All About the VA Loan Appraisal! | San Diego Real Estate | The Real Estate Jedi™


So there seems to be some misunderstandings
about VA loans and the supposed “VA Home Inspection.” Since many of our clients are
military, this is something I have to clear up again and again. When you are using a VA Loan to purchase a
property, one of the first steps after opening escrow is ordering the VA Appraisal. Now,
your lender will make sure it’s ordered, but it’s important to understand that the
VA Appraisal is NOT the same thing as your HOME inspection. Now the reason for this confusion may lie
in the fact that VA Appraisers DO perform a more in-depth look at the property than
an appraiser would for another type of loan. For example, a VA Appraiser must follow guidelines
laid out by the Department of Veteran Affairs which dictate that the home must meet certain
“Minimum Property Requirements.” The main concentration of these “Minimum
Property Requirements” is to ensure that the property is LIVABLE, SAFE, and SANITARY.
Let’s say for example that the hot water heater is bad and there’s no hot water.
Or the furnace doesn’t work so there’s no heat. Or let’s say a toilet has been
removed in one of the bathrooms, or there are not the required carbon monoxide and smoke
detectors present. There’s a good chance that in any of these scenarios, the appraiser
will list these defects as “Mandatory Repairs” prior to closing on the property. In most reasonable cases, the repairs will
be minor enough to be able to negotiate with the seller for their completion prior to closing.
In other cases, let’s say with a bank-owned property, there is a chance the seller will
refuse to do any repairs. Regardless of the outcome, these
“Minimum Property Requirements” will NEED to be met prior to the buyer closing on the
purchase. Now the primary purpose of a VA Appraisal however— after ensuring it meets
the Minimum Property Requirements—is to APPRAISE the property and submit their opinion
of value to the lender. This protects not only the lender by ensuring they are not lending
more money than the property is worth, but it also protects the buyer by ensuring they
are not over-paying for the property. Now let’s say the appraisal value comes in LOWER
than your agreed upon purchase price. In this case, there are several ways to proceed. The first, and the one we typically pursue
is to negotiate with the seller to LOWER the purchase price to MEET the appraised value.
Appraisals are independent and un-biased opinions of value, so it is highly likely that if one
appraisal comes in low, that another appraiser will come up with a similar conclusion. In
this case, depending on the market conditions of the area, the buyer typically has some
leverage in that the unbiased opinion of value from the appraiser recommends that the value
is lower than your currently agreed-on purchase price. Also, the seller knows that the lender
cannot lend based on a purchase price above appraised value unless the buyer makes up
the difference in value. In the past, we have had great success with re-negotiating the
sales price in this scenario, and this is our first preference. Which brings us to the second option—The
buyer can make up for the difference themselves by bringing in their own money. Let’s say
a home appraised at four-hundred thousand dollars and the currently agreed purchase
price is four-hundred and ten-thousand dollars. If the seller will not agree to lower the
price, or only agrees to lower it by an amount less than the difference, then the buyer can
place their own money down to make the deal work. Another possible scenario is that the
seller will “meet the buyer half-way” so they might be willing to drop the price
by five-thousand, so long as the buyer comes in with the other five-thousand dollars. The next option is to file a dispute of the
value by submitting a “Reconsideration of Value” request to the Lender, who—if they
believe the dispute has merit—will submit it along to the appraiser. This is often a
challenging process and is often not successful, but it is nonetheless an option to pursue
in the case that the previous options do not work out. Now the final option is for the buyer to walk
away from the deal. If no agreement can be made with the seller on lowering the price,
and if the buyer does not wish to make up the difference in value, and the Reconsideration
of Value does not produce the desired results, the last option is to walk away from the deal.
In this case, assuming the buyer has not removed their appraisal contingency, the buyer can
typically back out with minimum repercussions and recover their Earnest Money Deposit. Now like I mentioned earlier, this VA Appraisal
is NOT to be confused with a HOME inspection. An appraisal IS required, however a home-inspection
is NOT, although we HIGHLY——HIGHLY, recommend ALL buyers hire a home inspector when purchasing
a property. With a home inspection, the inspector will conduct a much more in-depth inspection
of the property and will typically use tools and knowledge above and beyond those that
an appraiser would. We have another video about home-inspections, so be sure to check
that out if you have more questions about that. If you have any other questions about VA appraisals
or anything else Real Estate related in San Diego / Southern California, give us a call
or check out our website for tons of other information on this and many other topics. I’ll see you in the next video! 😀

1 thought on “All About the VA Loan Appraisal! | San Diego Real Estate | The Real Estate Jedi™

  • Amazing information, thank you Jed, we are in the process of buying a house and we needed to know about the VA loan process!

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