When you sign a Texas purchase contract, you are not locked into an unconditional promise to buy. Contingencies are clauses that let you walk away — or renegotiate — if specific conditions are not met. Understanding each one before you make an offer puts you in a much stronger negotiating position and prevents surprises at the closing table.

What Is a Contingency and Why It Matters

A contingency is a condition written into the contract that must be satisfied for the sale to move forward. If the condition fails and you invoke the contingency properly, you can terminate and typically recover your earnest money. If you miss a deadline or fail to follow the written process, you may lose that protection — and your earnest money with it.

Texas uses standardized contract forms published by the Texas Real Estate Commission (TREC). Most residential purchases use the One to Four Family Residential Contract (Resale), which includes built-in language for the most common contingencies. Your REALTOR® can walk you through the exact paragraphs that govern each one.

Financing Contingency (Third-Party Financing Addendum)

The financing contingency protects you if your mortgage falls through. In Texas, this is handled through the Third-Party Financing Addendum, which is attached to the main TREC contract. You specify the loan type (conventional, FHA, VA, or other), the loan amount, the maximum interest rate you are willing to accept, and the number of days you have to obtain financing approval — typically approximately 21 days, though this is negotiable.

If your lender cannot approve your loan on those terms by the deadline, you can terminate the contract and recover your earnest money, provided you notify the seller in writing before the deadline expires.

Tip: Being pre-approved before you make an offer shortens the time your lender needs to verify your financing. In competitive DFW markets, sellers often prefer buyers who can demonstrate a shorter financing contingency window because it reduces uncertainty.

Appraisal Contingency

Lenders require an appraisal to confirm the home's value supports the loan amount. The appraisal contingency protects you if the appraised value comes in below the agreed purchase price.

In Texas, the appraisal process is typically tied to the financing addendum: if the property appraises below the contract price and your lender will not fund the full loan, you have the right to terminate and recover your earnest money — as long as you follow the contract's written notice requirements.

If you want coverage beyond what your lender requires (for example, on a cash purchase), you can negotiate a standalone appraisal contingency into the contract. Your agent can help structure this clearly so there is no ambiguity about your rights.

What happens at a low appraisal: You have approximately three options — renegotiate the price with the seller, pay the difference out of pocket (covering the gap between appraised value and purchase price), or terminate using the contingency. In a balanced DFW market, sellers are often willing to negotiate. In a hot seller's market, many buyers waive appraisal protection or offer a partial gap guarantee to compete.

Inspection Contingency (The Option Period)

Texas handles the inspection contingency differently than most other states. Rather than a traditional inspection contingency, buyers use the Option Period. For a negotiated fee paid directly to the seller (called the option fee), you receive an unrestricted right to terminate the contract for any reason within the agreed number of days — typically approximately 5 to 10 days.

During this window, you hire a licensed inspector to evaluate the home. If the inspection reveals issues, you can:

  • Request repairs or a price reduction
  • Terminate and recover your earnest money (the option fee itself is non-refundable)
  • Proceed as-is

The option fee is typically a few hundred dollars and is generally applied toward the purchase price at closing if you proceed. Once the option period expires without termination, you lose the unrestricted right to walk away — so time your inspection early enough to review results and negotiate before the deadline.

Sale of Current Home Contingency

If you need to sell your current home before you can close on a new one, you can request a Sale of Other Property Addendum. This gives you a defined period — often approximately 30 to 60 days — to sell and close your existing property. If your home does not sell in time, you can terminate and recover your earnest money.

In practice, sellers are hesitant to accept this contingency in competitive markets because it adds uncertainty to their timeline. If you are in this situation, talk with your agent about bridge financing options, or discuss whether a longer closing period could accomplish the same goal without formally invoking the contingency.

Seller's right to continue marketing: Under the TREC Sale of Other Property Addendum, sellers can typically continue showing the home and accepting backup offers. If a new offer comes in, they can issue a notice requiring you to waive the contingency or terminate — usually within approximately 48 to 72 hours. Know this before you rely on this addendum in a competitive market.

When Waiving Contingencies Makes Sense

In highly competitive situations, buyers sometimes waive one or more contingencies to make their offer more attractive. Waiving the appraisal contingency can be reasonable if you have the cash reserves to cover a potential gap. Shortening the option period signals confidence. Waiving financing entirely is a significant risk unless you are a cash buyer.

Never waive a contingency without fully understanding what you are giving up. Your agent (TREC #9015220) can help you assess the specific property, your financial position, and the current market before you make that call.

Contingencies exist to protect you, but they also create negotiation leverage on both sides. The buyers who understand exactly what each one does — and when to use or waive it — tend to make cleaner offers and close with fewer surprises.