The VA requires both the sellers and buyers to execute an amendment to the residential purchase agreement which acknowledges that the valuation is ultimately determined by a Notice Of Valuation (NOV). A LAPP-approved VA underwriter examines the residential appraisal report, prepared by the VA-assigned property appraiser, and issues the NOV.
This is a document that is commonly overlooked. I ask agents to execute the VA Amendatory Clause at contract acceptance but even I forget to furnish them with it. The VA Amendatory Clause form can be downloaded here.
The veteran buyer's escrow deposit can not be held at risk until the the NOV is issued. At issuance, the veteran may remove the appraisal and loan contingencies. If the veteran is paying more than the NOV, he/she may waive the right to cancel the transaction and acknowledge, in writing. that he/she is paying more than the NOV for the property. The VA will only insure 100% of the NOV or purchase price (whichever is lower) so the veteran will be required to pay the difference in cash.
This is an often misunderstood clause that scares both buyers and sellers. The CAR Residential Purchase Agreement (RPA) pretty much says the same thing but puts a time-line on the appraisal contingency. The VA amendatory clause basically trumps the appraisal contingency clause of the RPA. The good and bad thing about VA loans is that the VA outlines a specific time line for its appraisers and underwriters:
- VA appraisers must complete and deliver the appraisal report within two weeks of the order.
- VA underwriters must issue the NOV within one week of receipt of the appraisal report
Contractually, the VA policy portends a 21-day appraisal contingency period for VA loans. Pragmatically, the appraisers and underwriters complete their work prior to time limits making the 17-day appraisal contingency of the RPA feasible. What that means to real estate agents is that it is conceivable that the appraisal contingency MAY have to be extended to 21 days if things go absolutely wrong but that the 17-day contingency period is reasonable for VA loans.