You’ve found your home, gotten a VA loan pre-approval and the seller has accepted your offer.
You’re finally on your way to owning the home of your dreams – until the VA appraises the home’s value as less than expected. Now your loan is in jeopardy. Is there anything you can do to get the closing back on track?
Fortunately, all is not lost if your appraisal comes in low.
The VA’s tidewater and reconsideration of value (ROV) processes can help you get your dream home, even if the appraisal doesn’t match the sale price.
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What Is the Tidewater Initiative?
If you are buying a house with a VA loan, an independent VA appraiser has to certify that it is worth at least the mortgage loan value. You can read more about the VA loan process here.
Selling prices of similar homes are a key factor in the VA’s appraisal process, according to the VA’s lender handbook, VA Pamphlet 26-7. Appraisers consider comparable properties in your area to estimate your prospective home’s value.
The Tidewater Initiative Process
The VA tidewater initiative requires VA appraisers to notify the lender in advance if the house appears like it won’t appraise as expected, according to VA Circular 26-17-18. The lender then has two business days to provide additional information to the VA appraiser for reconsideration.
Your lender or your real estate agent may be able to provide more comparable properties (or “comps”) to justify the home’s sale price. Due to their knowledge of the local housing market, the lender and buyer’s agent might have access to more relevant comps than the VA appraiser used in the original valuation.
If the appraiser agrees these new comps are relevant, they will re-evaluate their estimation of the home’s value. Then, the VA appraiser will publish a final assessment of the home’s worth in a Notice of Value (NOV). If the lender provided additional comps, the appraiser must disclose whether they used them or not. If they didn’t, they must justify the comps exclusion in an addendum to the NOV.
What Happens If the Appraisal Comes in Low on a VA Loan?
If the VA appraisal doesn’t support the purchase price even after the tidewater process, you still have a few options to keep the sales contract on track for closing.
The next step you should consider is approaching the seller with the information on the VA appraisal value. Depending on the market and the owner’s motivation to sell, you might find the owner is willing to lower the sales price to appraisal value. This is a win because you will pay less for the property and have lower monthly mortgage payments.
If the seller isn’t willing to lower the price, you can appeal to the VA to reconsider the appraised value.
What Is a Reconsideration of Value?
A VA reconsideration of value (ROV) is a formal process that you, the borrower, initiate to ask the VA to increase the appraisal value of the home you want to buy. You can initiate this process through your lender, but you must do so in writing, according to VA-Pamphlet 26-7.
How a Reconsideration of Value Works
You can appeal for an ROV based on two reasons, according to these reconsideration of value requirements. You can either request the ROV based on different sales data than the appraiser used initially or based on a disagreement about the factual data or analysis in the appraiser’s report.
If you are requesting an ROV based on different sales data, here are some things you should include in the request, according to the VA:
- A sales grid of three comps of houses that have recently closed in the same market
- MLS “cut sheets” with relevant data on each of the comps, including seller’s concessions
- A “concise narrative” about why these comps might be more accurate than the one the appraiser used.
If you are requesting an ROV based on a disagreement with the appraiser’s analysis or data, here is the information you should include in your request:
- A narrative explaining why you believe the appraisal is incorrect
- An explanation of any information you think is wrong in the appraiser’s report
- Documentation to support these statements
Your lender or your real estate agent can put together this information. Appraisal reconsiderations aren’t uncommon in the mortgage industry, so your lending professional will know what to include.
Supporting your case with this relevant data isn’t a requirement, according to VA Pamphlet 26-7. However, if you don’t, you’ll have an uphill climb in getting the VA to reconsider its earlier decision.
Less Than 10% Valuation Change
If your requested appraisal change is less than 10%, the VA has five days to review the original NOV and any additional data you send. At that point, the VA may or may not issue an amended NOV, depending on what they find.
More Than 10% Valuation Change
Requested changes of more than 10% will trigger an automatic field review by the VA, which they must complete within 20 business days, according to the VA’s reconsideration of value requirements.
What If My ROV is Denied?
If the VA denies your ROV and the seller won’t decrease the price, ask yourself if the house is worth it. If your purchase contract has a financing contingency (they usually do), you can back out of the contract based on the VA appraisal value.
If you still want the house, you can pay the difference between the appraisal value and the purchase price out-of-pocket since the VA won’t guarantee a loan higher than its appraisal amount. The seller may even agree to split the difference with you by lowering the purchase price by the same amount you are willing to pay at closing.
So for an appraisal gap of $15,000, you could pay $7,500, and the seller could drop the asking price by the same amount.
However, be wary of paying additional money to cover appraisal gaps. You may spend more than the home is worth.
VA Tidewater vs. Reconsideration of Value
If your VA appraisal comes in low, don’t sweat it. There are options for the VA to reconsider its appraisal value. VA appraisers trigger the tidewater process automatically when they provide notice to the lender that their planned appraisal value is lower than expected. This allows the lender to provide additional data to the appraiser.
The ROV is a process that you initiate in writing through your lender. Your lender or buyer’s agent will help you provide information to justify this formal appeal.
If neither of those is successful, you’ll have to come up with the difference in cash, find another loan or potentially have to walk away from the purchase.
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