What can you do when the appraisal comes in below the contract price in Texas?
When a home appraisal comes in lower than the agreed purchase price in Texas, both buyers and sellers have options. Buyers can renegotiate the price, pay the gap out of pocket, split the difference with the seller, challenge the appraisal through a Reconsideration of Value, or terminate the contract and recover their earnest money if the contract includes a financing contingency. Texas law, specifically the Third-Party Financing Addendum and TREC Form 49-1, defines how those termination rights work. In Dallas's current market, with more inventory and stabilizing prices, sellers who refuse to negotiate after a low appraisal often find themselves relisting into the same conditions that produced the low value in the first place.
By Matt Watson, Broker, REALTOR® | May 13, 2026
You've made your offer, the seller accepted, and you're a few weeks into the contract. Then the appraisal report comes back, and the number is lower than what you agreed to pay.
It's one of the most stressful moments in a real estate transaction, and it happens more often than people expect. In a market like Dallas, where prices have been shifting and inventory has climbed to its highest levels in nearly a decade, appraisals coming in at or below contract price are a real and regular part of doing deals in 2026.
The good news: a low appraisal doesn't automatically kill the deal. What it does is open a negotiation, one where your options, and your leverage, depend heavily on what's in your contract.
Here's what you need to know if you're facing this situation, whether you're the buyer or the seller.
Your Five Options When the Appraisal Comes In Low
When the lender's appraisal lands below the contract price, there are five paths forward. Which one makes the most sense depends on the gap size, the market conditions, and how motivated both sides are to close.
1. Renegotiate the price
This is the most common resolution, especially in a balanced or buyer-leaning market. The seller agrees to reduce the sale price to the appraised value, the lender funds the loan at the new number, and everyone moves forward.
In today's Dallas market, with a median close price down slightly year over year and months of inventory sitting around three and a half months, many sellers understand that the next buyer will face the same appraisal. Starting over often doesn't change the outcome, it just delays it.
2. Pay the gap yourself
If the appraisal comes in below contract, your lender will only finance the appraised amount. If you agreed to buy at $425,000 and the appraisal comes in at $410,000, your loan is based on $410,000. You can still close at $425,000, but you'll need to bring an extra $15,000 in cash on top of your planned down payment.
This option makes sense when you've already done your due diligence, you're confident in the value, and you have the cash available. In competitive situations, buyers sometimes include appraisal gap coverage in their original offer, a clause that commits them to covering the gap up to a stated dollar amount. That signals to the seller upfront that a low appraisal won't derail the deal.
3. Split the difference
A compromise where the seller drops the price partway and the buyer covers the rest is often where both sides land when neither wants to walk away but neither wants to absorb the full hit. If the appraisal gap is $20,000, the seller might reduce the price by $12,000 and the buyer brings an extra $8,000 to closing. It takes a little math and a willingness from both sides to move, but it works.
4. Challenge the appraisal
You or your agent can request a Reconsideration of Value from the appraiser. This involves submitting stronger comparable sales, pointing out factual errors in the report, or providing evidence the appraiser may have missed. Appraisers are required to consider the challenge, though they're not required to change their opinion.
This process works best when there are genuinely better comps that were overlooked, when the report contains factual errors about the property's features, or when recent sales data significantly changes the picture. It's worth attempting before jumping straight to price negotiation, particularly in neighborhoods like Uptown or Oak Lawn where comparable sales can be thin and the gap between buildings on the same block can be significant.
5. Terminate the contract
If the seller won't negotiate and you can't or don't want to cover the gap, you may have the right to walk away and recover your earnest money. Whether you can do that depends on your contract terms, specifically the Third-Party Financing Addendum and TREC Form 49-1.
How the Texas Contract Protects You: TREC 49-1 and the Third-Party Financing Addendum
Texas real estate contracts have two provisions that directly address low appraisals. Understanding both is important before you sign anything.
The Third-Party Financing Addendum (Paragraph 2B) is included in virtually every financed purchase in Texas. It protects buyers if the lender reduces the loan amount due to a low appraisal. If the lender won't fund the full amount and the buyer can't or won't make up the difference, the buyer has the right to terminate and recover earnest money. This is the baseline protection that most buyers have without even realizing it.
TREC Form 49-1 (Addendum Concerning Right to Terminate Due to Lender's Appraisal) goes further. It modifies the contract by explicitly defining the buyer's rights when the appraisal comes in low. The form has three options:
- Option 1 — Full waiver: The buyer agrees in advance to cover any gap between the appraised value and the contract price. The termination right under the Third-Party Financing Addendum still applies if financing falls through entirely, but the buyer is committed to paying any appraisal gap.
- Option 2 — Partial waiver: The buyer agrees to cover the gap down to a specified floor. If the appraisal comes in below that floor, the buyer's termination rights kick back in and they can walk away with their earnest money.
- Option 3 — Additional right to terminate: This provides maximum buyer protection. The buyer sets a minimum appraised value, and if the property doesn't hit that number, they have the right to terminate and recover earnest money, regardless of whether the lender will still fund the deal.
