RELATOR ® and Seller Misconceptions about VA Loans
Many sellers who reject an offer contingent on VA financing do so because they operate under a number of false misconceptions, often provided by the listing agent representing them. For example:
MYTH: They believe it will cost them more money because of VA rules on fees the buyer can pay.
FACT: They assume there are fees which will automatically be moved to the seller. Fees which other loans programs would NOT require the seller to pay. The reality is that the buyer is often allowed to cover all the fees being charged and if they can’t, then someone like the lender or agent can cover any non allowed fees.
MYTH: Some believe that because VA loans are 100% financing, the buyer or the loan program must be shaky.
FACT: In reality, the VA home loan program due to common sense underwriting and residual income requirements often has the lowest or second lowest default rate of any program in the country
MYTH: Others believe that it takes longer to close a VA loan.
FACT: It actually, takes an experienced mortgage loan originator no longer to close a VA loan than it does a conventional loan program even though there is more paperwork involved.
MYTH: They believe the appraisal will come in low, have crazy repairs, and require they do an abnormal amount of work to bring the property up to VA standards.
FACT: VA appraisers must do more work if the value is low, and the minimum property requirements of VA are very reasonable items any buyer would want corrected. Ironically, the VA appraisal system now has more accountability than the Conventional.
"Tidewater" & low Appraisals
If the value is likely to come in below the purchase price, VA has added a step in the process to ensure the appraisal is as accurate as possible. The extra step allows the agents in the process an opportunity to provide additional information before the appraisal is finalized.
If the appraiser believes the appraisal value is going to come in lower than the sales price, then the appraiser issues what is called the "Tidewater" Initiative. It is named "Tidewater" after a conference in Tidewater Virginia when VA created this process.
The first step is for the appraiser to notify the person who ordered the appraisal "LENDER" that Tidewater is being triggered. At this point, you do not typically have any information about the appraisal, just that it might come in low.
The next step is to contact the agents (both sides) and request any additional information to support the value. The agents have 2 business days to provide that information.
The information provided is supposed to be in a grid format (like how an appraisal looks) along with a narrative. We have found that most agents do not know what a grid format is, or how to use one, so they just submit hyperlinks to properties. If you can translate the agents input into grid format, especially if you can provide 'matched pair' analysis it will significantly help make the case.
The appraiser needs to review all the information provided and comment on it in their report. That comment might be something simple, like "comps provided by agent were 6 miles away and inferior to comps used". Therefore, reviewing the comps provided by the agents and discussing options with them is important. Unlike conventional or FHA appraisals, this means the agents get to provide that information while the appraiser is still working on the appraisal and has not finalized the report.