Lending is based on risk, and an appraisal helps the lender know how much risk they are taking. Since lenders will lend as much as 100% of the value of the home there is a need to determine the current market value based on comparable sales, condition, and other factors that affect the value of the property.
Once the purchase contract (REPC) has been signed, the application has been made to the mortgage lender, and a condition lending approval given then the lender orders the appraisal to prove the current value of the property. The lender will have you pay for the appraisal at this time. The appraiser is independent of the lender, real estate agent, seller, and buyer. This impartiality helps ensure that a proper market value is determined without outside pressure to reach a specific valuation.
A VA-certified appraiser isn’t only tasked with determining the current market value of the home, but they must also verify that the property meets the Minimum Property Requirements (MPRs) set by the VA. The reason for this requirement is to ensure that the property is safe and ready to be moved into.
Once completed the VA appraisal is delivered to the mortgage lender who checks it against the lenders underwriting requirements, and also provides you, the home buyer, with a copy.
What if the Appraisal is Less Than the Value Required by the Lender?
If the appraised amount determined by the VA-certified appraiser is less than needed to complete the loan then you could request a Reconsideration of Value (ROV). Additional sales comparable are provided to the appraiser often from the agent and through the lender. If that fails then you may work together with your agent to renegotiation the the sales price to one more inline with the current market value of the property. The third option is to pay the difference at closing – this means that the buyer is paying more than the appraised value for the property.
Minimum Property Requirements -vs- Home Inspection
The VA-certified appraiser must verify that the home meets the minimum property requirements, but they are not the home inspector. A qualified home inspector looks for deferred maintenance, structural issues, and problems to a greater more thorough extent. Most agents will advise that a proper home inspection be done when purchasing a home. This could save serious cost and headache down the road.