It is important to work closely with your loan officer so that if something goes awry they will be available to offer guidance. Whether you are worried about closing costs or your home appraisal comes back too low, you have a team of support to guide you.
Many buyers have questions regarding the appraisal process. Today, we are discussing what the appraisal process is and what to do when an appraisal comes back lower than anticipated.
What is the Appraisal Process?
Once under contract to purchase a home, an independent VA appraiser will complete a full assessment of it. This is an assessment of the property’s value and overall condition. An appraisal is not a home inspection. A home inspection provides an in-depth review of the home’s physical condition.
The purpose of the initial appraisal is to verify that the home is worth what you have offered to pay for it; also, the property must meet both VA and lender guidelines. Specifically, the home meets the anticipated value and that it is structurally sound and free of health hazards.
How Often do VA Appraisals Come in Low?
VA home loan appraisals are similar to other types of appraisals in the sense that they sometimes come in lower than the buyer anticipates. It has been reported that only 8% of VA appraisals come back lower than expected but it does happen.
Can a VA Appraisal be Appealed?
You have been informed of a VA appraisal too low – can it be appealed? Yes, the first step is to apply to the VA for a reconsideration of value (ROV).
Understanding Reconsideration of Value (ROV)
The reconsideration of value, or ROV, is the formal process of appealing a low appraisal. Once an ROV is requested the VA will then reevaluate the value of the home. There are three things that you will need to work with your loan officer and real estate agent to document.
1) Comparable Home Sales
You can submit up to three comparable home sales that were not included in the original appraisal. These are homes that have comparable sales with a similar purchase price.
The information must be put into a Reconsideration of Value grid and be sure to include copies from the Multiple Listing Service (MLS). You will want to include a written summary of why these comparable sales are better than the ones used with the original home appraisal.
2) Evidence of Errors
If possible, have your real estate agent inspect the appraisal report. Create a summary of all issues the agent finds with the report. Examples include that the report uses false information or that the comparable homes are not actually comparable.
3) Letter from the Borrower
You need to write a detailed letter stating all of the reasons why you believe the appraisal value should be higher. You will need to include what value you believe it should be. This letter is considered a written request for ROV.
After these steps are completed, you will work with your loan officer to submit the ROV request to your VA regional loan center for review.
What if the ROV Does Not Work?
You patiently waited only to find out that the ROV was denied. What are your options now?
Ask for a Lower Sales Price
The most common way that VA buyers can get around a low appraisal is to request a lower sale price. Some homes are simply overvalued and once the sellers see the appraiser’s review they are typically more willing to lower the price. Many times the price can be lowered to the approved loan amount.
Cover the Difference in Cash
There is always the possibility of covering the amount out of pocket that exceeds the VA loan. If you have a comfortable savings account, you may want to consider using some of it to cover the difference from the appraisal. This may be possible for some buyers but is not realistic for everyone.
Split the Difference Between Buyer and Seller
Similar to paying out of pocket is splitting the difference between buyer and seller. If there is $20,000 that will not be covered by the VA mortgage, then both buyer and seller could each potentially pay $10,000 or “split the difference.”
It is common for sellers to add appliances or furniture to the sale. These types of add-ons are not accounted for when the home is being appraised. You may be able to convince the seller to not include appliances or furniture which will inevitably lower the asking price of the home.
Find a Different House
The last option is to simply walk away and begin the search again. Now that you know what you are approved for and what they look for in the appraisal process, you can be better prepared the next time around.
If you have tried all of the above options and nothing seems to be working, speak with your real estate agent to begin the house-hunting process again. It may be helpful to read up on the VA loan appraisal guidelines. You can find a great article here that covers all that you need to know!