VA Lender’s Handbook Chapter 11
Chapter 11 in the VA Lender’s Handbook is about the VA appraisal, which is an important thing for any VA borrower to be familiar with. The Handbook is written with lenders in mind, which means they often use technical terms that borrower may not be familiar with and it provides a lot of information that is not applicable to borrowers. This makes the Handbook a difficult and sometimes frustrating read for borrowers trying to learn the ins and outs of the VA loan program. That is why we have written a great deal of articles that go through the Handbook chapters by chapter to give you all the information that the Handbook provides that you need to know. However, each chapter has 5 or more articles dedicated to it, so to save you time, you can read this article, which is a basic summary of the important information found in Chapter 11, then decide if you want to read all of the detailed articles we have on it.
VA Appraisal Requirements
These are requirements the VA has for the way that the appraiser conducts the appraisal. For example, appraisers are prohibited from appraising a property that does not appear to be eligible for a VA loan, usually because it has a clear violation of one of the VA’s Minimum Property Requirements (MPRs). Also, appraisers are strictly prohibited from “accommodating” the sale price of the home. If the value that the appraiser determines is reasonable is different from the sale price, the appraiser is not allowed to adjust it in order to accommodate the sale. In fact, the Handbook threatens disciplinary action against an appraiser who do this. Also, the appraiser him or herself must conduct the appraisal personally; they cannot delegate to an assistant for any portion of the appraisal. If the appraiser makes use of an assistant in an appropriate capacity, they must list the name of the individual and the specific tasks they performed in the appraisal report.
VA Appraisal Contents
Appraisals are intended to be a thorough examination of the property and as such, there are a lot of things that need to be included in the report. First is the appraisal report form, which is usually the Uniform Residential Appraisal Report (URAR), which has a great deal of items in it that need to be checked off and reported on. Also, the appraiser must provide a location map of the property, building perimeter sketches that show the footprint of all buildings, certain photographs, an itemized list of any repairs that need to be completed and conditions to be corrected in order to meet the VA MPRs, as well as a copy of the appraisal invoice. The appraiser also needs to include any repair-related information that supports their conclusions.
Approaches to Value
Chapter 11 also explains how it expects the appraiser to reach their value calculation. From the Handbook, “VA relies exclusively on the sales comparison approach to value, except in very unusual circumstances involving inadequate or nonexistent comparable sales or an extremely unique property.” The sales comparison approach is the practice of finding at least two comparable homes (same area, sold recently, similar square footage and amenities), and base the value of the property in question off of what the comparable sales were sold for. This is a very common practice, but the VA’s decision to rely almost exclusively on it is unique. Other approaches, such as the cost approach (estimate how much it would cost to reproduce or replace the property and use that) cannot be used except to support the sales comparison value, and the VA does not usually require the cost approach to be used. The income approach is required in addition to the sales comparison approach if the buyer is purchasing an income-generating property (multi-unit).
Part of using the sales comparison approach is to include market factors in the valuation process. For example, if the comparables were sold 5 months ago and the market has taken a slight downturn since then, you can expect a lower valuation than if the market had stayed exactly the same. The appraiser uses a great deal of factors in determining market change and current market conditions.
The appraisal process is somewhat different if the borrower is getting cash out to make improvements to the home or if the home is a proposed construction. If you want to learn more about those situations, you can check out the Handbook itself, or you can read our articles on Chapter 11.