The Department of Veterans’ Affairs announced last week that it would allow desktop and exterior-only appraisals for some transactions.
The changes took effect July 27. In a department memo, the VA explained that the move was a response to “high demand for appraisal services and limited availability of appraisers in certain local market areas.”
But the VA said that its “willingness to accept” alternative appraisals was not a substitute for an appraisers’ assessment of the appropriate scope of work, and whether a desktop or exterior-only appraisal could result in a “credible report.”
Lenders had better be sure that an alternative appraisal is appropriate when requesting one for a property.
If an appraiser accepts an assignment, but later decides that a desktop or exterior-only appraisal is not appropriate, they can kick it back to the VA within two business days. The VA would then notify the lender, and restart the process to find an appraiser.
The VA explained that allowing desktop and exterior-only appraisals would help to reduce delays and address a longstanding shortage of VA appraisers.
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Accepting desktop appraisals would allow an appraiser from “outside the market area, but with appropriate credentials for the jurisdiction of the property,” to do the appraisal, even when a local VA appraiser is not available. Exterior-only appraisals could help in cases where accessing the property could be difficult or “cause undue delay” in the appraisal process.
The department listed some additional caveats. In order to have the alternative appraisal options, lenders must be approved to participate in the VA’s Lender Appraisal Processing Program. The purchase price can’t exceed the Federal Housing Finance Agency’s conforming loan limits, which top out at $970,800 for 2022.
This won’t apply for homes that are being renovated — the department was not immediately available to explain the logic of that choice — manufactured homes, or condominiums.
In order to have the alternate appraisal option, the veteran has to either make a down payment of at least 20%, or there must be a bottleneck with VA’s appraisal assignment system. If seven business days have elapsed since the lender requested an appraisal, and it remains unassigned, the lender can ask for a desktop appraisal.
It’s not clear how often there are delays of seven days or more between when a lender requests a VA appraisal and when it is assigned. The VA did not immediately respond to a request to comment.
The VA said it would conduct oversight of alternative appraisals through its current audit process and “address any willful or negligent practices.”
The VA’s lengthy appraisal process — or, at least, the perception that it is more difficult — is one reason sellers prefer borrowers with other kinds of financing over veterans.
The department is the latest federal mortgage player to back alternative appraisals. Freddie Mac and Fannie Mae started accepting desktop appraisals for some mortgages this year. Freddie Mac has also ventured into hybrid appraisals.
The move to accept alternative appraisals is the cabinet-level agency’s latest response to high demand for appraisals.
In rural areas, longer travel times between appraisals, coupled with exacting requirements of the VA process, deter available VA-certified appraisers. In November 2021, the agency raised appraisal fees and lengthened the allowable turnaround times in some high-demand markets.
