VA Appraisal Under Contract Price: Who Pays the Gap?
Jennifer is a fictional buyer, but her situation is one that comes up often with VA buyers under contract. She has a signed contract at $500,000. The VA appraisal comes back at $480,000. She assumed the loan would follow the contract. It does not. The VA loan is sized on $480,000, and the $20,000 difference does not disappear. Someone brings it.
Why the gap does not just go away
VA lends on the lesser of the purchase price or the appraised value. In Jennifer's case, the lesser number is $480,000. The loan cannot grow to cover the difference. If nothing changes, the $20,000 is buyer cash, and it sits on top of any down payment her entitlement requires. A buyer with full entitlement may not have a down payment requirement, but the gap still has to be covered. A buyer with reduced entitlement may owe a down payment and the gap together.
First move: Tidewater
Tidewater is the best early move because it happens before the low value is final. The appraiser can contact the lender when the value is coming in under the contract price. That gives the lender and the buyer's agent a chance to send additional comparable sales that support the price. The strongest comps are recent, close to the property and similar in size, condition and features. Agents who have these organized before the appraisal lands are in the best position.
Tidewater is not a guarantee. The appraiser still makes the call. But it costs nothing to ask, and it is the cleanest way to fix a number before it becomes a problem.
Second move: reconsideration of value
If the appraisal is final and the value stands, the next step is a reconsideration of value. This request goes through the lender, not directly from the buyer. It should include new information: additional comparable sales the appraiser did not use, or documented errors in the report such as incorrect square footage or missed features. A request that simply says the value feels low rarely goes anywhere. A request with evidence has a real chance of being reviewed on its merits.
If the value does not move
When both moves fail, Jennifer has choices:
- Ask the seller to lower the price toward the appraisal.
- Ask the seller to split the gap with her.
- Bring the cash herself and keep the contract price.
- Use the VA escape clause. VA requires a clause in the contract that says the veteran is not obligated to complete the purchase if the price exceeds the reasonable value established by VA, and the earnest money is protected. Check your contract language and deadlines with your agent.
The right choice depends on how much she wants the house, how much cash she has, and how the seller feels about the price.
What you can do today
If you are under contract, call your lender and ask them to watch for Tidewater the day the appraisal is ordered. If you are an agent, pull your best comparable sales now, not after the report arrives. Know your contract deadlines and read your VA clause before you need it.
If you are a VA buyer in Charleston or anywhere in the states where I am licensed and you want to talk through your numbers, call me at 843-LOW-RATE. I find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: VA Appraisal Under Contract Price
