Death of a Dream: VA Appraisals Re-Visited
April 3rd, 2007 by Rich JacobsonI hate to beat a dead horse, but I’m just getting really sick and tired of the whole VA appraisal process.
Yet another one of my transactions died an unwarranted premature death due to conditions imposed by the VA appraiser.
Now I fully realize that a loan underwriter takes on a signficant risk when they guarantee a loan, especially when the Buyer is putting little or no money down. As such, the underwriter has every right to determine whether or not the property poses a signficant risk of investment. In addition to determining value, the VA appraiser also evaluates the home’s primary components and systems, to further ensure that the dwelling is safe and structurally sound.
I get that. It’s prudent business practice. But what I don’t understand are the conditions for funding that the appraiser imposes that clearly have little or no bearing on value, or don’t compromise the structural integrity of the primary dwelling.
I am representing some Sellers on a really cute restored country farmhouse (You can go to this LINK and see it for yourself). It’s the kind of home that white picket fence dreams are made of.
We attracted a Buyer shortly after going on market. They loved the house! It fits their needs and wants perfectly! We negotiated our way through the inspection period to the satisfaction of both parties, and anticipated smooth sailing throughout the remainder of the transaction. The appraisal came in a couple weeks later, just slightly over value, and initially, I was told there were NO conditions.
Then, I get a call from the Buyer’s Loan Officer to inform me that there are some ‘issues’ resulting from the appraisal. “Nothing major,” he assures me. “Nothing we can’t work out.” He says that he doesn’t have the file in front of him, but that he’ll send me something as soon as he has it.
Another week goes by, and I finally get a fax from the Loan Officer. There are eight (8) conditions of Appraisal that need to be corrected prior to funding:
- Structural Pest Inspection (This is something that the Buyers had already performed and satisfied per contract).
- Install a handrail in stairway.
- Vent water heater pressure relief drain valve to the exterior of the home.
- Repair open wiring in crawlspace.
These are all ‘no brainers’ and make total sense. They all involve the safe functioning and integrity of the dwelling structure.
The remaining conditions are as follows:
- Repair and/or replace roof as needed.
- Repair and repaint all chipping paint on outbuildings due to possible lead-based paint presence.
- Remove or repair as needed shed #2.
- Remove or repair as needed shed #3.
Now realize that this home was originally built in 1913. It was completely remodeled and updated in 1993. The roof was replaced at that time (There is a small portion on the exterior that overhangs above the front door that was called out for replacement in the home inspection). There are four (4) outbuildings, including a deactivated well house. One of the structures is an old unused garage. It was never mentioned in the report. Additionally, the outbuildings were not used in the determination of assessing the property value.
My Sellers were not in a position to either repair or remove the outbuildings. The Buyers did not want the outbuildings removed. They liked them just the way they were. In their opinion, they added character and charm to the property.
As it typical in many of these situations, the Appraiser called out the conditions, but really didn’t offer much in the way of guidance or specific steps for resolving them. It was very unclear to both Buyers and Sellers as to what exactly would constitute meaningful ’repair’ of the outbuildings.
As a result, the Buyers were unable to obtain their financing, and the deal died. A very painful death at that.
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We had a nightmare of our own. We had an incompetent ape doing our appraisal. He said the house was unliviable because the tile in the kitchen had a crack (non-foundation) and there was an area of the bedroom carpet that was not tacked down. Otherwise the house was amazing. He didn’t even do comps from that area. He got comps from over 5 miles away from the home. There was nothing we could do about it. The deal fell through. After we had already paid the inspector, the termite inspector, and (here’s the kicker) the $400 for him to do a crappy job. Be VERY VERY careful with this process and DO NOT get your heart set until the keys are in your hand!
Yesterday a once in a lifetime real estate opportunity expired before I ever had a chance. The VA appraiser, one sole person, on one single day made the determination on the condition of property. Was she from the area? I don’t know. Did she really know the market? I don’t know.
But what I do know is that among her recommendations for repair were items such as refinishing the wood floors. This was obvious! This was a given. And because of the phenomenal deal, I would have been able to do this and the other repairs in grand fashion, once the deal was closed. The floors and all the other cosmetic repair recommendations she found were merely part of a completely safe and healthy house.
