VA Appraisal Considerations for Other Property Types Part 2

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 8

 

In the last article we started talking about special things to look for in the appraisal process for non-conventional homes and home loans. We covered manufactured homes and farm residences, as well as refinances with cash out for improvements to the home. In this article, we’re going to talk about properties subject to flooding, properties in the coastal barrier area, and properties in close proximity to an airport.

Properties Subject to Flooding

So, as you’re looking to buy a home, you’ll want to consider whether it is in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). An SFHA is an area inside a 100-year floodplain. You can find FEMA flood maps online. If the home is in an SFHA, it might not be eligible for VA funding. Also, if there is an indication that the home is subject to regular flooding, even if it’s not located within an SFHA, the home will not meet VA’s minimum property requirements. This sort of thing can be tricky and hard to predict, but it usually pays off to do your homework on the house you’re looking at before the VA appraisal. Now, just being on a flood map will not immediately disqualify a home; if the home is an existing construction, it may still be eligible for a VA guaranty. Also, in many cases, the home can be approved by you will be required to purchase flood insurance.

 

Now, SFHAs are different from CBRSs. CBRS stands for Coastal Barrier Resources System. Homes located in a CBRS are not eligible for VA loans, and there aren’t really any exceptions to that rule. Granted, this is only a concern in a few areas of the country. Namely, the Great Lakes area, the Gulf Coast, Puerto Rico, the Virgin Islands, and the Atlantic coast. Obviously, only the homes in very close proximity to those large bodies of water will be in the CBRS, but that would be a really good thing to check before you start the VA loan application process. You can check the CBRS maps online at the U.S. Fish and Wildlife Service website. The prohibited areas on the map are inside the heavy black lines. If you’re looking at a home inside a CBRS, you’re best bet is to find a different home that is not inside one.VA Noise Table

 

You might wonder why a home’s proximity to an airport might be a problem, but there are two potential issues involved with a home being close to an airport. The first one is noise and the second is safety. The VA uses a Noise Zone table to determine what noise zone the house is in. Nowhere in this section does the Handbook say that being in a certain noise zone will disqualify a property, but it will certainly have bearing on the fair value of the home. Here is the table:

Noise Zone CNR (Composite Noise Rating) NEF (Noise Exposure Forecast) DNL (Day/Night Average Sound Level)
1 Under 100 db Under 30 db Under 65 db
2 100-115 db 30-40 db 65-75 db
3 Over 115 db Over 40 db Over 75 db

 

As for safety, there are three zones that a home might fall into: a Clear zone, which, despite the name, is the worst place a home can be and is the area immediately at the end of the runway, and an Accident Potential zone, which are farther away than the Clear zone but still have a significant risk of accident. The third zone is not special enough to have a name and is anywhere other than the first two zones. Now, when proximity to an airport is a consideration in an appraisal, there are a number of requirements that might come into play depending on where the home is located. The Handbook provides a very helpful chart to show you what you might expect. The first table shows the five zones the home might be in, along with notations of what requirements will be in effect, and the second table explains what those requirements are. First table:

Type Construction Noise Zone One Noise Zone Two Noise Zone Three Clear Zone Accident Potential Zone
Proposed A A, B, C, D E F A, C, H, I
New/Existing A A, D A, D A, C, G A, C, I

 

Second Table:

Requirement
A The fee appraiser’s market data analysis must include a consideration of the effect on value, if any, of the property being located near an airport.
B Sound attenuation features must be built into the dwelling to brin the interior DNL of the living unit to 45 decibels or less.
C Available comparable sales must indicate market acceptance of the subdivision in which the property is located.
D The veteran must sign a statement which indicated his/her awareness that the property being purchased is located in an area near an airport, and that aircraft noise may affect livability, value, and marketability of the property.
E Not acceptable as the security for a VA loan unless the project was accepted by VA before noise zone three contours were changed to include it. In that situation, the requirements for proposed construction in noise zone two must be met.
F Not acceptable as the security for a VA loan.
G The veteran must sign a statement which indicates his/her awareness that the property being purchased is located near the end of an airport runway, and that this may have an affect upon livability, safety, value, and marketability of the property.
H The project in which the properties are located must be consistent with the recommendations found in the airport’s Air Installation Compatible Use Zone (AICUZ) report.
I The veteran must sign a statement which indicates his/her awareness that the property being purchased is located in an accident potential zone and that this may have an affect upon livability, safety, value, and marketability of the property.

