The VA Comparable Sale
Part of the VA loan approval process includes evaluating the property being purchased. You, the borrower, will be reviewed based upon your credit history, your income and other factors. The property must also be approved and even though you’re the most qualified borrower on the face of the earth, if the property isn’t up to snuff, the loan won’t close.
The VA appraisal includes information about the age and condition of the house as well as provides an estimated market value of the property being purchased. This value is determined by comparing the sales price on the subject property with recent sales in the area. These recent sales are called “comparable sales” or sometimes simply “comps.” What exactly are comps?
VA appraisals must contain no fewer than three sales in the area that have closed within the previous 12 months. If three can’t be found, the appraiser must explain the lack of recent comps or otherwise the loan can’t be approved. This is common in lightly populated or rural areas in which case the explanation is rather easy to understand and the appraisal could be accepted.
A comp must be within the subject property’s neighborhood, ideally within a few blocks of the subject. If the comp used is out of the neighborhood and in another development, it’s possible the comp will be thrown out by the lender and ask that the appraiser keep looking.
A comp must also be similar to the subject property. For example, an appraiser can’t use a single family home as a comparable sale if the property being financed is a condo. In fact, if the property is a single family home and it’s one-story, the comps should also be one story homes.
The underwriter who reviews the appraisal will also check to see if there are comps in the area and if there are better comps than the one provided, the underwriter will ask for a revision.
An appraisal is sometimes called a combination of art and science. It’s not exact nor claims to be. But value is supported by recent sales, and if there are none, the loan approval will be in peril.