VA loans · 38 CFR 36.4303(k)The VA escape clause: protecting the veteran when the appraisal comes in low

VA will not issue a guaranty or commitment for a loan to buy a home when the contract is dated on or after June 4, 1969, the price is above the reasonable value VA establishes (the appraised value on the notice of value), and the veteran signed the contract before receiving notice of that value – unless the contract includes, or is amended to include, a provision substantially like this: "It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans 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." In practice: if the value comes in low, the veteran can walk away with the earnest money, renegotiate, or proceed and pay the difference. Many state contract forms include it in a VA addendum; when the contract does not, it is added by amendment before closing.