VA Appraisal Considerations for Other Property Types Part 1

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 7

 

So far in Chapter 11 we’ve talked mostly about the VA appraisal as it’s applied to new and existing construction-type homes. There’s a good chance, however, that you’re looking at a different option for your home. Perhaps you’re looking at a manufactured home, or looking at building your own home. You may be wanting to improve on your home, or the home you’re looking to buy might be located in a flood zone, coastal barrier area, or on a farm. If any of the above are the case, you’re in the right spot. We’ll talk about things you’ll see on the appraisal report and learn about the pitfalls that appraisers look for under specific conditions.

 

If you’re planning on building your own home, and are using a construction loan, you’ll find a lot of the information in Chapter 10 very helpful, but as far as the appraisal report, the only thing the Handbook mentions in this part is that the appraiser must include a certification in the report that reads as follows, “I hereby certify that the information contained in [specific identification of all construction exhibits (e.g., Smith Construction Plan Type A, 9 sheets, VA Form 26-1852, Description of Materials, plot plan by Jones, Inc.)] was used to arrive at the estimate of reasonable value noted in this report.”

 

Appraisal ConsiderationsSince most lenders are not currently offering VA construction loans, you likely won’t run into that situation, but it is very possible that you’re looking at a manufactured home. Manufactured homes that are classified as real estate have some special considerations when it comes to the appraisal. If the home is new and has not been delivered to the local dealer or lot on which it will be installed, the appraiser is not required to enter it. However, if the appraiser is not able to enter the home, he or she will be needing some documents to conduct the appraisal. The burden may fall on you to provide them.

  • First, the appraiser needs the design and/or floor plans showing the room layout and exterior dimensions, as well as elevation plans.
  • Second, the appraiser will need the specifications on all the standard items included such as flooring, heating, plumbing, electrical equipment, and appliances.
  • Third, the appraiser will need documentation on any selected options or upgrades included in the sale.
  • Lastly, the appraiser will need the foundation plan.

 

As you read the appraisal report, you might notice an oddity – the appraiser did not use other manufactured homes as the comparables. Usually, if you see this, the report should clearly state that no comparable manufactured homes on permanent foundations were available for use as comparables. In this case, the appraiser will use the most closely comparable conventional homes and adjust them accordingly.

 

Now, if you’re refinancing your home and hoping to get cash out to improve the home, the VA appraisal is going to have to do a cost-benefit analysis of sorts. Essentially, the appraiser will make an estimate of reasonable value both “as-is” (before the improvements) and “as repaired” (after the improvements). Also, for the purpose of the appraisal, improvements such as solar energy systems are evaluated based on the value they add to the home, not how much they cost to implement.

 

If you are using your VA loan to purchase a farm residence, then you’ll be pleased to know that the VA does not set a limit on the number of acres that your farm property may have. Please note, however, that the only reason you’re able to use a VA loan to purchase a farm is if it has a residence on it and you are planning on using the home as your primary place of occupancy. As the appraiser conducts the appraisal, he or she will not include livestock, crops, or farm equipment in the value consideration of the property. Additionally, improvements to the property such as barns, sheds, stables, etc. will only be valued in consideration to the their value for residential purposes. In other words, even though a stables might be quite valuable for the commercial operation of the farm, it will only contribute to the VA’s appraised value of the property inasmuch as it contributes to the residential value of the property. In the next article, we’ll talk about properties in flood zones, near coastal barrier areas, and near airports.

