Deciphering the VA Lender’s Handbook Chapter 11 Part 1
The VA appraisal can be the part of your VA loan experience that presents the largest number of nasty surprises. Some of those surprises are common to pre-sale inspections in any type of home loan – the home appraising for less or more than the sale price and a several-hundred-dollar expense, but some are unique to the loan program. If the home doesn’t pass the VA’s Minimum Property Requirements, the VA could refuse to guarantee the loan for the home at all. You won’t be able to get a loan for a larger amount than the home appraises for, so if the seller is unwilling to bring the price down, you’ll have to either make up the difference with a down payment or find a different home. To make sure that veterans have the option of backing out of a sale if it’s no longer affordable, the VA requires that the seller sign an Escape Clause as part of the sales contract.
Since the appraisal can throw wrenches in the works, it makes sense that the VA Lender’s Handbook dedicates not 1, but 4 chapters to the VA appraisal, all covering different aspects of it. Chapter 11 is dedicated to talking about the requirements the VA has that the appraisers need to follow. It also tells the potential borrower what to expect when they look at the appraisal and what things to look for. The first term that chapter 11 defines is “reasonable value”, which means the, “figure which represents the amount a reputable and qualified appraiser, unaffected by personal interest, bias, or prejudice, would recommend to a prospective purchaser as a proper price or cost in the light of prevailing conditions.” People often get hung up on “reasonable” vs. “market” value, but the VA considers the two terms to be equivalent, as does Fannie Mae and Freddie Mac.
So, when you look at the appraisal, you’re going to notice a few things right off the bat. First, the client should be listed as the VA, not you. This is not a mistake or a problem. Also, the ‘borrower’ field should be filled in with “Any Qualified Veteran” rather than your name. This is also not a mistake. The appraisal is required to be filled out this way so that the appraisal can be used for another veteran borrower if the current buyer has to back out. You’ll probably get the finished appraisal in an email from your lender, since the appraiser is more concerned about meeting the VA timeliness requirements. You can rest assured that your VA appraisal will be up to spec because the appraisal must conform to the Uniform Standards of Professional Appraisal Practice (USPAP) and additional requirements from the VA. You’ll most likely get the appraisal in a PDF format. You can download a free PDF reader from Adobe.
Above we mentioned that the appraiser is going to be concerned with the VA’s timeliness requirements. These requirements simply state that the appraisal needs to be done as promptly as appraisals for conventional loans are done in that area, and exceptions can be made if there are extenuating circumstances. Either the seller or you as the buyer will need to make yourself available to at least let the appraiser into the home, and likely walk around with him/her. In this way, the timeliness requirements affect you directly, because the appraiser is going to want to conduct the onsite portion of the appraisal as soon as possible. Be prepared to do some scheduling-yoga to make time if need be.
The VA does not allow appraisals to be conducted on homes that don’t look like it’s going to be eligible for the appraisal. Your lender is going to work with you on some preliminary things before the appraisal will be requested. You have probably already walked around the house if you’re at the point where you’re thinking about the appraisal, so you’ll want to familiarize yourself with the VA Minimum Property Requirements and walk around again and see if there is anything obvious that would make the property ineligible for appraisal.
On a final note, it would be smart to ask the seller or agent why the home is priced at what it is, because the VA appraisal is not allowed to make an “accommodation” for the sale price. In fact, if an appraiser make a value determination that is not based on recognized appraisal practices in order to accommodate the sale price is going to result in disciplinary action by the VA.