Important: TREC 49-1 applies to conventional financing only. FHA and VA loans have their own separate appraisal rules and different addenda. If you're using an FHA loan, your agent should walk you through how those protections work, because the process and your options differ.
If you're wondering how your current contract reads on this, pull out the addenda packet and look for the Third-Party Financing Addendum and Form 49-1. If you're not sure how they interact, that's a conversation to have with your agent before the appraisal report arrives, not after. I walk every one of my buyers through these addenda at contract time so there are no surprises when the appraiser's number comes back.
What Sellers Should Know When the Appraisal Comes In Low
If you're on the selling side and the appraisal lands below your contract price, your first instinct might be to hold firm. Before you do, think it through.
A low appraisal is a market signal. Even if this buyer walks and you relist, the next appraisal is likely to land in the same range unless new comparable sales push the data in your favor. In Dallas right now, with inventory at levels not seen in nearly a decade and a median close price that has softened year over year, most sellers who refuse to negotiate find themselves either relisting at a lower price anyway or sitting on the market longer.
A few things your listing agent should do immediately after a low appraisal report comes in:
- Review the appraisal report for errors, including incorrect square footage, missing upgrades, or outdated comparable sales.
- Gather any recent sales that support a higher value and provide them to the appraiser for a Reconsideration of Value.
- Have a real conversation with you about what the realistic options are given the current market conditions and your timeline.
If the appraisal comes in genuinely close to the contract price, a small price reduction or a split arrangement is often the fastest path to a closed deal. If the appraisal is significantly below contract, that's a harder conversation, but knowing your options early is better than being caught off guard at the negotiating table.
Sellers of condos and townhomes in Uptown and Oak Lawn should pay extra attention here. Condo appraisals are trickier than single-family home appraisals because comparable sales are limited to similar units in nearby buildings. A building with recent renovations, a well-funded HOA, and strong sales history will appraise differently than a building with aging finishes and a thin reserve fund, even if they're a few blocks apart. Your price needs to reflect what an appraiser can support with available comps, not just what you believe the property is worth.
If you want to know where your home actually stands in today's Dallas market, including what a realistic appraisal range looks like before you list, that's exactly what a pre-listing market analysis from a local broker can tell you. You can reach me at mattwatson.com.
Frequently Asked Questions
Can a buyer walk away from a deal in Texas if the appraisal comes in low?
Yes, in most Texas transactions. If the contract includes the Third-Party Financing Addendum (standard on financed purchases), Paragraph 2B gives the buyer the right to terminate and recover earnest money if the lender reduces the loan amount due to a low appraisal. Buyers may also have additional protection through TREC Form 49-1, the Appraisal Addendum, depending on how it was completed at the time of contract signing.
What is TREC Form 49-1 and how does it affect a low appraisal in Texas?
TREC 49-1 is the Addendum Concerning Right to Terminate Due to Lender's Appraisal. It modifies the standard Texas purchase contract by defining how the buyer's termination rights work when the appraisal comes in below contract price. The form has three options: a full waiver (buyer covers any gap), a partial waiver (buyer covers the gap down to a specified floor), and an additional termination right (buyer can terminate if the appraisal doesn't reach a set minimum). This addendum applies to conventional financing only, not FHA or VA loans.
Do sellers have to lower their price if the appraisal comes in low?
No, sellers are not legally required to reduce the price. But refusing to negotiate after a low appraisal carries real risk: the buyer may have the contractual right to terminate and recover their earnest money, leaving the seller to relist in the same market where the next appraisal will likely land in the same range. In Dallas's current balanced market, most sellers find it makes more sense to negotiate than to start over.
Can you dispute a low appraisal in Texas?
Yes. Either party can request a Reconsideration of Value from the appraiser by submitting stronger comparable sales or correcting factual errors in the report. This process works best when there are genuinely better comps the appraiser may have missed. It doesn't always succeed, but it's worth attempting before moving straight to price renegotiation, especially in neighborhoods like Uptown or Oak Lawn where comparable sales can be limited.
How do appraisals work differently for condos in Dallas?
Condo appraisals can be more complicated than single-family home appraisals because comparable sales are limited to units within the same complex or nearby buildings with similar finishes and amenities. In neighborhoods like Uptown and Oak Lawn, where buildings vary widely in age, construction quality, and HOA structure, finding strong comps can be a challenge. Working with a buyer's agent who knows the local condo market is especially important here. For more on what to watch for when buying a condo in Dallas, see this guide on condo buying considerations.
A low appraisal is a detour, not a dead end. Knowing your options before the report lands, and understanding what your contract actually says about them, is the difference between a deal that closes and one that falls apart at the wrong moment.
If you're a buyer trying to figure out whether to negotiate, pay the gap, or walk away, or a seller wondering whether to hold firm or adjust, the right move depends on your specific situation, your contract terms, and what the Dallas market looks like right now in your neighborhood.
I've been navigating these situations with buyers and sellers in Uptown, Oak Lawn, East Dallas, and North Oak Cliff for over 25 years. If you'd like a second set of eyes on your situation, I'm happy to talk through it with you. No pressure, no obligation. Reach out at mattwatson.com and we'll figure out your best path forward together.
