Military buyers wait on pins and needles for the results of the VA appraisal. A low appraisal value sends a stinging message to would-be homebuyers: This deal might not fly.
Don’t toss that transaction out the window just yet. A fighting chance remains for those buyers who can show that a VA appraisal value is erroneously lower than the asking price. Let’s talk about the VA’s Reconsideration of Value.
The VA recognizes that appraisal mistakes can happen. Value-adding features can be overlooked or suitable comps may have been left out. Appraisers might have made a mistake calculating square footage or used a comp in the original appraisal that isn't truly comparable (maybe recent renovations weren't known or factored into the equation).
That’s why the VA set up an appeals process known as the Reconsideration of Value.
The Reconsideration of Value (ROV) allows anyone involved with the transaction (buyer, seller, or agent) to challenge an appraisal value.
The ROV is certainly no guarantee of good results. But it does at least give buyers a shot at a higher appraisal value and a successful VA purchase. To improve your odds of a successful ROV, you’ll need to do more than file a request.
Send as much information as possible that supports a higher appraised value:
In some cases, the VA buyer may also need to provide a signed letter indicating their desire for a Reconsideration of Value.
The first stop for an ROV is with the lender. Typically, a Staff Appraisal Reviewer (SAR) will review the Reconsideration request and, if it has merit, send the documentation to the appraiser. Depending on the appraiser's response, a lender's SAR team can escalate the request directly to the VA. In some cases, the lender may send the ROV request immediately to the VA.
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Buyers can be crushed upon learning that the Reconsideration of Value has been denied. You typically have three options if that happens:
1) Ask the seller to lower the purchase price. To some sellers, keeping a buyer on the hook is worth a lower purchase price. In other markets, a seller would never drop the purchase price. It’s always an option worth exploration, so definitely talk to the sellers about negotiating a lower purchase price.
2) Make up the difference in cash. Buyers can also choose to make up the difference between the purchase price and the loan value in cash. Obviously, this can be a risky maneuver, particularly in areas where home values are still falling. Be careful before pursuing this route. If you ultimately decide to make up the difference in cash, you may be able to lower your VA Funding Fee if you're putting down at least 5 percent.
3) Walk away from the deal. VA loans protect a buyer's earnest money in the event of a low appraised value.
Appraisal values can be tough to predict (and tough to challenge). What’s certain is that with so many military buyers choosing the 100 percent financing offered by VA loans, a low appraisal value can be a devastating surprise.
There is no set time for how long the ROV process may take but, beyond a solid CMA and a good contract, there’s little to do besides wait and hope for the best. With a little luck, your client’s appraisal value will meet or exceed the VA loan value, and you’ll soon be celebrating your latest sale.