What Is the Appraisal Contingency in a Texas (TREC) Contract?

TL;DR: In Texas, appraisal protection comes from two different places. The Third Party Financing Addendum (TREC 40-11) ties the buyer's exit to the lender's underwriting, and a separate addendum (TREC 49-1) creates a negotiated appraisal contingency. Which one you have decides what you can do when the number comes in low.

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Key Takeaways

• Texas does not use one standard "appraisal contingency" clause. It uses a financing addendum plus a separate appraisal addendum the parties may or may not sign.
• Under the Third Party Financing Addendum, the buyer's right to terminate for the property runs to the third day before the closing date, per the form published by the Texas Real Estate Commission (Form 40-11, effective January 3, 2025).
• A low appraisal does not automatically kill a deal. The buyer can renegotiate, cover the gap in cash, or terminate if the contract still allows it.
• Whether any of that exists depends on the paperwork signed at offer, not on what a buyer assumed.

Table of Contents

• What does an appraisal contingency actually do?
• Does every Texas contract have appraisal protection?
• How does the Third Party Financing Addendum treat a low appraisal?
• What does the appraisal addendum (TREC 49-1) add?
• What are your options when the appraisal comes in low?
• How does the option period interact with the appraisal?
• Frequently asked questions

What does an appraisal contingency actually do?

An appraisal contingency gives the buyer a way out, or a way to renegotiate, if a licensed appraiser values the home below the agreed price. The lender orders that appraisal because it will not lend against a value it cannot support. The contingency is the buyer's protection against being contractually stuck paying a price the loan will not finance.

That is the concept. In Texas, the mechanism is spread across two documents, and buyers routinely assume they have protection they never signed for.

Does every Texas contract have appraisal protection?

No. It depends on which addenda the parties executed. A cash purchase has no lender and no lender appraisal, so there is nothing to tie the contingency to unless the parties create one. A financed purchase almost always includes the Third Party Financing Addendum, but the separate appraisal addendum is optional and gets negotiated.

Two forms matter, both promulgated by the Texas Real Estate Commission:

Form	What it is	Effective date
40-11	Third Party Financing Addendum — used when a third party finances all or part of the price	January 3, 2025
49-1	Addendum Concerning Right to Terminate Due to Lender's Appraisal — creates a negotiated appraisal contingency	March 1, 2019

Both dates are from the Texas Real Estate Commission form pages (accessed November 2026). The second form exists precisely because the first one covers the appraisal only through the lender's underwriting lens, which is narrower than what many buyers expect.

How does the Third Party Financing Addendum treat a low appraisal?

Form 40-11 handles two different approvals, and buyers mix them up constantly.

The first is buyer approval — the buyer's own loan qualification. The form leaves the number of days blank so the parties write in their own deadline. There is no default; whatever is on the contract is what applies.

The second is property approval. This is where the appraisal lives. The lender decides whether the property meets its underwriting requirements, which include the appraisal, insurability, and any lender-required repairs. If the lender says the property does not qualify, the form lets the buyer terminate — and it fixes that deadline at the third day before the closing date, per TREC Form 40-11 (effective January 3, 2025).

Here is the catch that costs people money. If the appraisal comes in low but the lender still approves the loan at a lower amount, the property may still satisfy the lender. The lender is protecting itself, not the buyer's opinion of the price. In that case, 40-11 may not give a termination right at all — the buyer has a financing gap, not a failed property approval.

That distinction is the whole reason the second form exists.

What does the appraisal addendum (TREC 49-1) add?

Form 49-1 creates a contingency the parties design themselves. Instead of leaning on the lender's underwriting standard, it lets the buyer and seller agree in advance what happens if the appraised value comes in under the sales price.

It offers the parties options rather than one fixed rule, and the option chosen in the blanks is what governs. The form was adopted to address exactly the gap described above: a buyer who wants a real exit based on the appraisal number, not on whether the lender happens to still approve the file.

In practice, the three shapes a deal takes are:

• Financing addendum only. The exit is tied to lender approval of the property, with the deadline three days before closing.
• Financing addendum plus 49-1. The buyer has a negotiated appraisal contingency on top of the lender's approval, with terms both sides agreed to in writing.
• No financing addendum (cash or a waiver). No lender appraisal right exists unless the parties wrote one in. The option period becomes the only exit, and it will have expired.

Reading the executed contract is the only way to know which shape applies. Not the offer email, not the summary a friend described — the signed pages.

What are your options when the appraisal comes in low?

Four outcomes are realistic, and only one of them is "walk away."

1. Renegotiate the price. The buyer asks the seller to come down to the appraised value. Sellers say yes more often when the gap is small and the home has been sitting.
2. Cover the gap in cash. The buyer pays the difference between the appraised value and the contract price. This requires real cash and an honest conversation with the lender about reserves.
3. Restructure the financing. A different loan program, a higher down payment percentage, or mortgage insurance can change what the lender will fund. The lender decides this in writing, case by case — a real estate agent cannot promise an outcome here, and should not try.
4. Terminate, if the contract still allows it. This is where the deadline matters. Under 40-11, the property-approval termination right ends three days before closing, per TREC Form 40-11 (effective January 3, 2025). If the appraisal arrives after that date and no other contingency covers it, the buyer may be out of options.

