VA Tidewater: Steps to Challenge a Low VA Appraisal

Low VA Appraisal with the VA Tidewater Appraisal Process

The VA appraisal is a vital, dual-step process in the journey of purchasing a home.

It involves an evaluation of the property to ensure it meets basic health and safety standards, referred to as the minimum property requirements. Additionally, the appraisal assesses the value of the home.

Encountering an appraisal that falls short of expectations can leave homebuyers disheartened. However, it’s important to understand the options available for contesting these appraisals.

What occurs if a VA appraisal values the property lower than expected? 

If a VA appraisal values the property below the purchase price agreed upon by the buyer and seller, it indicates the property is considered worth less than the negotiated amount. However, a lower-than-expected VA appraisal doesn’t signify the end of the purchasing process. VA buyers have the opportunity to contest a low appraisal through the VA Tidewater process or by requesting a Reconsideration of Value (ROV).

VA Tidewater Initiative 

The Tidewater initiative by the VA is designed to address issues with low appraisals. It enables the appraiser to seek extra comparable sales and market information to justify the sale price before completing the VA appraisal. This policy is generally quicker than undergoing a formal reconsideration of value, as explained further below.

VA Tidewater Initiative 

The Tidewater Initiative is a straightforward process:

1. VA appraisers inform the lender that the valuation of the home is expected to be below the agreed purchase price.
2. This notification to the lender about the potential shortfall in property value is referred to as invoking the “Tidewater Initiative,” as outlined in VA Circular 26-17-18.
3. The appraiser indicates that recent sales comparables do not justify the selling price.
4. The lender is given a 48-hour window to present the appraiser with additional comparable sales data that could validate the buying price.
5. Lenders often rely on the buyer’s real estate agent to source relevant and recent comparable sales.
6. With these new comparables, the appraiser finalizes the appraisal report.
7. Should the Tidewater Initiative not result in an adjusted increase in value, the appraiser is required to provide a detailed written explanation.
8. Typically, a Staff Appraisal Reviewer (SAR) from the lending side will issue a final Notice of Value (NOV) based on the appraisal report, which sets the official value for VA purposes. If the appraisal value remains low, buyers can then proceed to a formal appeal through a Reconsideration of Value (ROV).

Reconsideration of Value (ROV) for VA Loans 

The ROV is an official channel for contesting a low VA appraisal once the appraiser has made their evaluation.

While there’s no assurance of a raised appraisal value through an ROV, it offers buyers a chance to argue for a higher valuation and secure their VA loan purchase. It’s advisable to discuss the best approach to an ROV with your lender.

Reconsideration of Value Procedure 

Acknowledging that appraisal errors can occur—for instance, missing out on value-adding features, overlooking suitable comps, incorrect area calculations, or utilizing non-comparable sales—the VA has established the Reconsideration of Value process.

To initiate an ROV, collaborate with your lender and real estate agent to compile:

1. Unconsidered Comps: Submit up to three recent comparable sales not included in the initial appraisal, with each sale closing before the report’s effective date. These should be detailed in a Reconsideration of Value grid with MLS printouts for each comp, accompanied by a summary explaining their relevance over the appraiser’s choices.
2. Identification of Errors: Examine the original appraisal for inaccuracies—whether it’s outdated sales data, discrepancies in property comparisons regarding size, age, or condition. Document these issues in a narrative along with supporting evidence.
3. Borrower’s Letter: A written plea from the borrower requesting the Reconsideration of Value, detailing their perspective on why the valuation should be higher, including their estimated value.

Following these steps, submit your ROV request to the appropriate VA Regional Loan Center through your loan officer.

The concluding phase is awaiting the VA’s decision on the ROV. Even if the ROV doesn’t succeed, alternative options remain available.

How Long Does the VA Reconsideration of Value Take to be Processed?

It can be as quick as a few days but may extend to a few weeks, depending on various factors. As such, the timeframe for receiving a response to an ROV request can differ.

What Happens If the ROV Doesn’t Succeed? 

Navigating home purchases can be unpredictable, especially when it comes to appraisal values and their challenges. Discovering that a Reconsideration of Value request has been rejected can leave buyers feeling disheartened.

In such cases, you generally have three paths forward:

1. Negotiate a Lower Price with the Seller Leverage the lower appraisal to argue that the seller’s expectations might exceed the property’s actual value. While not every seller will be open to negotiation, it’s a strategy worth considering. Consult your real estate agent on the best approach to potentially reduce the purchase price.
2. Cover the Difference Yourself If the appraised value falls short of the purchase price, buyers have the option to pay the shortfall in cash. This decision should not be taken lightly, as it involves evaluating whether paying above the appraised value is a prudent choice. For those who decide to proceed, contributing at least 5% down may reduce your VA Funding Fee.
3. Opt Out of the Purchase VA loans offer protection for a buyer’s earnest money if the appraisal does not meet expectations. This is thanks to the VA Amendment to Contract, which ensures buyers can reclaim their earnest money deposit if the appraisal value is insufficient.

For further guidance on dealing with low appraisals in VA loans, consult with your loan officer.

Hoping for the Best Appraisal Values are inherently unpredictable and challenging to contest. With many military buyers opting for VA loans’ 100% financing, encountering a low appraisal can be unexpectedly distressing.

The duration of the ROV process can vary, but aside from presenting a strong Comparative Market Analysis (CMA) and a solid contract, the only remaining step is to wait and hope for a favorable outcome. With some luck, the appraisal value will align with or surpass the loan value, leading you to celebrate a successful transaction.

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