Deciphering the VA Lender’s Handbook Chapter 13 Part 1
Chapter 13 of the VA Lender’s Handbook is dedicated to the VA’s Value Notices. These are different from the appraisal reports that we talked about in Chapter 11. A “Notice of Value” is an official VA document that states the fair and reasonable value of the property. The appraisal report contains all the information the appraiser took into consideration when making the value determination, as well as an evaluation of whether the property meets the VA’s minimum property requirements. The VA considers the Notice of Value to be a separate document from the appraisal report, and they’ve dedicated an entire chapter to these value notices. Let’s find out why.
The Handbook states that VA Value Notices are so important because, “Accurate value estimates based on proper appraisal reviews are essential to the viability of the VA Loan Guaranty program and have a direct effect on the interests of the Government, veterans, and lenders.” In other words, the VA could not reasonably issue a guaranty if the fair value of the home was not firmly established by a thorough appraisal and valuation. If you think about it, this makes a lot of sense; there would be a great deal of issues if the VA offered a guaranty for any amount on any home, or even if they used a more arbitrary or loose method of determining value. Annoying they may be, but appraisals are what make the VA loan program work.
Lenders and borrower are counseled to rely solely upon the VA’s Notice of Value that is issued by the appraisal reviewer because the appraisal report (and the fair value reflected on the appraisal report) is subject to change during the review process. The appraisal is typically reviewed by an approved appraisal reviewer that works for the lender or for the VA, and that reviewer issues the Notice of Value. That reviewer will go through five steps in issuing the Notice of Value.
- Confirm eligibility of property for appraisal and a VA guaranty – the reviewer must make sure that the property was indeed eligible for an appraisal and the VA loan program in the first place.
- Review the appraisal report – the reviewer needs to thoroughly understand how the appraiser determined the value of the property and see if there are any issues with the home that need to be resolved as a condition of guarantee.
- Resolve any appraisal-related problems – this is where you as the borrower might get involved if there are problems that need to be taken care of. Chances are you’ll be able to get the seller to take care of the problems since they will likely have to do with the livability or safety of the home. Otherwise, you may need to front the cash yourself.
- Document the appraisal review – Like with everything else in the VA loan program, the reviewer needs to leave a paper trail explaining everything he or she did in regards to the appraisal review.
- Distribute the Notice of Value – You may not automatically receive a Notice of Value from your lender, but you should request a copy from the lender if you do not.
As mentioned above, every appraisal review must be conducted by either a staff appraisal reviewer from the lender’s company, or a VA staff appraiser. This appraisal review fulfills several key objectives, as shown below:
- confirm that the photographs accurately reflect the appraiser’s description of the subject and comparable properties
- verify that the appraisal report is fully complete, clear and prepared according to industry-accepted appraisal techniques and VA instructions
- determine that the appraiser’s methodology is appropriate and that the appraiser’s conclusions are consistent, sound, supportable, logical and based upon data in the appraisal report
- determine, through use of reasonably available information, that the appraiser’s value recommendation and other conclusions are consistent with those in similar cases recently processed
- identify all property-related conditions and requirements that must be satisfactorily resolved before the property can become the security for a VA guaranteed loan, and
- issue a notice of value.
If you want to know what references the reviewer is going to look to for guidance while conducting the review, they will mostly look to Chapters 11 and 13 of the Handbook. It probably won’t be too relevant to you, but if you are wanting to challenge the appraisal report or notice of value, understanding Chapter 11 and Chapter 13 is going to be very important.