 

Reading the VA Appraisal – Minimum Property Requirements

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 6

 

The VA appraisal has two primary purposes: determine a fair market value for the home being appraised, and making sure that the property is suitable housing for the veteran. The first half of Chapter 11 in the VA Lender’s Handbook is dedicated to talking about how the fair market value is determined. Starting a bit after mid-way through the chapter, however, it starts to talk about how whether the home is suitable for the veteran is determined. The VA does this by evaluating the home based on a mostly comprehensive set of standards known as the Minimum Property Requirements (MPRs). Now, these MPRs are detailed in nature and broad in scope, and we’ll be covering exactly what they are in Chapter 12 of this series. In this article, we’re going to go over reading the VA appraisal after it comes back – and seeing if there are any issues with the MPRs.

 

For existing construction (a home that has already had at least one occupant before the veteran), the Uniform Residential Appraisal Report will be used by the appraiser. The URAR has a section titled ‘Reconciliation’ and it is in this section that you will find any information about where the house fell short on the MPRs. There are two classifications you might see on the report; “As is” or “Subject to the following repairs…” If the home is classified as “As is”, then the home unreservedly meets the MPRs and no repairs are required. The second classification is fairly self-explanatory – there are certain repairs that are required in order for the home to pass the VA appraisal. If you see this classification, what will follow is an itemized list of required repairs or improvements.

Fair Market Value

Now, appraisers are only able to require improvements if there is an apparent violation of the MPRs. The Handbook specifically says, “Appraisers must not recommend electrical, plumbing, heating, roofing or other inspections only as a measure of liability protection.” Inspections are not usually required – usually the requirement is that the issue be corrected, repaired, or replaced – unless the appraiser sees an indication of a complex problem that requires a professional opinion on how to fix. Things like pests, drainage issues, structural defects, code violations, and safety concerns are things that might first require a professional inspection and action on the fixes that the professional recommends. However, most issues are apparent enough that the appraiser is require certain repairs.

 

The appraiser is also going to be concerned about the remaining economic life of the property and any improvements. The remaining economic life is defined as the estimated amount of time it will take for the property or any improvements to “lose their ability to serve their intended purpose.” The VA requires that, in order to meet the MPRs, remaining economic life on the property and any improvements must be at least 30 years. If the appraiser deems that the remaining economic life is less than 30 years, they must provide a written explanation and the determination cannot be based on arbitrary information. This requirement on appraisers is for the protection of veterans and to make sure that the veteran is able to buy the home of their choice.

 

So here’s what the appraiser is going to consider in determining economic life:

 

  • the relationship between the property and the economic stability of the block, neighborhood, and community;
  • comparisons with homes in the same or similar areas;
  • the need for a home of the particular type being appraised;
  • the architectural design, style and utility from a functional point of view;
  • the workmanship and durability of the construction, its physical condition, and probably cost of maintenance and/or repair;
  • the extent to which other homes in the area are kept in repair; and
  • in areas where rehabilitation and code enforcement are operating or under consideration, their expected results in improving the neighborhood for residential use.

 

The appraisal report will have the results of the evaluation, and if the economic life is less than 30 years, the appraiser must have a solid, concrete explanation. If the economic life is more than 30 years, the appraisal must provide an estimate (40 years, 50 years, etc.).

 

How the VA Appraisal Value is Calculated Part 2

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 5

 

As we discussed in the first part of this topic, VA appraisers are required to use the “comparable sales approach” to determining the fair and reasonable value of the home being appraised. What this means is that the appraiser, after inspecting the house being appraised, finds three comparable homes and evaluates how much they were sold for. The appraiser then uses the sale prices of those homes, accounts for any differences between the comparables and the home being appraised, and determines a fair market value off of that. However, there’s a lot more that goes into not only selecting the comparables but also using them to determine a fair reasonable value for the home being appraised. If you’re a seller and you’re wanting to know how your home’s value is going to be determined, or if you’re a buyer and you aren’t satisfied with the value established by the appraiser, this article will help you understand why the appraised value is what it is and the steps the appraiser went through to get there. Using this knowledge, you can examine the appraisal and see if you have grounds to challenge it.

