VA Amendatory Escape Clause

The VA admendatory protects you and your earnest money!

Home buyers signing the admendatory clauseIn the event that a VA-eligible veteran or service member is buying a home and there are problems with the appraisal, he or she can use the VA amendatory escape clause form. The VA amendatory escape clause form means if the home’s selling price is higher than the VA appraisal determines to be the reasonable value of the home, the borrower can walk away from the sales contract.

The VA amendatory escape clause is usually written into most real estate sales agreements. If the VA escape clause is not included in your sales contract, or you want more information on the clause, please read on.

Here is the Amendatory Clause:

"It is expressly agreed that, notwithstanding any other provision of this contract, the purchaser shall not be subject to any penalty, including forfeiture of earnest money, or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the property's reasonable value as determined by the Department of Veterans Affairs"

This clause says that the Veteran is free to back out of the sale if the appraisal comes in lower than the purchase price. And any money put down as a down payment will be returned to the Veteran.

The amendatory clause formalizes what the majority of home buyers will want in any case in a purchase deal.

Buyers will often insist on an appraisal contingency in most purchase agreements, VA loan or not. This contingency enables purchasers to cancel the purchase and retain their earnest money if the property appraises below the contract price.

Can you avoid the VA Amendatory Escape Clause when buying a house?

No. There are no exceptions with the VA Amendatory Escape Clause when buying a house.

The VA escape clause is nothing more than an appraisal contingency. An appraisal contingency can be found in most sales contracts. VA loan or not. This contingency enables purchasers to cancel the purchase and retain their earnest money if the property appraises below the contract price.


What Happens if the VA Appraisal Comes in Lower Than Purchase Price?

A VA loan cannot be issued for more than the appraisal value. Should the appraisal come in less than the sales price. The VA does allow the veteran to cover the difference between the sales price and appraised value.

There are a few options for a low appraised value:

Reconsideration of Value

A reconsideration of value (ROV) may be the best choice if a VA appraisal is low.

If you are a veteran or active duty military and using your VA home loan benefit to purchase a home, it's important to understand the VA amendatory escape clause. This clause gives you the opportunity to get a reconsideration of value from the VA if the appraisal comes in lower than the purchase price. The key is to act quickly–you have just 60 days from the date of closing to submit your request.

If other comparable properties can be found to substantiate a higher value, the Veteran's Administration could reconsider their determination of value.

Ask the Home Seller to Reduce the Sales Price

One of the usual strategies that VA house buyers employ to get around a low assessment is to negotiate a price reduction with the seller. Some homes sell for more than they're worth. An appraisal from the VA that comes in low should serve as a signal to the current owner that their property may not be worth as much as they think it is. They may then lower the price that they are asking in order to bring it in line with the appraisal value, which would make it possible for the VA loan to be approved.

The Veteran Can Cover the ‘appraisal Gap’ in Cash

Another option In a hot market or facing other home buyers bidding on the house is to simply pay the difference between the appraised value and the sales price.

According to the Department of Veteran Affairs:

The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs (Authority: 38 U.S.C. 501, 3703(c)(1)).”

Split the difference with the seller 

Ask the seller if they are willing to split the difference between the appraised value and the sales price

Is the VA Loan Escape Clause Negotiable?

The VA escape clause is non-negotiable. Once again, the VA escape clause is nothing more than a appraisal contingency.

Who signs the VA escape clause?

VA Loan Escape ClauseBefore signing the purchase contract, the borrowers, and sellers must sign the VA amendatory clause (escape clause); otherwise, the VA will not guarantee the loan when it closes. When both the buyer and the seller sign the paper, it becomes legally binding for all parties concerned.

Conclusion

The amendatory/escape clause states in so many words that the purchaser cannot be forced to purchase the property if the appraisal comes in lower than the sales price. With any mortgage, FHA, USDA, conventional, the sales contract will likely include language that allows the buyer to rescind the sale for a low appraisal. The VA amendatory clause is just an appraisal contingency. The amendatory or escape clause just protects the home buyer in the event of a low appraisal. . . like any other loan.

SOURCE: Escape Clause for the Sales Contract

Recommended Reading

  1. Credit Score for a VA Loan: What You Need to Know
  2. VA Residual Income: What You Need to Know
  3. Save Thousands on Your VA Loan: Closing Costs Paid by Seller