One of the parts of receiving a mortgage loan is the appraisal. An appraiser will come to the property and appraise its value, which helps determine how much a lender will give you for a mortgage loan on the property. When getting a VA loan, this same process is observed, but the VA has stricter guidelines when it comes to its appraisals. Since the VA guarantees these loans, they want to ensure the house meets their standards.
Sometimes, these stricter guidelines can make things difficult for a borrower. For example, if the house you are buying is on the market for $250,000 and you have offered to buy it for $230,000, but the appraisal values the house at $220,000, the VA will only lend you the $220,000. This means you will need to either renegotiate with the seller to drop the price by $10,000, or you need to make up the difference on your own.
Before a VA appraiser files their official appraisal value, they will contact the lender and tell them the value appears to be less than the purchase price, which invokes the Tidewater Initiative.
The lender has two days from there to provide the VA with comparable homes to support the purchase price, and they usually work with the buyer’s real estate agent for help with this. If the appraiser does not find an increase in value from the compared homes, they are required to provide a written explanation as to why that is.
At this point, the lower appraisal value is considered official, but you can then seek a formal appeal, known as a Reconsideration of Value (ROV).
Reconsideration of Value
Getting an ROV means the VA reevaluates how much the home is worth, and this has the potential to change the VA appraisal amount.
To get the ROV you can try to find other similar houses for sale to compare the one you want to, and if you are able to find other homes similar to your expected price range, the VA might be willing to reconsider their appraisal. There is always a chance that the appraiser missed something or made an error, so you might be able to get the VA to reconsider.
When the ROV Fails
ROVs do not always work, sometimes the appraisal value is still too low to get the full loan amount you need to buy the house. If this happens, you can attempt to renegotiate the price with the seller; considering the circumstances, they may be willing to lower it to the VA appraisal value. The lower appraisal value might make the seller realize the house is overvalued and make them willing to lower the price; often the price is set higher because of its sentimental value to the seller.
If the seller is not willing to lower the price, and this is your dream house, you might be able to cover the costs yourself. Unfortunately, you will have to pay this difference in cash, out of pocket, so it is not always a viable option.