 

Price ComparablesThe appraiser is responsible for checking on information about the sale of the comparable house – was there an interest rate buy-down that drove up the purchase price? Was there inclusion of non-realty items in the transaction? For example, when my wife and I bought our house, our seller was desperate to sell and offered to pay off our car with equity from the house. Did the seller offer to pay closing costs on behalf of the borrower? Anytime a seller concession is used, there is an effect on the sale price. Usually it keeps the sale price higher than it otherwise would have been, since seller concessions are used to ‘sweeten the deal’. When an appraiser is using a comparable with concessions or other factors that affect the price, they not only have to evaluate the effect of those things on the sale price, but they have to consider the effect those things would have on the sale price of another house.

 

It’s not as simple as a seller concession worth $1,000 knocking down the price of the home by $1,000, because what is being calculated here is perceived value. How drastically would that $1,000 seller concession affect an informed buyer’s willingness to pay for the house? In addition, the appraiser takes into account local supply and demand for housing. One of the ways they do this is to compare the average listing price to the average sale price in the market area. If the average sale price is significantly lower than the average listing price, the demand is probably not as high, whereas when the average sale price is close to the average listing price, the demand is probably pretty high.

 

There is yet more that the appraiser needs to look for. The appraiser should also evaluate the current market trend (increasing or decreasing) in the area, particularly between the time the comparable was sold and the date of the appraisal to determine if prices will have generally risen or fallen during that period. The appraiser will also look at sales listings, contract offers, and unsettled sales to determine a number of things. Have market conditions changed? Are property values rising or falling?

 

Here’s the nice thing: If the appraiser determines that anything mentioned in this article affects the sale price, he or she is required to either put it in the “Neighborhood” section of the appraisal report, or as an addendum to the appraisal. Either way, it should be easy for you to find. Chances are, if the home appraised for either more or less than you expected it to, the answer is either in the “Neighborhood” section or an addendum. If, after reading the full appraisal report, you feel like you have a legitimate challenge to the appraisal, talk with your lender and/or real estate agent to see about getting the home re-appraised. You should know, however, that whoever requests the re-appraisal is the one who will foot the bill, even if the results come back exactly the same as the previous appraisal.

 

How are Comparable Homes Chosen for My VA Appraisal?

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 4

 

This question is most frequently asked by sellers who are trying to determine the best strategy for selling their home for as much as possible, but is also asked by many prospective buyers wanting to know how the appraised value is determined. First, some background information: the VA exclusively uses what is called the “Comparable Sales Approach” to determine the fair market value of a home. What this approach entails is an in-depth evaluation of the home itself, then research on similar homes that have recently sold and what they’ve sold for. By comparing the property to similar homes and accounting for the (hopefully small) differences in the properties, the appraiser comes to a conclusion on the fair market value of the home. So how does an appraiser determine what qualifies as a ‘similar’ home?

 

Well, the Handbook gives the following as the general requirement: “The Home Comparablesappraiser must select the three best closed comparable sales available and properly adjust the sale price of each comparable sale for market recognized differences between it and the subject property. The goal is to obtain a VA value estimate that does not exceed the price at which similar properties can be purchased in the current market.” It’s important to note that active sales listings and contract offers are not able to be used as comparables – only closed sales. This is because a home can list for whatever the seller wants; that doesn’t mean anyone’s going to buy it or that it’s a fair price.

