We got this comment recently, and felt that it was deserving of a full-page answer regarding the process for a Reconsideration of Value on VA Loans.
“Well, I got my VA appraisal today. It came in $6400 less than the negotiated sales price. I would really like to get this house (its in great shape), but I don’t want to overpay either.
Are VA appraisals generally conservative on their valuation? Is this a common problem with VA loans?”
First off, it’s important to remember that historically the value of a property is what a willing buyer wants to pay. So the question is are you emotionally attached to this home already – is this your dream home, or was it just an Okay property you are willing to walk away from. If it’s the latter – then you may not want to try to renegotiate the offer or see if the appraiser missed something in their evaluation. If it’s your Dream Home – that’s another situation.
Fortunately, when you get a VA Home Loan there’s a process already in place that allows for a formal appraisal review during the loan underwriting. This underwriting review process is formally referred to as a “Reconsideration of Value” and both the Buyer (Veteran) and the Seller can request to have the appraisal reviewed to see if there’s really more value / or the appraiser missed something.
The Reconsideration of Value is used, obviously, when the appraised value of a home is less than its contracted purchase price. According to the National Association of REALTORS, almost one-third of contracts written in the first half of last year had appraisals that didn’t match a sales price (too low). With a FHA mortgage or a conventional mortgage, transactions in which a home fails to appraise for its purchase price often result in canceled contracts.
Because VA Loans have this process already established, it’s much less common for Veteran’s to be in a position to have to break the contract.
How To Appeal a “Low” VA Appraisal
When a VA home loan appraisal value comes in lower than the sales price, the buyer or seller can let us know that they want us to have underwriting do a Reconsideration of Value.
The Reconsideration of Value process is not like asking for a second opinion; there is no new appraisal performed, nor is there an opportunity to use a “different appraiser.”
When you ask for a Reconsideration of Value, through our Bank, we are likely to be referring the details and additional comps to the underwriter. So we need documentation of the facts that may have been overlooked or omitted in the VA loan appraisal new received.
In order to get the Underwriter to consider a higher value than the appraiser, we need the Buyer or Seller to highlight all of the issues with the appraisal and send us a letter, with the comparative sales, or square footage errors that they feel were off on the appraisal. We pass that along to the VA Appraiser with a request for Reconsideration of Value.
Here are the top items we see when someone is Requesting a Reconsideration of Value on VA Loans:
- There are recent sales within 3 miles of the property that were not used were not used by the VA Appraiser
- There were homes that recently sold that WERE used on the Appraisal that are not really comparable homes for some reason the appraiser might not have known (like they could have a newly renovated kitchen that didn’t show up properly in the tax records)
- The Appraiser did not calculate the homes square footage correctly, or miss measured a space. This is particularly “common” with unfinished basements, attics and lofts.
- VA Appraisers do not give much “value” to a new coat of paint. However it could be that they missed an energy-efficient upgrade, or miscalculated the properties age, and that could have an effect on value adjustments
A Realtor who is selling a home generally updates the Seller with their own Comparative Market Analysis (CMA). Buyers get them too. These are often part of the analysis given to you by your Real Estate Agent at the time you craft your offer to purchase. Our Underwriter told us that, “In general, the more relevant, supporting documentation the parties can provide to the VA home loan appraiser, the more likely that the Reconsideration of Value will have a positive outcome.” However, if the CMA was given to a Seller 11 months ago – and the market has moved since then – maybe a foreclosure sold right down the street… the appraisal could be genuine.
Reconsideration Of Value on VA Loans : How The Process Works
Reconsideration of Value requests generally fall into 2 different “buckets.” If the value is less than 10% of what the buyer and seller agreed to with the Sales Contract, our underwriter will send all of the documentation you provide to us, directly to the VA Appraiser who did the work. We ask them to review the additional comments, and data and let us know if they feel they missed something. If they agree, for instance, that the square footage for a particular area was calculated incorrectly – they might ask to go out and re-measure the home. If it’s confirmed they have the choice of letting us know if they are going to change the value – or leave it at the value they originally gave us.
The appraiser does not respond directly to the buyer, the seller or the agent. The VA appraisers in NC on the rotation list will generally send us an additional page to the appraisal stating what they reviewed, and what their findings are. If the appraiser decides NOT to increase the value on the appraisal – then the original value stays in place. Because we don’t choose who the VA Appraiser will be, VA controls the appraisal process, we can not request a second appraisal.
If the Appraisal is more than 10% off, then we gather all of the documentation as before – and send it, with the appraisal directly to the Department of Veteran Affairs Valuation Department, and they are the ones who make the determination about value. Again, if there are substantial square footage issues, we’ve known them to request a re-measurement of the property, generally this is done by a Sr. VA Appraiser in our area.
When the Valuation Department at the VA finishes their review, they will send us a “revised” appraisal. It’ important to remember that we don’t often see them over ride a local appraiser and change the value. Often times, it comes back with the same original value. There’s going to need to be something really, really goofy going on for a VA Appraiser to make a 15% mistake! These guys are PROS. Once the VA gives us their “updated” value that’s the value we must use. There’s no arguing back and forth at that point.
It’s important to remember that a Reconsideration of Value can not be used to get the appraiser to take a “condition” off of the appraisal. If they noted issues with minimum property standards for a VA loan – the VALUE is not the core issue, the lead paint, or where the property is located is your bigger concern. My point being that it’s important to sort out why the appraiser came up with a figure $6400 lower than the Purchase Price. Was it because they missed a recent closed loan, or was it because the house has some serious functional problems?
Bottomline: A request to review the appraisal is not going to override an appraiser’s opinion of minimum property requirements — health and safety standards meant to ensure that veterans purchase “move-in ready” homes.
VA Home Loans : 100% Financing, No Monthly PMI
VA mortgages offer more benefits to military borrowers than just the Reconsideration of Value appraisal review process.
Home buyers using a VA loan can also :
- Buy homes with zero down payment and pay no monthly PMI
- Refinance via the VA IRRRL program — the easiest refinance program available
- Get access to mortgage rates which are often lower than comparable conforming rates
- Have the Seller pay a portion (or all) of your closing costs, which are very low.
Even if you are purchasing a “Bigger” home, and you are going to make a down payment, you might still want to use this program!
Still have questions about Reconsideration Of Value on VA Loans? Let us know! We can help! If you are considering a VA Loans in Rural Communities, and want to know more about qualifying for a VA mortgage loan, please call Steve and Eleanor Thorne, Government Mortgage Loan Experts, 919-649-5058