Facing a declining housing market, the U.S. Department of Veterans Affairs (VA) distributed a document (Thursday, December 06, 2007) reaffirming that the agency requires appraisals at fair market value for properties used as security for a VA loan. Download Circular 26-07-4 -Valuing Properties During Periods of Declining Market.pdf
In a document signed by Judith Caden, Director of the VA's Loan Guaranty Service, the VA provides the following guidance to appraisers (Chapter 11, Section 8, Lender's Handbook):
A summary of market trend indicators to consider when performing an appraisal is provided below.
- Determine whether sales or financing concessions are being offered in the subject property's market area. If so, determine the effect on the sales price of comparable properties.
- Consider the supply and demand for available housing in the subject market and compare the average listing price to the sales price ratio in the subject market area.
- Consider the marketing time trend (increasing or decreasing) in the subject marketing area.
- Analyze sales listings, contract offers, and unsettled sales to determine if market conditions changed between the date each comparable sold and the date of the subject property appraisal. Provide an addendum if a significant market transition is indicated due to changes in employment opportunity, housing supply/demand, average marketing time, seller concessions, etc. However, appraisers should certify in the appraisal report,
"I have considered relevant competitive listings/contract offerings in performing this appraisal, and any trend indicated by that data is supported by the listings/offering information included in this report."
General Guidance: Certain areas around the country are experiencing what is frequently referred to as a "declining market." We recognize that some lenders may object to receiving appraisal reports that contain comments or analyses of negative market conditions and, consequently, may request that such items be removed. VA expects appraisal reports to contain negative comments when they accurately reflect market conditions.
Be assured that VA has no objection to guaranteeing a VA loan in a declining market area as long as the appraiser has properly documented the facts of the case. Furthermore, secondary market sources have indicated that they will purchase VA loans in declining markets as long as the appraisal analysis is proper and complete.
Download Circular 26-07-4 -Valuing Properties During Periods of Declining Market.pdf
Author: Brian J. Davis, ARA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog and the Win TOTAL Users Group an email forum for appraisers
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