 

So let’s talk about the individual factors that go into determining what qualifies as ‘similar’ to the home being appraised. First, the comparable sales should exhibit a fairly narrow price range. If there’s a wider price range in the comparable sales, the appraiser is required to explain why (if they really are similar enough for a valid comparison, there usually shouldn’t be large price differences). Second, the appraiser needs to be careful on where they are getting their data from – if the data is from someone who has an interest in the sale of the home getting appraised, then the data needs to be verified by an outside source. A comparable sale should be recent; usually it must be within 6 months, and absolutely not longer than 12. If a sale is more than 12 months old, the appraiser is required to explain why he/she used it.

 

The next factor is location. The closer the comparable sales are to the home being appraised the better. The appraiser is also required to describe their distance from the house being appraised. Now, you may see as you’re looking at the appraisal that one of the comparable sales is 20 miles away from the home you’re trying to buy, and there’s no explanation why. This is probably because you’re buying a home in a rural area, and the market area may be that large. In cities, the appraiser will usually describe the distance to comparable sales in terms of city blocks while comparable sales in rural areas will be described in terms of miles from the home being appraised.

 

Of all we’ve talked about, the only factor that links the three comparable sales to the house being appraised is location. Price range is one way that the comparable sales are linked to each other. Other factors that are involved are more obvious. For example, the square footage of the home, the acreage of the property, the number of bedrooms and bathrooms, and how recently the interior of the property has been finished (or re-finished), especially the kitchen. The Handbook also outlines that the appraiser can make minimal adjustments based on individual features. However, the appraiser is not allowed to factor in things that have nothing to do with market reaction, such as builder materials cost or project development.

Location of Comparable Homes

In other words, if you’re a seller, it’s not going to do any good to tell the appraiser that you paid someone $5,000 to remodel your bathroom and $10,000 to remodel your kitchen. However, it may be a good idea to show the appraiser a picture of the old bathroom and kitchen and make sure they know the price you bought the home for with the old bathroom/kitchen. While this is not likely to make a huge impact on the final result, it may positively affect the appraiser’s perception of the house.

 

Reading the VA Appraisal – VA Loans

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 2

 

As a buyer you will probably be interested in reading the VA appraisal – especially if the appraised value is different from the sale value. Being able to read the appraisal is a handy skill if you’re trying to find grounds for contesting the appraisal. If the appraised value comes back equal toAppraised to Value Gap the sale value, there isn’t much reason for the buyer to study the appraisal, but whether you’ve gotten an appraised value different from the sale value or you’re just wanting to be prepared, this article will get you started on reading and understanding the VA appraisal.

 

There are a few items that are required to be included in the appraisal. First, what is called the ‘appraisal report’. This will most likely be a Uniform Residential Appraisal Report (URAR). It may also be a Manufactured Home Appraisal Report, or a Small Residential Income Property Appraisal Report. The MHAP is only for manufactured homes and the SRIPAR is only for multi-unit dwellings, which is why the URAR is the most likely. Alongside the Appraisal report will be a location map, building perimeter sketches, photographs, and an itemized list of any repairs that the appraiser noticed and needs to be completed. At the forefront is likely to be an appraisal invoice.

 

The appraisal invoice may or may not be included in the copy you receive, since someone (probably you) will have already paid for it. In a lot of cases, the itemized list is not present because there are no repairs that need to be fulfilled in order for the home to meet the Minimum Property Requirements. Photographs are usually taken of things that serve as justification for the appraised value of the home or things that the appraiser wants to remember when sitting at his/her desk later. For example, a large, luxurious master bath in a small home would likely warrant a picture, or a kitchen that hasn’t been updated in 15 years in a $1 million house would definitely warrant one. Depending on the appraiser, the entire house might be documented thoroughly in the pictures. The intent of the perimeter sketches is to show the footprint of all the improvements on the home as well as the floor plan layout of the residential spaces. This is where you’ll find the square foot size on the improvements. A location map is from a much higher level and shows where the property is located in a neighborhood or city. The appraisal report will be a lot of checkboxes and fields that the appraiser fills out with specific information about the house. The appraisal may also include an extra item if there is more information needed to support the appraised value. Usually, however, this information will just be included on the URAR.

