VA loans are an essential resource for veterans. This type of home loan has a low interest rate, no down payment requirement in most cases, no earnest money deposit, and higher loan limits than other mortgage types.
In addition to these benefits, VA loans include a unique safeguard: an appraisal process designed to protect buyers from overpaying for their real estate.
The VA Tidewater appraisal process is a crucial step in the homebuying journey for those taking advantage of a VA loan. This article will provide a brief summary of this final step toward obtaining the keys to your new home.
What is a Tidewater Appraisal?
The VA Tidewater Initiative is meant to protect borrowers with VA loans if it’s suspected that the appraised value is lower than the agreed-upon purchase price.
This ensures that the borrower is not overpaying for their subject property. It also gives the seller an opportunity to offer a lower purchase price if they still want to go through with the sale.
Almost every home purchase requires an initial appraisal before the sale, but the Tidewater process goes further by emphasizing strict safety and habitability standards set by the VA. Real estate agents must justify the sales price by providing comparable sales in the area or other relevant information, such as the property’s value-adding features.
When Does the Tidewater Initiative Kick In?
The Tidewater process is initiated after the initial appraisal report has been completed. Before this, the VA buyer and the seller agree on a purchase price, which is then presented to the lender.
The lender orders an appraisal from an approved VA appraiser, who can then initiate the Tidewater process if the appraised value is significantly lower than the sale price.
The Tidewater VA Appraisal Process
A VA appraisal ensures that the home is safe and that the purchase price closely matches the total value. If there is a vast difference between the appraisal and the list price, an appraiser can initiate the VA Tidewater appraisal process to protect the buyer from an unfair deal.
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Initiating the Tidewater Appraisal
First, the lender will order an appraisal from a qualified professional. This appraiser will assess the value of the property based on comparable recent sales, taking into consideration things like habitability and price per square foot.
Instead of simply submitting a low appraisal and leaving the buyer to negotiate with the seller, the appraiser will notify the lender that they are initiating the Tidewater appraisal process. The lender will then inform the point of contact for the sale, usually the seller’s agent.
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VA Appraiser Gathers Additional Information
Now, the seller’s real estate agent must provide the VA appraiser with additional comps and market data to defend the listing price.
These can’t just be listings on the Multiple Listing Service but complete sales that have already been appraised. If the agent wants to use their own pending sale, they must provide a contract price.
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Reviewing Final Appraised Value
The next step of this appraisal process is for the Staff Appraisal Reviewer to examine all the information provided by the listing agent. Based on the findings, they will issue a Final Notice of Value (NOV), which is the set-in-stone price according to the Department of Veterans Affairs. The lender will now deny any loans that are above this price.
Now, the buyer has a few options if they want the home. The first and easiest is to simply negotiate with the seller on the price, showing that the final appraisal was much lower and that the home is not worth the high price. Sometimes, sellers will agree, and the home sale can go through.
If the Final Notice of Value is lower than the sales price and the seller won’t budge, then the buyer can appeal through a Reconsideration of Value (ROV), where they provide three additional comparable sales that had not yet been included and have the VA appraisal report scrutinized for errors.
The borrower will submit a letter to their lender explaining why they believe the VA appraisal was too low, along with evidence. This will have to include a Reconsideration of Value Grid explaining why the new comps are more relevant than the original comps, such as additional features that were not considered at the first pass.
Benefits of the Tidewater Appraisal
From the buyer’s perspective, the VA Tidewater appraisal process is an excellent choice, but it also benefits the market overall.
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Protects Veterans from Overpaying
The primary benefit and the main purpose of the Tidewater Initiative is to protect veterans from overpaying for their homes. Both the VA and your loan officer aim to ensure that you get the best deal possible, preventing you from taking out a larger VA loan than necessary.
Additionally, VA appraisals include a thorough check of the home for stringent safety qualifications, ensuring you receive a habitable property.
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Ensures a Fair Market Value
A VA appraisal provides updated information to the marketplace, ensuring that other home buyers have accurate comps for their own homes, even if they don’t have a VA loan. This helps to equalize the market by providing fair, detailed assessments of what a property is worth in a specific area.
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Promotes Transparency and Communication
Any real estate agent aware that a buyer is using a VA loan will know that the Tidewater Initiative will slow the progress of a sale and make it more difficult to get their commission. As such, they are incentivized to make sure that listing prices are accurate, reducing difficulties for everyone involved.
Are There Any Downsides to the Tidewater Appraisal?
The Tidewater VA appraisal is very beneficial to VA buyers, protecting them from unscrupulous sellers who will attempt to price gouge them. These benefits greatly outweigh the downsides, which are mostly related to the time it takes to complete the process. However, borrowers need to understand that there are a few inconveniences associated with the Tidewater initiative.
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Potential Delays in Closing
Buyers using a VA loan typically want to move into their new home as quickly as possible. However, the VA Tidewater appraisal can take some time to complete, potentially prolonging the homebuying process. This can be particularly frustrating if you have a set move-out date for your current residence or are in the process of selling your previous home.
Since the home buying process can already be lengthy due to negotiations with the seller, the additional time required for the Tidewater appraisal can further delay closing.
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Relies on Accurate Information from Seller/Agent
Unless you appeal the VA appraisal using a Reconsideration of Value, you are relying on the seller and their agent to gather the appropriate market information to prove that the home is worth as much as they are asking.
If the agent cannot find appropriate comparable sales or accurately interpret the data, you may have to negotiate with the seller or go through the appeals process, leading to additional delays and stress. This situation might force you to hire your own experts to assist you.
Conclusion
The Tidewater VA appraisal is a crucial way to protect a VA borrower from overpaying, and it also helps to equalize the market by preventing the overvaluation of properties. While it may seem difficult, the Tidewater Initiative is relatively simple, and it ensures that you are paying what a home is worth.
If you’re ready to get a Veterans Affairs loan, you can rely on F5 Mortgage for the best rates and expert advice every step of the way. Contact us today to learn more about our products, or get a free quote in just a few minutes. We look forward to helping you achieve your dream of homeownership!
Tidewater Appraisal FAQs
Do VA Appraisals Start the Tidewater Process Always?
No, a VA appraiser may not always invoke Tidewater. This won’t happen if the appraisal is close to the contract price. It’s usually only invoked if the appraised value is drastically different from the contract price, making VA appraisers worry that the buyer may be getting a bad deal.
How Long Do You Have to Respond on a Tidewater?
Sellers and listing agents have 48 hours to respond to the VA Tidewater process. During this time, they will provide additional information, such as comparable sales in the area, to justify the cost of the property.
What Happens if the VA Appraisal Comes in Low?
If the VA appraisal is lower than expected, you can appeal by utilizing the Reconsideration of Value. With this process, the appraisal will be double-checked for errors, and you will provide additional comparable properties, along with a letter that explains why these are more fitting options for your given home.
Should the Reconsideration of Value come back the same, you can then continue negotiating with the current homeowner, take out two loans, or pay cash to make up the difference. If this happens, speak to your lender for advice on the best next step.
