VA Amendatory Clause (What It Is And How It Works: Explained)

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What Is A VA Amendatory Clause

The VA amendatory clause, or VA escape clause, is a legal provision allowing a buyer to get out of a home loan agreement if the appraised value of the property does not correspond to the property sales price.

In essence, the VA loan escape clause helps protect a VA loan applicant from buying a property when there is a discrepancy between the property appraisal and sales price.

The main reason why this clause is required is that the VA does not guarantee loans when the sales price exceeds the property’s appraised value.

Keep reading as I will provide you with more in-depth information on the VA loan contingency.

Who Benefits From The VA Escape Clause

The VA amendatory clause is primarily intended to protect active-duty service members and veterans who are in the process of buying a property having an appraised value lower than the sales price.

Typically, the buyer of a real estate property looking to back out of the deal will be exposed to different penalties.

For example, a buyer will potentially lose the earnest money when getting out of a deal to compensate the potential seller.

Also, when applying for loans or other financing, buyers may be exposed to different fees and charges as well.

However, with a VA escape clause, a buyer will be protected against possible penalties and fines for backing out of a deal when the appraisal value is less than the sales price.

How Does The VA Amendatory Clause Work

Those who are looking to get a VA loan should be familiar with the VA loan rules and property appraisal process.

With the VA guarantee, you can purchase a home without having to put any money down.

However, the VA will still appraise the property to make sure they only guarantee properties where the sales price is below or equal to the appraisal value of the property.

In essence, all VA loans must be approved by the Department of Veterans Affairs.

The way it works is that the Department of Veterans Affairs will have the property you’re looking to buy physically inspected to make sure that the property condition respects their minimum standards.

In addition to that, the VA’s objective is to objectively establish the property’s market value with the appraisal.

For example, if you’re looking to purchase a property for $300,000 but the appraisal demonstrates that the property is only worth $225,000, the VA will not guarantee your loan.

On the other hand, if you are buying a property for $225,000 and its market value is $300,000, you are all good.

In the end, the VA does not want to guarantee a property for a value higher than its appraised value and by doing so also protects the home buyer from buying an asset that may not be worth the sales price.

VA Escape Clause Requirements

According to the VA regulation, you are required to include a VA escape clause in your purchase contract.

If the “VA amendatory clause” is not included in your contract, the VA will not fund your loan.

In addition to having the VA amendatory escape clause in your contract, one of the VA requirements is that they will not fund loans for more than the appraisal value of the property.

If you do not want to proceed with the purchase of the property when your purchase price is higher than the property market value, you can get out of the deal without any fees.

However, if you want to continue buying the property at a purchase price above the value on the Notice of Valuation, then you’ll need to pay the gap between the purchase price and the home appraisal value.

Waiving VA Escape Clause Rights

As part of the VA loan requirement, you’re required to mandatorily include an escape clause in your contract allowing you to cancel the transaction when the property is sold above its market value.

However, buyers are not obligated to cancel the deal in such situations.

If you are truly interested in the property you’re looking to buy but your purchase price is above its appraisal value, you can still waive your rights under the VA amendatory clause and still purchase the property.

To do so, you’ll need to provide the extra money needed to cover the difference between what the VA will fund you and your purchase price.

In some cases, when the sales price is only slightly above the property appraisal value, you may have the funds necessary to put up the extra cash.

Also, in hot markets, buyers have the pressure of putting their best possible offer on the table and that means paying a purchase price higher than the property valuation.

Although VA loans are designed to protect veterans and active service members, they do not have an obligation to back out of a deal to the extent the VA does not finance the entire transaction value.

Sample VA Escape Clause

According to the VA, the VA escape clause sample text reads as follows:

VA Amendatory Escape Clause FAQs

Let’s look at some common questions relating to VA amendatory clauses.

What is a VA amendatory provision?

A VA amendatory is a contractual provision that is included in real estate purchase agreements and offers to allow the prospective buyer to get out of the transaction when the home appraised value is lower than the home purchase price.

The VA amendatory provision allows the homebuyer from walking away from the contract without losing his or her earnest money.

Is it mandatory to have a VA escape clause?

Yes if you want to get VA financing.

It is mandatory to have the VA clause in your contract so you can get out of the contract without any fees in case your home purchase price is above the home appraised value.

What’s the purpose of the VA amendatory clause?

The main objective of the VA amendatory clause is to protect the Department of Veteran Affairs and the home buyer in cases when the home purchase price exceeds its market value.

The VA is protected as they are not financing a property well above its market value.

The homebuyer is protected as they will have the right to get out of a home purchase transaction when the contract value is above the market value of the home.

The buyer has the added benefit of being able to cancel the deal without losing his or her earnest money.

Can you waive the appraisal contingency?

To benefit from the VA financing, you will need to include both the VA escape clause and the appraisal contingency.

As a result, you cannot waive the appraisal contingency for a VA loan.

However, if your home contract value is above its appraised value, you can waive your right in backing out of the deal by putting up the money necessary to cover the amount you’re paying over and above the property market value.

Who must sign a VA escape clause?

The VA escape clause must be signed by the buyer and the seller when the buyer is looking to take advantage of a VA loan.

Typically, a qualified real estate professional will be able to help answer your question as to why this clause must be found in your home purchase contract.

If you need legal advice, you can also contact a qualified real estate attorney for legal advice.

Is it mandatory for the seller to sign a VA amendatory clause?

The seller does not have the obligation to sign and accept the VA amendatory clause.

However, if the seller refuses to do so, it means that the buyer will not be able to get a VA loan.

This may not pose the seller much of a problem in sellers’ markets.

However, in buyers’ markets, the seller may potentially lose an opportunity to sell his or her property.

What if you did not include the VA escape clause in your contract? 

If you did not use the VA escape clause, you can still purchase your property but not using a VA loan.

This means that you’ll need to qualify for traditional financing or other means of financing.

VA Escape Clause Takeaways 

So there you have it folks!

VA loans provide eligible homebuyers the ability to buy a home without putting any cash down payment.

However, homebuyers will need to respect the VA loan requirements by making sure to include a VA amendatory clause in their contract along with an appraisal contingency.

The VA escape clause provides you the legal protection of being able to back out of a deal without any penalties or loss of earnest money.

Now that you know what is a VA amendatory escape clause, how it works, why it’s needed, and the VA loan requirements, good luck with your home purchase transaction.

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