The VA appraisal: Notice of Value, Tidewater and what to do if it comes in low

What the appraisal does

The appraisal has two jobs. The first is value: VA guarantees a loan based on the reasonable value it establishes, so the Notice of Value sets the ceiling for your loan amount. The second is condition: the appraiser checks the home against VA's minimum property requirements, often called MPRs.

VA describes the goal of those requirements as a home that is habitable from a standpoint of safety, structural soundness and sanitation. They are not a full inspection. Items such as cosmetic wear usually fall outside them, while things like hazards or systems that do not work may be listed as required repairs.

The appraisal is not an inspection

VA's quick reference says plainly that a home inspection is not required for a VA loan, but strongly recommended, and that the VA appraisal does not serve as an inspection. A private inspector looks much more closely at the roof, systems and structure on your behalf. Build an inspection period into your offer.

The Tidewater procedure

VA has a built-in early warning. Before a purchase appraisal is completed, if the appraiser thinks the estimated value will be below the sales price, the appraiser notifies the requester named on the appraisal order. That person, or others they contact, then has two business days to submit more sales data for the appraiser to consider. VA first piloted this process in the Tidewater area of Virginia, which gave it its name.

Agents who prepare a short list of recent comparable sales before the appraisal can respond quickly if the notice arrives.

Reconsideration of value

After the Notice of Value is issued, you can request a reconsideration of value through your lender. A VA bulletin explains that within five business days VA staff review the appraisal report, any new data submitted and the market data in VA's appraisal system. If they conclude the market supports a higher value, VA issues an amended Notice of Value.

A reconsideration works best with specific, recent, nearby sales that the appraiser did not use, along with why they are comparable.

The VA escape clause

VA requires the escape clause in VA purchase contracts signed before the Notice of Value is received. It says you will not forfeit earnest money or be obliged to complete the purchase if the price exceeds VA's reasonable value. You keep the option to proceed anyway. If the clause is missing, VA says the contract must be amended to include it before closing, and the lender is responsible for making sure it is there.

Required repairs and waivers

If the Notice of Value lists required repairs, the seller often handles them before closing, though who pays is negotiable. VA policy also lets you request a waiver of MPR repairs listed on the Notice of Value with your lender's agreement, as long as the home remains habitable from a safety, structural and sanitation standpoint.

How often values fall short

VA's quick reference reports that 90 percent of initial VA purchase appraisals met or exceeded the contract price in fiscal year 2023, and that VA appraisals averaged seven business days in 2023. A low value is the exception, but planning for it keeps your options open.

The bottom line

The VA appraisal sets the value VA will lend against and checks the home's basic safety and soundness. Use the Tidewater window and reconsideration of value if value looks low, keep the escape clause in your contract and get a separate inspection.