When a mortgage lender is considering extending a VA loan, the borrower isn’t the only one that must pass muster. The property must also meet certain standards, and it’s the VA appraiser’s job to verify that it does. What does a VA appraiser look for? Whether you’re a buyer eager to utilize a VA loan to purchase your dream home or a seller interested in closing the deal with someone who is relying on this form of funding, it’s only natural to wonder what the appraiser considers when completing their evaluation.
What Does a VA Appraiser Look For?
A housing benefit offered by the U.S. Department of Veterans Affairs (VA), VA loans are issued by private lenders and guaranteed in part by the VA. This home loan program is designed to make the goal of homeownership more attainable by providing eligible borrowers with the chance to secure home loans with favorable terms. However, its help doesn’t stop there. As the VA News Blog explains, it also takes steps to ensure that the properties purchased with these loans are safe, livable, sanitary, and marketable. In fact, that’s the purpose of a VA appraisal. A VA appraisal has two parts: an assessment of the property’s habitability and a valuation. So what does a VA appraiser look for?
The VA’s Minimum Property Requirements
As the VA indicates, its appraisal is not a substitute for a home inspection. Where a home inspection involves casting a critical eye over a property to identify any issues with the structure or its major systems, a VA appraiser’s examination is more basic. Their goal is to ensure that the home meets the VA’s Minimum Property Requirements (MPRs), a set of standards designed to ensure that homes purchased with VA loans are safe, functional, and ready for immediate habitation.
The VA appraiser completes an MPR form that is included in their appraisal report. Any property purchased with a VA loan must comply with the MPRs. If a property does not, the necessary repairs must be made before the VA loan can be approved. According to Military.com, a property must meet standards like the following to avoid running afoul of the MPRs:
- The property must be a single, marketable piece of real estate that is accessible and has no physical defects or deferred maintenance.
- The home must be structurally sound and free of hazards like mold, rot, lead paint, exposed wires, and shoddy construction. In addition, there can be no evidence of continuing settlement or termites or other pests.
- The structure must be at least 75 percent residential space and include a bathroom and spaces for living, cooking, dining, and sleeping.
- The roof must be leak-free and in good condition.
- Any attics, basements, or crawl spaces must be free of moisture and debris and provide adequate space to make necessary repairs to any electrical, plumbing, or ductwork systems that are present.
- There must be proper utilities throughout the property, and the water supply must be safe and continuous.
- All mechanical systems must be safe, properly sized, appropriated protected, and in good condition.
- Separate shutoffs must be present for the water, sewer, gas, and power.
- The site must feature proper drainage and stable ground cover.
The Valuation
While a VA appraisal does include a superficial examination of the property’s condition, its main purpose is to identify and report the market value of the home. How does the appraiser do that? After reviewing the specifics of the property, the appraiser compares it to the prices paid for similar home in sales completed within the last year. As Military.com notes, this is a bit of an art. While gaining access to the relevant numbers and statistics is fairly easy, it is rare for two homes to be identical. A wide variety of factors can add or detract from a home’s value.
What does a VA appraiser look for when valuing a property? The structure’s square footage, its overall condition, the number of bedrooms and bathrooms it contains, the appliances and amenities it includes, the view its residents enjoy, and the size and location of the lot that it sits on all impact the property’s market value and must be considered during the appraisal process.
The Completion
To secure a VA loan, the appraised value of the property must be equal to or greater than the sales price.
If the appraiser believes the appraisal will fall short of the purchase price, they will contact the lender to notify them that they are invoking the “Tidewater Initiative,” also called a Reconsideration of Value. By using this strategy, the appraiser gives the parties involved a chance to provide additional information that the appraiser might have missed and that might change the appraiser’s opinion of the home’s value before the appraisal’s completion. The Tidewater Initiative also helps to limit the number of appraisal rebuttals, making it a win-win system. Typically the process works like this:
- The appraiser notifies the lender’s point of contact of the invocation of the Tidewater Initiative. The appraiser cannot discuss the contents of the appraisal.
- The lender notifies the realtors of the Tidewater Initiative and requests comps that support the property’s value. The lender then enters this sales data (in a similar format to the comparable sales grid on the report) and provides verification that these comparable sales actually closed. Within two days, the lender must send this data to the appraiser.
- The appraiser reviews the additional information and updates the appraisal as necessary, making a final decision on the home’s value. The completed appraisal is provided to the veteran.
Tidewaters are not uncommon, and in many situations they are a positive step in the process, so long as everyone involved understands how they work and moves quickly.
If the appraisal comes in low, the buyer can challenge it using an appraisal rebuttal. What does a VA appraiser look for in a rebuttal? Recent, compelling data and the sales prices of comparable homes.
Finally, if the rebuttal is unsuccessful, the buyer has three choices: They can negotiate with the seller for a lower sales price, pay the difference between the appraised value and the sales price at closing, or walk away from the sale.
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Are you ready to learn more about VA loans? Reach out to PrimeLending of Manhattan, Kansas. Whether you’re interested in buying or refinancing, our expert team can help you make the best use of your housing benefits. Contact us today to make an appointment.
