Low-ball appraisals are having a dramatic impact on housing sales. But they are hitting veterans who want to use GI home loans particularly hard, according to a survey of 188 home building executives by John Burns Real Estate Consulting.
“The appraisals required to close VA loans are intended to protect veterans from overpaying, but end up preventing many from buying the homes they want,” says Jody Kahn, a vice president of the Irvine, Calif.-based consulting company.
According to Kahn, VA appraisers have become “so conservative that the (loans) rarely close.” And as a result, builders are shying away from selling to former members of the military.
“All of the builders we spoke with love selling homes to Vets, but many have grown so frustrated with the process that it is becoming financially questionable to continue,” Kahn says.
Low valuations are not harming just vets, though. They also are having a desperate impact on the value of other homes for sale in the particular community, the survey of builders found. “The low appraisals impact the value of future community sales, costing the builders significant money,” the Burns executive reports.
Builders complained that appraisers assigned by the VA lack knowledge of the local market, focus on the lowest comparables instead of the most relevant, and give no value to the options and upgrades chosen by veteran buyers. Worse, they said, there is effectively no way to have the appraisal corrected.
“The VA appraisal is final by the time the builder and lender receive it, and the process to refute the value or correct factual errors is ineffective,” according to Kahn. “The builder or lender has to appeal to the Department of Veterans Affairs, which takes a minimum of 60 days and rarely results in a change in value.”
“You can't go to a second lender if you get a low appraisal on a VA.” one builder told pollsters.
In addition, builders griped that once an appraisal is made, it sticks with the property for six months, impacting the value of other properties under contract to buyers using FHA or conventional financing.
“Across the country, builders tell us the VA appraisal program is broken, and so frustrating that some may eliminate sales to buyers using VA financing,” Kahn says.
