VA rules require a loan application to approve both the borrower and the property independently. Lenders base the loan amount on the lower of the sales price or the appraised value. Most times that’s not an issue as the sales price and appraised value are most often the same. Yet sometimes they’re not. Sometimes the value comes in differently than the buyer, seller and lender might expect. What happens when the sales price and appraised value are different?
First, if the appraised value is higher, nothing really changes. The lender uses the sales price as the loan basis. But when the value is lower, that presents a problem. What can you, the borrower do when the value comes in lower than expected?
This can happen in both depressed markets and white-hot ones. Appraisals are based upon historical data, typically within the previous 12 months, with more emphasis placed upon sales that happened more recently. Say the area is very popular and homes are selling for asking price and more. The “days on market” number is ridiculously in favor of the seller. If a sales contract works out to a $125 per square foot number but recent sales in the neighborhood come in a $100 per foot, the appraised value just might come in lower than required.
On the other hand, if the property comes in lower because recent sales have been on the decline, the same problem emerges—lenders will use the lower of the sales price or appraised value.
You, the borrower won’t have too much impact on protesting the value. In fact, unless there’s a glaring error on the appraisal report, neither can your lender. The only person that might have an impact is your real estate agent who may be aware of recent sales that support your contract price that never made it into the multiple listing service.
There is a wall between an appraiser and everyone else to avoid the possibility of undue influence on the outcome. You may protest all you want but the appraiser can only use what is recorded as a recent sale. Lower appraised values don’t happen very often, but they do happen.