 

Protection from Home FraudYou may be surprised to find photos of homes that you don’t recognize included in the appraisal report – don’t panic. This is not a mistake. Appraisers are required to take a front-view photograph of similar homes in the area in order to provide context for the going rates of homes in that vicinity. These homes are usually referred to as comparables, and usually at least two comparables are provided on an appraisal. If you’re doing a proposed or under construction VA loan, or you’re purchasing a condo that’s more than three stories up, the appraisal might not include any comparables, so don’t panic if they’re missing either.

 

When you’re reading the URAR, or other form, the best practice for understanding it is just to slowly look over every item and look up any words you don’t understand. It takes time, but it’s the best way to make sure you’re understanding the appraisal. It can also be helpful to schedule a time with your real estate agent or lender to have them talk you through the appraisal, since they are likely to already know what all the terms mean and they can help you understand it better. There may be additional things included in the appraisal depending on what state you live in. If you see other things in the appraisal that aren’t apparent as to what they are, check with your agent or lender.

 

VA Appraisal Terms and Requirements

 

Deciphering the VA Lender’s Handbook Chapter 11 Part 1

 

VA Appraised SupportThe 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.

 

Existing Inspections and VA Appraisal Fees

 

Deciphering the VA Lender’s Handbook Chapter 10 Part 11

 

If you’re looking at buying a house, chances are the house has already been inspected at least once. You may have already had the home inspected, or another prospective buyer already had it inspected and then decided not to buy it. In cases like these, it stands to reason that you may want to use the notice-of-value from that inspection in lieu of the VA appraisal. For the most part, the VA does not allow this. There is, however, one exception to this policy. We’ll talk about that exception, and then we’ll go into the VA appraisal fees in all sorts of different scenarios and talk about what the borrower is allowed to pay for. First, the only case where a HUD value notice can be converted for VA use:

Veteran Home Purchase

The situation must meet all of the following requirements: first, the appraiser must be a VA fee panel member and not a staff employee of the lender. Second, the property must have been appraised as an individual case (as opposed to a “master” appraisal that covers multiple properties in a development). The property must not already have a valid VA value determination and the appraisal was originally done by a HUD inspector because the buyer wasn’t intending to use VA financing at the time of the appraisal. This can happen in two ways: either the buyer changed from HUD to VA financing while under contract, or a previous buyer using HUD financing fell through. Next, the lender needs to submit a written request for conversion along with VA Form 26-1805, the HUD value notice, and the original appraisal report. Should all of the following requirements be met, the HUD value notice can be used in lieu of the VA’s value notice.

 

Now for VA policy on the fees for appraisals. The Handbook states the following as the VA’s official policy: “The maximum appraisal and inspection fees allowed by each VA field station is based on customary fees for similar services in that station’s jurisdiction. Regardless of the amount of the maximum fee, appraisers and inspectors must not charge veterans more than they charge other clients for similar services.” In cases where the home is being appraised for liquidation, the appraisal requester is required to pay the fee. In cases where the borrower attempts to pay the defaulted amount back after the appraisal has been obtained, the cost of the appraisal is added to what the borrower owes.

 

Never, at any time, can a veteran borrower be charged for any portion of a “master” appraisal. If a builder or anyone tries to charge you for the master appraisal, slap a copy of the VA Lender’s Handbook down on the table and tell ‘em to study up. A veteran borrower can be charged for inspections on properties during construction, but cannot be charged for any re-inspections that are due to the builder’s noncompliance with VA requirements, the builder’s failure to provide access to the property or have the work ready for inspection, or the inspector’s failure to arrive at the appointed time. If an appraiser must travel outside of their normal business area, they are allowed to assess an additional fee to cover the portion of travel outside their normal area. The VA is also careful to mention that travel must be by the most direct route and the billing must include a breakdown of the mileage.

