Deciphering the VA Lender’s Handbook Chapter 13 Part 2
Did you know that after an appraiser conducts an appraisal on the home you’re looking to buy (or sell), that another person has to review that appraisal to check for inaccuracies, inconsistencies, or other problems? The appraisal reviewer may be a member of the Lender’s staff or a VA appraisal reviewer. While you will not necessarily need to conduct a review yourself, it can be valuable to be apprised of the requirements that the VA has for reviewers and the guidance the VA gives them, because in the event that the appraisal shoots your ability to buy the home in the foot, you may seek grounds to challenge the appraisal. It’s hard to challenge it if you don’t understand it. Aside from that, however, it’s also good for you to understand as much about what’s going on behind-the-scenes as possible. Many dissatisfied customers are dissatisfied because of a misunderstanding of how decisions are reached and what goes into the process. If you get your expectations lined up correctly, they are less likely to be violated.
So, bearing all that in mind, the VA requires that the appraisal reviewer, whether from the lender or the VA itself, keeps up-to-date copies of the VA Lender’s Handbook and all other VA-issued directives and reference material that pertains to the VA Loan program. If the reviewer works for the lender, then they must also keep up-to-date copies of any material issued by the local VA field station. Reviewers must also clearly understand (and keep copies of) any applicable Federal statutes and VA regulations and real estate market sales data. In addition, the VA recommends any third-party publications that provide instructions for completing the appraisal report so the reviewer can see what the appraiser may have been using as a guide. In the event of any disagreements between VA materials and third-party materials, the VA materials are the trump card. The VA also recommends that the reviewer keep up-to-date on major real estate market conditions and trends.
The VA wants reviewers to keep up-to-date on these trends and market conditions because they need to be able to verify whether the judgement calls the appraiser made were reasonable. Since the fair value of the home being appraised is based partially on what comparable homes have sold for recently, it stands to reason that a general understanding of market conditions would be helpful in determining fair reasonable value. For example, perhaps the comparable homes were all sold around 6 months ago, but since then the market has risen dramatically. If the appraiser was aware of this but the reviewer was not, the reviewer might question the home value the appraiser settled on. The validity of the appraisal review depends a great deal on the reviewers level of knowledge on real estate market trends, particularly in the area that the home is located.
The appraisal review is a good thing – it is a way that the VA performs a sort of self-audit to make sure that not only licensed VA appraisers are doing their jobs correctly, but also that veteran borrowers are not the ones who are paying the price when the appraisers do not do their jobs correctly. The review also takes care of most problems that might occur before it comes to a point of needing to challenge the appraisal. Rather than have to pay for a second appraisal anytime the appraiser makes a mistake, the review catches these mistakes, accounts for them, and issues a Notice of Value that takes into account the mistakes and is a reasonable value for the home.
Ask your lender if they are enrolled in LAPP (Lender Appraisal Processing Program), which is what allows a lender to have an appraisal reviewer on their staff. If the appraisal reviewer is on your lender’s staff, they are more likely to be acutely aware of real estate market conditions in your area, where a VA appraisal reviewer may have knowledge of your specific area, but also may not. For example, in the town where I live, home prices are more expensive (much to my chagrin) than any of the other towns immediately to the south, even though there is only a difference of 7-8 miles.