Friendly Fire: A VA Loan Debate
January 23rd, 2007 by Mark FlandersBuckwheat Sounds Off
Why do Listing Agents feel the need to interfere with a Veterans’ right to a VA Loan? It is a common scenario.
Many MLS listings make it clear that VA financing is not welcome. Rarely is this because the homeowner requested it. Invariably it is the listing agent’s distrust that instigates the caveat.
VA borrowers go to a loan officer expecting to use their government granted right to a VA loan. They usually have a fairly good understanding of the benefits a VA loan offers. They rarely have a bank account full of cash because our government is not known to overpay the guardians of this country. And they never expect a seller to turn up their nose at government guaranteed money.
VA homebuyers are frequently shocked to find out that many homes are not available to them because the seller will not consider VA financing. Is it the seller who refuses to consider VA financing? No, almost always, it is the sellers’ agent. In most cases the listing agent gives the seller misinformation concerning VA loans and thus convinces them it is not in the sellers’ best interest to entertain offers from buyers using VA financing. Yet in conversation with these same agents, they will tell you with obvious pride, they view their fiduciary responsibility to their seller as a great responsibility.
The most common reasons I am given by agents who wish to avoid selling a home to a VA buyer are:
- The appraisals always come in low (Is the appraisal low, or is the property overpriced)
- The VA inspector picks the house apart (There is no such thing as a VA inspector)
- The buyers don’t have any money (So what? Many conventional borrowers have none)
- The seller has to pay more fees (That’s true, about $400! Let’s blow a deal for $400)
- VA loans take longer to close (The fastest closing I had last year was VA. It took 17 days)
None of these reasons have any merit. All of these reasons are rooted in the agents unwillingness or inability to acquire accurate knowledge. This, I presume, is because they take their fiduciary responsibility so seriously.
Well Sparky, care to defend the Realtors®? Is there any defense?
Sparky Sounds Off
Okay, Bucky, as “Ask a Ninja” says, “Gauntlet thrown down, gauntlet picked up!”
You’re absolutely right. There is a sizeable segment of real estate agents out there who deliberately counsel their Sellers NOT to entertain VA Buyers. And some probably don’t even take the time to discuss the matter with their Sellers and simply fail to check the “Available for VA Financing” box on the MLS data entry form.
Almost every seasoned, experienced real estate agent at one point in their career has had a bad experience with a VA Buyer. I would suggest that for many real estate markets, encountering Buyers using a VA loan are an exception. However, in markets like Kitsap County, where you have a very substantial military presence, VA loans are very commonplace.
I myself have had several deals fall through, primarily because of VA appraisers (I’ve posted on this topic before). One of the difficulties in our area with VA loans is that the appraisal process is like playing Russian Roulette or Forest Gump’s Box of Chocolates – “You never know what you’re gonna get!” Whoever is next on the VA approved vendors list, gets the job of appraising the home. Many times it’s an appraiser from outside your market. In our area, even just a few miles can make a huge difference in price valuation.
Why can’t VA allow “area-based” appraisers to participate? Why are we subjected to this “Hit and Miss” approach?
Buckwheat Bites Back
I can empathize with you about having deals go bad.
But, it concerns me somewhat that you are seeking inspiration from “Ask a Ninja”. Is this one of your continuing education resources? That would explain many things about the level of professionalism I see in some of your real estate compatriots.
After having handled dozens of VA loan transactions, I can only think of one time that the appraiser blind-sided the deal. Even then, VA has a system in place to challenge a VA appraisal. As a matter of fact, one of the Realtors in your office successfully challenged a VA appraisal. It happens so rarely, that you just don’t hear about it.
The VA process for chosing an appraiser has been a hotly debated topic for years. So far there are no indications of change on the horizon. And just because a system ocassionally fails, is not a good argument for boycotting. The vast majority of VA transactions go just as smoothly as conventional transactions. The realtors who guide their sellers away from VA buyers, are eliminating a large pool of buyers. In many cases the realtor makes this decision for the seller, without the sellers awareness.
Real estate agents seem to think VA loans are just too much trouble. My question is, aren’t they being compensated to take that trouble on behalf of their clients? Does that not define, to some degree, fiduciary responsibility?
Sparky Bites Back
There’s some very sage advice from “Ask a Ninja.” At least I don’t have to put my license number on my business card!
