A buyer made an offer to purchase a home using a VA loan, but the property’s appraised value was determined to be less than the contract price. If…

When a property's appraised value is less than the agreed-upon contract price under a VA loan, the VA Amendatory/Escape Clause is triggered. This clause protects the buyer by allowing them to void the contract without penalty. However, the clause also explicitly permits the buyer to proceed with the purchase if they choose to do so. To proceed, the buyer must pay the difference between the higher contract price and the lower appraised value in cash, as the VA will not guarantee a loan amount greater than the property's reasonable value established by the appraisal.

A. The seller is not obligated to lower the price to the appraised value. The escape clause gives the buyer an out, but it does not compel the seller to change the contract terms.

C. While a Reconsideration of Value can be requested through the lender, simply hiring a second appraiser is not the standard VA process, and the lender is unlikely to accept an outside appraisal.

D. An FHA lender will not cover the difference. FHA loans also have appraisal requirements, and the loan amount is tied to the appraised value, similar to VA loans.

1. U.S. Department of Veterans Affairs, Lenders Handbook, VA Pamphlet 26-7, Chapter 12, Section 12.04, "Action When Sales Price Exceeds VA Reasonable Value." This section states: "The veteran may complete the transaction by paying the difference in cash from his or her own resources."

2. U.S. Department of Veterans Affairs, VA Form 26-1805, VA AMENDATORY/ESCAPE CLAUSE. The official form states: "...the Veteran shall have the privilege and option of proceeding with the consummation of the contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs by paying the difference in cash."

3. Ling, D. C., & Archer, W. R. (2021). Real Estate Principles: A Value Approach (6th ed.). McGraw-Hill Education. Chapter 11, "Mortgage Loan Foundations: The Note and Mortgage," discusses financing contingencies and the implications of an appraisal not meeting the contract price, confirming the buyer's options are to terminate, renegotiate, or pay the difference.