What To Do If A VA Appraisal Comes In Low

A VA appraisal is a key step in the VA loan process and one that can directly impact whether your home purchase moves forward.

This guide will explain how VA appraisals work, what happens if the appraisal comes in low, whether you can walk away from the deal and what options you have if there are valuation issues.

What Is a VA Appraisal?

A VA appraisal is not a home inspection, though the terms are often confused. An inspection is for the buyer’s protection. An appraisal protects the lender.

The VA appraisal confirms two things:

1. The home meets the VA’s minimum property requirements.
2. The home is worth at least the agreed-upon purchase price.

Lenders rely on the appraisal to ensure they aren’t financing more than the property is worth.

The VA appraisal process includes a review of the home and a look at comparable properties in the market to see how the home measures up. Appraisers assess the home’s roof, attic, basement and mechanical systems.

What Happens If the VA Appraisal Comes in Low?

A VA appraisal can come in below or above the contract price. If it comes in low, the VA will base its loan guarantee on the lower appraised value, not the contract price.

When this happens, you typically have three options:

1. Request a Reconsideration of Value (ROV).
Your lender can ask the VA to review the appraisal if there’s evidence the value should be higher.

2. Renegotiate with the seller.
The seller may agree to lower the price to match the appraised value.

3. Pay the difference in cash.
You can move forward with the purchase by paying the gap between the purchase price and appraised value out of pocket. This amount cannot be financed and does not count as a down payment.

Can You Walk Away If the VA Appraisal Comes in Low?

Yes. The VA loan program features an escape clause permitting the borrower to walk away from a home loan penalty-free in cases where the appraised value is lower than the asking price.

The borrower isn’t required to come up with the cash difference to complete the transaction and can’t be penalized for refusing to pay the difference.

If the purchase agreement does not provide an escape clause, the lender must add one to the loan agreement.

What Causes a VA Appraisal to Come in Low?

A VA appraisal can come in low for various reasons, which are often out of the seller’s or borrower’s control.

• Home Appearance: According to Berkshire Hathaway Home Services, curb appeal and home design can significantly impact a home’s appraised value. Overgrown landscaping, hazardous or invasive plants, dead trees and dirty or damaged home exterior features can lower your appraised value. Outdated interior or exterior features can also make a big difference.
• Lack of Comparable Properties: Appraisers need home sales data to accurately determine your property’s value, according to Kairos Appraisal Services. “Flipped” homes in your area that resold at a significant increase can skew property sale comparisons. On the other hand, Kairos said, if there aren’t enough recent sales in your area, appraisers may have to compare your home to homes in other areas, which could also increase or decrease your home’s appraised value.
• Changing Market Conditions: According to Kairos, changing market conditions can limit available comparable sales data. If your market just became hot or prices are increasing rapidly, backlogged and backward-looking sales records may not be able to keep up with the market.

Can I Get a Second VA Appraisal?

You can’t request a second appraisal just because you think the home is worth more than the appraisal provided in the home’s Notice of Value (NOV).

However, you may be able to request a second appraisal or reconsideration of the NOV if you believe the appraiser missed information that could affect valuation or the appraisal fell short of VA standards or other applicable guidelines.

You cannot request a VA appraisal for any property which already has a valid NOV.

However, a non-VA appraiser can provide an additional appraisal to support a request to increase the value.

According to the VA’s lender handbook, lenders or sellers must cover the cost of a second appraisal unless the veteran purchaser requests the reconsideration of value themselves.

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