by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Welcome to 2021 where offers are made above listing price and, to win the deal, the buyer waives the appraisal. When I was hired as a listing broker, I was able to get two of the offers to waive the appraisal by asking their respective lenders to run the desktop underwriter program and try to obtain an appraisal waiver. Those were offers with owner-occupied, 25% down payment conventional loans.
VA mortgages make some sellers wary because they require a document to be signed called the VA Amendatory Clause. If you are a California agent/broker, we call that form the FVAC and it is in your ZipForms of Glide forms under FHA/VA Amendatory Clause. It must be executed, with the accurate contract price, and signed by the buyers, sellers, and both real estate agents. It is part of the contract because it’s technically an Amendment. Why does this amendatory form “scare” sellers? This language may be why:
It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement issued by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement Lender, setting forth the appraised value of the property of not less than $ _________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable
What that means is that the veteran buyer does not have to follow through with the purchase if the property appraises below the purchase price. The veteran is ALLOWED to come in with the difference between the lower purchase price and appraised value but his/her earnest money deposit can not be kept if they refuse to do so, even if they removed the appraisal contingency and/or agreed to come in with the difference on the Residential Purchase Agreement (check slide 17 of this CAR presentation)
That makes things dicey for the seller because, even though the veteran “contractually” agreed to make up the difference, the VA Amendatory Clause gives the buyer an “out”. Should sellers then ignore VA offers? Absolutely not. For the most part, if veteran buyers agree to make up the difference, they do and, if the listing agent did her job properly, she has verified that the veteran buyer has enough cash in the bank to make up said difference. VA mortgages have no down payment requirements. The VA offer then, may be BETTER than one with a down payment because the veteran has greater flexibility.