Sellers have leverage in this conversation and often use it. A seller who already has a backup offer may simply refuse to move. A seller with a deadline may accept quickly. Knowing which one is across the table changes the strategy more than any script does.

Situation	Typical leverage	What usually happens
Small gap, home has been listed a while	Buyer	Price reduced to appraised value
Large gap, multiple offers on the table	Seller	Buyer covers the gap or terminates
Appraisal arrives after the 40-11 deadline	Seller	Buyer loses the termination right; renegotiation only
49-1 signed with its own deadline	Depends on the blanks	Follow the negotiated terms exactly

How does the option period interact with the appraisal?

They are different clocks and they usually do not overlap. The option period is a negotiated window, paid for with an option fee, during which the buyer can terminate for almost any reason. Appraisals are typically ordered after the option period ends, because nobody wants to pay for an appraisal on a home they are still inspecting.

That gap is where buyers get hurt. The option period expires, the earnest money becomes hard, the appraisal comes in low three weeks later, and the only remaining protection is whatever the financing addendum and any appraisal addendum provide.

Two practical habits reduce that exposure:

• Order the appraisal as early as the lender allows, so the number arrives while other negotiations are still open.
• Ask, before signing, which addenda are in the contract and what date each deadline falls on. Put the answer in writing.

If you are working through a low appraisal right now, the guide to a low appraisal in Austin walks through the negotiation itself, and the explainer on an appraisal above the purchase price covers the opposite case, where the buyer gains equity at closing.

Does the appraisal contingency cost anything?

The contingency itself does not carry a fee. The appraisal does, and the buyer typically pays it up front through the lender. Ask the lender for the amount in writing before ordering, because it is a real cost that is not refundable if the deal falls apart.

The other cost is time. An appraisal ordered late can push a closing date, and a pushed closing date can collide with a lease ending or a rate lock expiring. Rate locks are the quiet risk here: a lock that expires while everyone argues about value can cost more than the gap being argued over. The lender sets lock terms and any extension cost in writing — that is a lender conversation, not an agent one.

Photo by Dimitri Karastelev on Unsplash

Can a seller reject an appraisal-based renegotiation?

Yes. An appraisal is not a price reset that binds the seller. It is information, and the contract terms decide what the buyer can do with it. A seller who refuses to move is not doing anything wrong — they are exercising the contract as written.

That is why the addenda matter so much at the offer stage. Buyers who want real protection negotiate for it before signing, when they still have leverage. Trying to add an appraisal contingency after the inspection period, when the seller already has the buyer's earnest money locked in, is a much weaker position.

For the broader sequence from offer to keys, the first-time buyer guide for Austin covers each step, and the pre-approval guide explains what the lender reviews before any of this starts.

Frequently asked questions

Is an appraisal contingency required in Texas? No. Texas has no standard appraisal contingency clause in the promulgated contract. Protection comes from the Third Party Financing Addendum and, if the parties choose, the separate appraisal addendum (TREC 49-1).

What happens if the appraisal is lower than the offer? The buyer can ask the seller to lower the price, pay the difference in cash, change the financing structure, or terminate if a contingency still allows it. The lender decides what it will fund, in writing, case by case.

How long does a buyer have to terminate after a low appraisal? Under the Third Party Financing Addendum, the property-approval termination right runs to the third day before the closing date, per the form published by the Texas Real Estate Commission (Form 40-11, effective January 3, 2025). A negotiated 49-1 addendum may set its own terms.

Does a low appraisal mean the deal is dead? No. Most low appraisals end in a renegotiation rather than a termination. The gap size, how long the home was listed, and whether a backup offer exists decide most of those conversations.

Who pays for the appraisal? The buyer usually pays, through the lender, and the fee is generally not refundable. Ask the lender for the amount in writing before the appraisal is ordered.

Can I waive the appraisal contingency? Yes, and buyers sometimes do it to strengthen an offer. It also removes the exit. Before waiving, know exactly how much cash would be needed to cover a gap, and get that number from the lender rather than estimating it.

Next step

Read the addenda before you sign, not after the number comes back. Book a free consultation and we will go through the contract line by line and put every deadline on a calendar.

About the Author Sully Ruiz is a Texas-licensed real estate agent (TREC #0742907). Her sponsoring broker is Keller Williams Austin NW. She works with buyers and sellers in Austin and Central Texas, in English and Spanish — as their real estate agent, not their lender. Book a free consultation →

Market data is for informational purposes only and is subject to change. Sources are believed to be reliable but are not guaranteed. Contact Sully Ruiz for a personalized market analysis.

Sources

• Texas Real Estate Commission — Third Party Financing Addendum (Form 40-11) (effective January 3, 2025)
• Texas Real Estate Commission — Addendum Concerning Right to Terminate Due to Lender's Appraisal (Form 49-1) (effective March 1, 2019)
• Texas Real Estate Commission — Contract Forms (accessed November 2026)
• Consumer Financial Protection Bureau — Owning a Home (accessed November 2026)