property is physically sound.

Market conditions influence the appraised value, as appraisers rely on recent comparable home sales. Appraisers seek at least three similar homes in terms of size, age, and location that have recently sold to determine a value. A lack of suitable comparable properties or unique features of the home can make the valuation process more challenging.

The appraiser’s assessment considers how well the home’s features align with the surrounding neighborhood. If a home is over-improved compared to other properties, its appraised value might not reflect the full cost of those improvements. Conversely, under-improvement can also impact the valuation.

Addressing Appraisal Outcomes

When a VA appraisal identifies issues, whether related to property condition or valuation, several courses of action are available. If the appraisal notes deficiencies against the Minimum Property Requirements (MPRs), these repairs are required before the loan can close. Responsibility for these repairs falls to the seller, though the purchase contract or negotiations can shift this to the buyer, or it can be a shared cost.

Once required repairs are completed, a re-appraisal or re-inspection is necessary to confirm all issues have been addressed. Re-inspection fees are around $150. This step ensures the property meets the safety, structural, and sanitary conditions for VA financing.

If the appraised value is lower than the agreed-upon purchase price, several options can be explored. The buyer and seller can negotiate a reduced purchase price to match the appraised value. Another option is for the buyer to pay the difference between the lower appraised value and the purchase price in cash; this amount cannot be financed into the loan.

The VA Amendatory Clause, also known as the VA Escape Clause, provides protection for the buyer in cases of a low appraisal. This clause, a mandatory part of VA loan agreements, stipulates that the veteran is not obligated to complete the purchase and can withdraw from the contract without losing earnest money if the appraised value is less than the sales price.

Should issues be insurmountable or a mutual agreement cannot be reached, the buyer has the option to walk away from the purchase without penalty. The VA appraisal process aims to facilitate homeownership for veterans by ensuring a safe and fair transaction.