A buyer signs a VA purchase contract containing the escape clause before receiving the Notice of Value. The NOV is $295,000 and the contract price is $310,000. If the buyer invokes the clause because of this shortfall, what protection applies?
Correct Answer
A) The buyer may withdraw without forfeiting the earnest money deposit
A. The buyer can invoke the clause without forfeiting earnest money. The VA value is $15,000 below the agreed price, establishing the stated ground for the clause. The buyer can decline to proceed; electing to cover the gap is an alternative, not an obligation. Scope and exceptions: This is not a general cancellation right. Builder upgrade deposits and incurred appraisal or inspection expenses are not automatically refunded. The applicable citation is 38 CFR 36.4303(k)(4), not the original explanation’s 36.4354. Source: Escape clause text and FAQs — https://www.benefits.va.gov/homeloans/escape-clause.asp
Why This Is the Correct Answer
A. The buyer can invoke the clause without forfeiting earnest money. The VA value is $15,000 below the agreed price, establishing the stated ground for the clause. The buyer can decline to proceed; electing to cover the gap is an alternative, not an obligation. Scope and exceptions: This is not a general cancellation right. Builder upgrade deposits and incurred appraisal or inspection expenses are not automatically refunded. The applicable citation is 38 CFR 36.4303(k)(4), not the original explanation’s 36.4354.
Why the Other Options Are Wrong
Option B: The contract survives, since the Notice of Value does not bind the sale
The clause supplies an exit despite the signed contract.
Option C: The seller has 30 days to request a second appraisal at buyer expense
It creates no such seller deadline or buyer-funded second-appraisal right.
Option D: The buyer must pay the $15,000 difference in cash or forfeit the deposit
Paying the gap is optional, not the price of preserving earnest money.
Exam Tip
A low VA value permits an exit; it does not compel a gap payment.
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