You wanna talk about “Blind-Siding Appraisers?” I had a VA Buyer (young Navy couple with a cute little boy) desperately wanting the home-ownership dream. It was challenging to find them something in our market within their budget. We finally found a VA repo (a fairly new manufactured home on a 1/2 acre) and successfully won the bidding process. Everything was looking great. The appraiser came out and proceeded to critically analyze every detail and to call out a boatload of defects. And we’re not talking about structural concerns, or primary system defects, or safety-related issues. The majority of conditions were cosmetic. And, of course, all conditions were required to be corrected PRIOR to funding. My Buyers were cash-strapped as it was. There was no way they were going to be able to afford all the repairs called out by the appraiser. So we had to back out of the transaction. And guess what? The property sat vacant on the market for several more months, as VA continued to lose money!
And getting back to my earlier point about “Out-of-Area” appraisers…why is it, that in all of my years of real estate, through all of the transactions I’ve been involved in, that the ONLY deal I’ve had where the property didn’t come in at value was with a VA appraiser? And we’re not talking a few dollars, it was over $15,000 below value! The appraiser came over from Kirkland! He was totally clueless about our market here. Last time I checked, there weren’t any Microsoft Execs in West Bremerton! We spent several days going back and forth with suitable comps. I don’t know how the Lender finally pulled it off, but we got the numbers to work, but not without a lot of grief and lost sleep!
Let’s put the shoe on the OTHER foot, Buckwheat! Are there Mortgage Brokers out there who purposely steer VA Buyers away from using a VA loan, not because another loan product is necessarily a better fit for them, but because the Broker can make more money using a different loan product? Hmmmm????
Buckwheat’s Last Bite
Let’s start with your last, and weakest, point first.
Somehow, the Lender closed the deal. It cost the Realtor® some time, some grief and some sleep! Oh my, that’s a great reason to avoid VA transactions! It certainly sounds like the clients’ best interest are the top priority here. You make my argument for me. We, Realtors® and Loan Officers alike, take on the responsibility of caring for our clients’ best interests when we agree to work with that client. This is not optional behavior for a professional. Yet, because a little sleep might be lost, or because of a difficult transaction in the past, an agent will guide a seller in a direction that eases the life of the agent, but does not automatically benefit the seller. Something is seriously flawed with that line of reasoning.
Let’s apply that line of reasoning. Did you enjoy paying your taxes last year? Well then, don’t pay them this year. Do you lose sleep when a child misbehaves? Just let them misbehave then. If your dog bites a neighbor, it causes you grief. Oh well, let Cujo do what he wants, because it’s just too much trouble. I hope you get the point.
The responsibilities of Realtor®s and Loan Officers include education and research. We are supposed to find the best solutions available to our clients. Then we are supposed to present that information to our clients. VA financing is frequently a viable solution. I don’t challenge your statement that VA Loans have their own set of issues. I challenge the right of a Realtor® to decide for a client what is best for the client, without educating the client first. The benefits and the disadvantages should be presented to the seller in a clear fashion. And the seller should be allow the dignity of making his or her own decision. The property belongs to the seller. If the property does not sell, it is the client that gets hurt, the Realtor loses nothing but time.
Your issue about out-of-area VA appraisers is a valid point and I won’t attempt to argue it. It is the primary flaw in the system. It should be changed. It has not been changed. It is the nature of the game. It has little bearing on the fact that by offering to sell a home with VA financing, the Realtor® increases the number of potential buyers for a property. And THAT is the Realtor’s® job.
In addition, using your example above, the appraisal was corrected to more accurately reflect market values in this area. That happened because VA has a system in place to address that problem. And that part of the system works. A little extra labor on the part of the Agent of the Loan Officer should be shrugged off. A little extra labor is entirely irrelevant.
As to your last point; yes, Loan Officers are guilty of the same thing. It is just as inexcusable for a Loan Officer.
Sparky’s Last Bite
Well, at least you’re willing to admit that both Realtors AND Loan Officers are equally guilty!
I totally agree that as real estate professionals, we exist to serve and represent our client’s best interests. But our experiences, good or bad, help to shape the advice and counsel we provide them. So when I am working with VA Buyers, I explain to them the potential pitfalls associated with that particular financing product.
When I represent Sellers, I provide them with information on what is involved in offering their home to VA Buyers. I never deliberately or intentionally discourage anyone from using VA financing. As a Listing Agent, why would I want to limit the pool of potential Buyers by NOT offering the home to VA Buyers? Unless, of course, I know that there is something obviously wrong with the house that would make it extremely difficult to qualify for a VA loan. Even then, am I the one most qualified to make that determination?
