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.
Table of Contents
Key Points
- The VA Tidewater Initiative allows borrowers to appeal a low VA appraisal by providing additional data to the appraiser, potentially increasing the home’s appraisal value.
- The process is automatically triggered once the appraiser informs the lender of the low appraisal value.
- If the Tidewater appeal fails, buyers should try to negotiate with the seller to lower the price or cover the difference out-of-pocket.
- If the Tidewater appeal and negotiations with the seller fail, the borrower can submit a reconsideration of Value (ROV) to request that the VA re-evaluate the home’s appraisal value based on new or disputed data.
- If the ROV fails, buyers might need to find additional funds, seek another loan or cancel the purchase.
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 the listing price (a process known as the appraisal) and that it is safe, secure and sanitary, as defined by the VA’s Minimum Property Requirements (MPRs). You can read more about the VA loan appraisal process here.
The appraisal value plays an important role in the VA loan process. It ensures the property’s value justifies the loan amount and, thus, helps protect the borrower and lender from potential financial loss. If the appraisal value is lower than the asking price, the borrower may not be able to borrow the amount they need to purchase the property.
However, the VA Tidewater Initiative allows borrowers to appeal a low appraisal value, provide more data to the appraiser to inform their decision, and potentially increase the appraisal value. If successful, this can get the purchase process back on track rather than complicating it or halting it completely due to a low appraisal value.
The Tidewater Initiative Process
The VA Tidewater process is fairly simple and is triggered by the appraiser and lender with no involvement from the borrower. Here’s how it works:
- The VA requires appraisers to notify the lender in advance if the house appears like it won’t appraise as expected.
- 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). This is typically issued by the lender’s Staff Appraisal Reviewer (SAR).
- 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.
- If the Tidewater process fails, the appraiser must provide a written explanation as to why.
Working With The Seller on a Low Appraisal
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 match the appraisal value. This is a win because you will pay less for the property.
This can be especially effective in buyers’ markets, where the buyer has the upper hand and can negotiate in their favor. In sellers’ markets, however, the seller may be less inclined to lower the price since they may still be able to sell at a higher price.
If the seller isn’t willing to lower the price, you can move on to your next option: a Reconsideration of Value (ROV).
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.
An ROV usually takes no more than a few days. In some cases, however, it can take several weeks.
How a Reconsideration of Value Works
You can appeal for an ROV based on two reasons, according to the VA:
- You have different sales data than the appraiser used initially, or
- There is 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:
- 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 real estate agent can compile this information. Appraisal reconsiderations aren’t uncommon in the mortgage industry, so your lending professional will know what to include.
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 Reconsideration of Value (ROV) request and the seller won’t lower the price, take a moment to evaluate if the house is worth the extra cost. VA loans require an Escape Clause in the contract, protecting you if the home doesn’t appraise at the agreed price. This clause allows you to back out of the contract without penalty if the appraised value falls short of the purchase price.
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.
The Bottom Line
If your VA appraisal comes in low, don’t sweat it. There are options for the VA to reconsider its appraisal value.
VA appraisers automatically trigger the Tidewater process when they notify 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 if the Tidewater process doesn’t yield the intended outcome. 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 walk away from the purchase.
More Reading
VA Loan Closing Costs – What to Expect
A Guide to the VA Funding Fee in 2024
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