 

If the fee appraiser reports fee payment issues, the VA can allow them to require payment in advance from a particular requester if that requester has regular issues providing payment in a reasonable time frame and the appraiser has provided written notice to the requester about the issue and its consequences and the requester does not adequately respond. The VA must provide written authority to the appraiser in order for the appraiser to be allowed to require advance payment. The VA may provide such authorization after reviewing the appraiser’s case. Generally, this won’t affect borrowers, since you don’t regularly request appraisals, but if you’re working with a lender who doesn’t have the best record with paying appraisers, you may be required to front the cash for the appraisal sooner rather than later.

 

The Dirty (sometimes Clean) Truth Behind VA Appraisals

While it can often go unmentioned in discussions about the VA loan program, there really is nothing more central to the program than the VA appraisal of the property. The VA Lender’s Handbook, also known as the VA Pamphlet 26-7, has all of the information anyone would ever want to know about VA appraisals. You can find the VA Lender’s handbook online as a matter of fact, on the VA loan section, then under the lenders section, and download and read it for yourself. In the Handbook, there’s a full chapter that is dedicated to nothing else but VA appraisals and related rules and guidelines.

approved

The chapter that covers appraisals is Chapter 10. Chapter 10 explains the primary purpose of the appraisal as their way of making sure the home is worth at least as much as it’s being sold for, and that the home is an acceptable condition for a veteran to live in. From the Pamphlet: “An appraisal is required to help ensure that any property which will become the security for a VA-guaranteed loan:

– has a value of at least as much as the loan amount, and
– is in a condition acceptable to VA.”

Like everything else in today’s world, a VA appraisal is not free. Paying for and dealing with the official VA appraisal is the privilege of the VA-eligible borrower who is hoping to purchase the home in question. Hopefully the expense for the VA appraisal is only for the initial appraisal; any follow-up inspections by the appraiser that are required as a condition for approval are also charged to and paid for by the borrower. Follow-up inspections are called “compliance inspections” and become part of the picture when the original appraisal found things that would need to be repaired or changed before the home could be compliant with VA standards, known as the VA Minimum Property Requirements, or MPRs.

When it comes to initiating the appraisal, this task usually falls to the lender. The lender is the preferred source of initiation primarily because the lender is usually the one who knows best how to go about requesting one. A borrower or any other party to the transaction would likely have to find a number for the VA online, call it, and hope for the best. In the event that some other party would like to make the request, such as a mortgage broker or real estate agent, the lender needs to make sure that the agent or broker understands all of the requirements for the home in order to pass the appraiser. From Chapter 10: “VA prefers that the appraisal be requested by the lender, although it can be requested by any other party to the transaction, provided the appraiser is assigned by VA. Lenders must ensure that agents and mortgage brokers requesting VA appraisals on their behalf are familiar with the requirements in this chapter.”

It’s important to know that there are requirements in order for a home to be eligible for a VA appraiser. Those requirements are also found in Chapter 10 of the pamphlet, where it also states that any questions on the requirements or for situations where the home is not eligible for appraisal but is already the security for a VA loan to please contact the local VA office. Things that can flag a home as ineligible for a VA appraisal is if it is clearly deteriorating or in obviously bad condition, unless there is some way of assuring that the home can be repaired to meet the VA MPRs. For homes that already have a valid appraisal, a new appraisal can be requested. From the Pamphlet: “No new appraisal can be requested on property which already has a valid VA value determination…Property is ineligible for VA appraisal if any party of interest to the transaction, other than the purchaser, is debarred Government-wide, or otherwise excluded from participation in the Loan Guaranty program due to a VA-imposed sanction for substantially prejudicing a veteran by either

-failing to correct justified construction complaint items
-violating VA Minimum Property Requirements
-deviating from plans and specifications without VA approval
-failing to honor other contractual obligations on houses previously built and sold with VA -financing, or using a sales contract or marketing method or practice which VA considered to be unfair or unduly prejudicial to the veteran involved.”

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