What Is an Appraisal Gap, and Who Pays It in a Texas Home Purchase?

An appraisal gap is the dollar difference between what you agreed to pay for a home and what the lender’s appraiser says it’s worth, and in Texas, whether you or the seller covers that gap comes down to one specific piece of paper: the appraisal provision in your contract, agreed to before an appraiser ever walks through the door.

Why the Gap Happens

Lenders won’t loan more than a home’s appraised value, no matter what price you and the seller agreed to. If you’re financing a $420,000 purchase and the appraisal comes back at $400,000, your lender bases the loan on $400,000, leaving a $20,000 gap between the loan amount and the price you agreed to pay. That gap doesn’t disappear. Someone has to cover it in cash, renegotiate the price, or the deal falls apart, depending on what your contract already says about this exact situation.

How Texas Contracts Handle It

The Texas Real Estate Commission’s standard contract includes an appraisal provision that spells out what happens if the home appraises below the sales price. Buyers and their agents can add specific language, often through an addendum, that sets a maximum amount the buyer agrees to pay above the appraised value if a gap shows up. That number is a real negotiating point in a competitive offer, and it’s worth treating it that way rather than picking a figure out of the air:

• A buyer with no appraisal gap coverage in the contract is protected by the standard appraisal contingency, meaning a low appraisal gives them the right to walk away with their earnest money if a new price can’t be agreed on.
• A buyer who waives the appraisal contingency entirely, or agrees to cover an unlimited gap, is taking on real financial risk to win a competitive bid.
• A capped gap-coverage amount, commonly 3 to 5 percent of the purchase price, is the middle ground most agents recommend, competitive without unlimited exposure.

What This Looks Like in Practice

Say a buyer offers $450,000 on a home listed at $435,000 to win a multiple-offer situation, and agrees in writing to cover up to $10,000 of any appraisal gap. If the home appraises at $445,000, a $5,000 gap, the buyer’s contract terms already cover it, and they bring an extra $5,000 in cash to closing beyond their normal down payment. If it appraises at $430,000, a $20,000 gap, the buyer’s $10,000 cap means they’d need to renegotiate the remaining $10,000 with the seller or use their appraisal contingency to walk away, depending on how the addendum is written.

Where This Gets Decided Before It’s a Problem

Vicky builds every buyer’s offer strategy around the comparable sales data before the offer goes in, not after the appraisal comes back low. An offer that’s priced ahead of what recent comparable sales support is exactly the kind that risks an appraisal gap, so knowing that risk before you write the offer, not after, is what keeps a buyer from being surprised at the worst possible moment in the transaction. If a gap does show up, having already decided what you’re willing to cover, rather than negotiating it under pressure with a closing date bearing down, is the difference between a manageable adjustment and a deal that falls apart.

Our home inspection versus appraisal breakdown covers the related question of what each one checks, and the Buyers Guide at movelivelovetx.com walks through how to build an offer strategy that accounts for this before you’re ever in a multiple-offer situation.