Updated October 2026 by Texas Made Mortgage, Frisco, TX.
Quick answer: When the appraisal comes in below the contract price, the lender bases the loan on the appraised value, not the price, so the difference has to come from somewhere. You have five options: renegotiate the price down, pay the gap in cash, split it with the seller, challenge the appraisal with a reconsideration of value, or terminate under the contract's appraisal protection if you are still inside its deadline. Most DFW gaps are settled by a price reduction or a split within a few days. An appraisal gap clause in your offer means you agreed in advance to cover some or all of the shortfall.
Why does a low appraisal change the loan?
Loan-to-value is calculated on the lower of price or appraised value. Contract price $500,000 with 10% down means a $450,000 loan. If the appraisal is $485,000, a 90% loan is $436,500, so the buyer needs $63,500 in cash instead of $50,000 to keep the same loan-to-value, a $13,500 gap. Buyers putting 20% or more down sometimes have room to absorb a small gap by lowering their down payment percentage, which may add mortgage insurance.
What are the five options?
Seller reduces the price to the appraised value. The most common outcome when the market is balanced.
Buyer pays the gap in cash. Common in bidding wars, and what an appraisal gap clause commits you to.
Split the difference. Seller drops part of the price, buyer brings part in cash.
Reconsideration of value. Your agent and loan officer submit comparable sales the appraiser missed or errors in the report. Fannie Mae, Freddie Mac, FHA and VA all have formal ROV processes, and the lender must forward a reasonable request. Success rates are modest, but mistakes in square footage, bedroom count or ignored comps do get corrected.
Terminate. If your contract's third-party financing addendum or appraisal addendum protects you and the deadline has not passed, you can walk away with your earnest money.
What does the Texas contract say about appraisals?
The TREC third-party financing addendum lets a buyer terminate if the property does not satisfy the lender's underwriting requirements, which includes appraised value, as long as notice is given within the stated days. A separate addendum concerning the right to terminate due to lender's appraisal lets the parties set a specific appraisal floor, waive the right entirely, or agree to a partial waiver: the buyer covers a gap up to a stated dollar amount and can terminate beyond it. That partial waiver is the appraisal gap clause used in most competitive DFW offers.
How does a reconsideration of value work?
Within a day or two of receiving the report, review it with your agent for factual errors and missing comparables sold within the last 90 days and within a mile.
Give your loan officer up to three to five specific comps with MLS data and a short explanation. The lender submits the ROV to the appraiser.
The appraiser responds in writing, usually within a few business days, either revising the value or explaining why not.
A second appraisal is rarely allowed by the lender unless the first is deficient.
Does a low appraisal mean the house is overpriced?
Sometimes. In fast-rising Collin and Denton County neighborhoods, appraisers work from closed sales that lag the market by two to three months, so a correct offer can still appraise low. In a flat market a low appraisal is a signal to pay attention. Either way the appraisal is also the buyer's protection against overpaying, which is why waiving it entirely carries risk.
How can a buyer reduce the risk up front?
Set the appraisal gap cap at a number you can actually fund in cash.
Keep reserves after closing so a modest gap does not drain you.
Ask your agent for a comparable sales analysis before offering, not after.
On a conventional loan with strong data, an appraisal waiver may be offered, which removes the risk entirely. See appraisal waivers.
Frequently asked questions
Who pays for the appraisal if the deal dies?
The buyer. The fee is paid when the appraisal is ordered and is not refunded if you terminate.
Can the seller see the appraisal?
The buyer owns the report. Agents typically share the relevant pages to negotiate a price reduction.
Do VA and FHA appraisals come in lower?
Not systematically, but they include property condition requirements that can add repair conditions. VA also has the Tidewater process, which gives the agent a chance to supply comps before a low value is finalized.
Facing a gap on a contract right now? Talk to a loan officer at Texas Made Mortgage in Frisco or call 817-567-8014 and we will run every option on your numbers the same day.
Texas Made Mortgage, NMLS #2676326. This article is general education, not legal advice, a commitment to lend or an offer of credit. Contract rights depend on the forms and deadlines in your agreement; consult your agent. All loans subject to credit approval. Equal Housing Opportunity.
