Deciphering the VA Lender’s Handbook Chapter 10 Part 6
This article is supplementary to Chapter 10 Part 5 and Chapter 10 Part 4, in that those articles cover properties that are eligible for a VA appraisal and properties that are not eligible for VA appraisal. This article covers other situational variables that may prevent an appraisal from being performed on a property, even if the property is eligible for a VA appraisal. Your lender should be familiar with these restrictions, and should inform you if an appraisal is not required or available for the property you are hoping to purchase. However, you can save yourself time, effort, and even money if you can spot the red flags before the lender. Some of these things are going to be beyond notice, but being prepared for them is the best practice.
First, the VA does not allow duplicate appraisals. If a new appraisal is requested on a property that has already had a valid VA value determination made on it, it will be rejected. The reasoning of this should be fairly obvious, but it also helps save the veteran borrower money, since the veteran is the one who pays for the appraisals. If the property is being appraised as either “proposed or under construction” or “new construction”, the builder must provide a valid builder ID in order for a VA appraisal to be requested on the property. This builder ID demonstrates that the builder of the home is VA approved. For builders to maintain this ID number, they need to have filled out certain VA forms and have acceptable business practices. If a builder does not have this builder ID, then an appraisal request will not be granted.
Related to the builder having a valid builder ID, all of the parties must also be in good standing with the VA. More specifically, the Handbook provides the following clarification:
A property is ineligible for VA appraisal if any party of interest to the transaction, other than the purchaser, is debarred Government-wide, or otherwise excluded from participation in the Loan Guaranty program due to a VA-imposed sanction.
The VA will impose a sanction on a party if they substantially prejudice against veterans or the government. Common ways they can do this is by failing to correct justified construction complaint items, violating the VA minimum property requirements, deviating from the building plans without VA approval, failing to honor their obligations in regards to houses previously built, or using a sales contract or marketing techniques that the VA considers to be unfair, unethical, or maliciously targeted towards veterans or the government. In the event that the sanctioned party is a builder, the restriction on the builder applies to all of the properties still owned by the builder. The VA will not grant exceptions even if a fee inspector approved the work on which the sanction was based, or the builder changes the company’s name or organization or becomes a principal or officer in another organization. Your lender will be aware of any builders on the sanctioned list, so you will not be accountable for that.
If there are building codes that apply to the home, evidence needs to be provided that the home meets those codes, or the notice of value from the appraisal will be conditioned on such evidence being provided. Also, at times when the VA is under a heavy workload, they may stipulate that only veterans who have signed a purchase agreement can make appraisal requests. This filters out those who are still not sure they are going to purchase the property being appraised. Also, VA builders will also like to know that their request for a “master” appraisal for all of the units in a development may be denied if the local VA office is under a heavy workload and the VA has reason to believe that only a minority of the units in the development will be financed with VA loans. If the home is in an area where there is no qualified VA or HUD fee inspector, the property cannot be appraised until it qualifies as a new construction or existing construction. Since many VA lenders are not willing to finance construction loans anyway, this does not come up very often.