My job is to sell the house, for as much as the market will bear, and in a reasonable amount of time. As a real estate professional here in Kitsap County, many of my clients are Active Military. Some of my most enjoyable transactions have been with VA Buyers. My first two homes were purchased using a VA loan. At the time, it was the only way I could have afforded a home.
Regardess of the difficulties associated with VA loans, ultimately, if it benefits the client, we should put our jaded experiences aside, and do what is best for our clients!
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Hmmm… VA – Nightmare who would have thought… Well, I to am living it; and its costing me cash out of my pocket!
My buyers wanted to do the VA loan even though they said they were also approved for a conventional one also. They wanted me to include the closing costs in the purchase price so they could rap it up in their mortgage. OK, I can go for that I guess. We were supposed to close on Friday the 31st and what happened on the morning before? We received a phone call that the appraiser would be out a little bit after noon!!! ARE YOU KIDDING ME???? And it just gets better! So when the appraiser comes to the door I kenneled my dogs real quick and walked through the house with him. On his way out he said, “you can tell them everything looks good here.” “Great,” I was thinking… I received a phone call around dinner time (as the buyers were doing their final walk-through) that the appraisal was coming in low and that they couldn’t find any comps. What? Somehow the appraiser came up 500 sq ft short!!!!! Did I tell you that I never even saw a tape measurer or any other measuring device the whole time he and I walked though the house! This chumps appraisal came in below the tax value – WAY below – almost $30K below the tax value and do you think the buyers agent listened to our plight to send another appraiser out or just send the original one back so I could have my contractor lend him a tape measurer and show the guy how to use it; nope. I received an email with an Amendment to Purchase Agreement @ the new appraisal price and they still wanted me to include the closing costs!
The saddest part of this whole thing is the buyers get their earnest money back because it ‘was the financing’ that fell through, I had to rework my loan for the home I was buying and had to come up with an additional $77K to close that deal, and I have to continue paying the bills at the old house until I can get another buyer! In the future, I will only accept an offer with VA financing if: the buyer signs over a signed non-refundable deposit form with the non-refundable check for $40K and a 10% check for the earnest. Oh yea, there will only be a 7 business day window to have any and all appraisals completed.
I banter, Sparky bickers. I have more class. He has more…well, this is a public forum, so I’ll just say the two words end the same.
Bryant, coming from you, that means a lot. Thanks! We have some really great and fun ideas for this site, so stay tuned!
Hey Sparky and Buckwheat, I love this blog. I think you guys are on to something with all the bantering(bickering) back and forth. Excellent format. Oh, I almost forgot to comment on the post. Good post:)
Okay Sparky, I think we covered that pretty thoroughly! What do you think?
Do you ever wonder if we talk too much?
Well, there’s bullet holes in the blog, I guess it’s time to move on to something else.
Susequent??? Is that some native Indian tribe here in Washington? Maybe a long lost cousin to Susquatch? And leave my wife out of this, okay? I wear the pants in this family, thank you very much! And furthermore, let me just say that I…hold on, my wife’s ringing her bell again….
Maureen, I rarely use VA a second time for a repeat client. The funding fee is too high on
susequentsubsequent usage. If the clients have maintained a decent credit profile with their VA mortgage, conventional financing will almost always beat what VA offers.Sparky, go ahead an puff your chest out. You know you can’t stay mad at me. Your wife won’t allow it!
Maureen, I think you’ve nailed it. Most of the apprehension with marketing homes to VA Buyers comes from a lack of agent knowledge and experience. Personally, I don’t have any problems counseling my Sellers to list their home as available to VA Buyers. However, I do have problems with certain really snotty, know-it-all Mortgage Lenders who try to tell me how to do my business. I’ve helped out a number of VA appraisers, as well, to find meaningful comps. Thanks for your comments!
Bucky and Sparkwheat: I have run into listing agents and sellers scared of VA offers, we don’t do a lot of them here, I started out in Dayton though and there they do lots of VA loans so it does not bother me. I also sometimes assume I am working with a VA buyer… they were a VA buyer when I met them. They come back from the lender as a pre-approved conventional no money down borrower. I assume their credit is good and it is easier for the lender? I had one low VA appraisal last year but we found another couple of comps for the appraiser.