You see this property was a foreclosure, and much to my amazement I somehow wound up with an accepted offer with a price that was at the very least ½ of the value, the worker bees dream. What they tell a hard working, tax paying, teacher with excellent credit to look for, the suggested reward for doing what is right, prudent and smart.
I also know that any real estate agent within this market would have agreed that the property had good bones, was structurally sound, safe, and posed no health hazards for human habitation. As I read my wording in the previous sentence I get the feeling I am portraying the property as a slum. It was not. It was in I’d say, fair condition. But certainly no worse than all of the average properties I have come across in my 50 years. ANYWHERE. Heck, my sister even got a VA loan on a property that had a mirror image of the condition of this property. I remember she had to fix the screens, but did not have the “make this a complete remodel” repair recommendations from her VA appraiser.
Okay, so I learned also in my 50+ years on this planet to offer a solution when presenting a problem so here goes. VA needs to revise the appraisal process into being just that, appraisal of value. If VA is still concerned about veterans not being able to make an intelligent decision about the condition of the property then they should require an inspection. Said inspection should be written with recommendations for repairs that are consistent with current local, state, and federal codes and guideline for health, human safety and requirements for occupancy. These codes and guidelines are already documented, enforced, regulated, and administered throughout the industry. The bonus would be is they are more standardized than the VA “luck of the draw” appraiser opinion system which is now in place.
I was stumbled across this while looking up how the VA appraisal process works. My husband and I had almost the same thing happen to us when we tried to buy a house last year using a VA loan. We had the house inspected and knew there were some things that needed to be fixed and asked for the big things (mainly the roof) be repaired. Days after our inspection was done, the appraiser came out and did whatever it is they do. The report that came back left me completely speechless. She listed things like walls needing to be painted and all the carpet/flooring needs to be replaced (it was fairly new carpet that just needed cleaned)on top of saying the appraised value was $10k under what we had offered which was already $10k under asking. Yet, she never said anything about the roof, which our inspector and roofing contractors said needed to be completely replaced. So, the deal fell through and here we are, a year later, trying again. Here’s hoping we get a more competent appraiser.
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Hey Sparky – Are you a Jayhawk? Saw your picture and you are wearing a KU shirt. If so, I’m a Colorado alum from the old Big Eight days.
Part of the problem with appraisers from outside the area being used stems from current legistlation and regulatory agencies (OCC, IG, etc…) dictating to lenders the process they must implement when choosing an appraiser. They want the mortgage company/originator not to be in a postion to influence the appraiser. While the intention is well served and meant to stem appraisal fraud, in many cases the theory breaks down in reality.
My guess is we are going to see more of this over the next few years, however we eventually should come to some middle ground as the process is fine tuned. Unfortunately, the actions of a few “bad apples” are negatively impacting the customer service of ethical and professional real estate/mortgage providers.
Go Buffs!
Excellent points, Tony. I just wish there were more consistency and more clearly identified paramenters. Many times the appraiser is from outside our local market area. That can make a huge difference when determining value. And each appraiser varies regarding what constitutes acceptable conditions and the resolve of the same. Thanks for your comments!
Sparky – VA is where FHA was 4 years ago.
A year ago I attended a symposium in Washington D.C. and one of the senior managers from VA Valuation was in attendance. Needless to say, both I and several other representatives from other lenders felt VA was out of touch with the way other agencies/GSE’s viewed the appraisal process.
Flashback to four years ago and FHA had the same attitude. As we know, FHA has done a 180 on their appraisal process and is trying to eliminate the last few vestiges of archiac valuation practices via statutory change (in congress now). I have to give FHA Commisionnar, Brian Montgomery kudos for having the foresight and wherewithal to provide and drive the massive metamorphosis FHA has been involved in over the last 36 months. I seriously think FHA would be where VA is today if it would not have been for Brian Montgomery’s leadership.
On a positive note, VA is starting to open up to change…that however does nothing for you now!
Hang in there.