The baseline: Property Approval under the financing addendum
Every conventional-financing deal using the Third Party Financing Addendum (TREC 40-11) already has a termination path if the property doesn't satisfy the lender's underwriting requirements — including the appraisal. That's Property Approval under Paragraph 2B, and its deadline is fixed by the form: on or before the 3rd day before the Closing Date. To use it, the buyer delivers notice of termination plus a copy of the lender's written statement giving the reason(s) for the determination, and earnest money is refunded.
Where TREC 49-1 changes the picture
If the Addendum Concerning Right to Terminate Due to Lender's Appraisal (TREC Form 49-1) is attached — and it only applies when the Third Party Financing Addendum is also attached and the loan isn't FHA or VA — the parties can adjust that default in one of three ways:
- Waiver. The buyer gives up the Paragraph 2B termination right entirely if Property Approval fails specifically because the appraisal doesn't satisfy underwriting requirements. If the lender reduces the loan amount because of the appraisal, the cash portion of the sales price increases by the reduced amount instead.
- Partial Waiver. Same waiver, but only if the appraised value is at or above a dollar threshold written into the form. Below that number, the buyer keeps the Paragraph 2B right.
- Additional Right to Terminate. This adds a right rather than removing one — the buyer can terminate within a negotiated number of days after the Effective Date if the appraised value comes in below a dollar figure written into the form and the buyer delivers a copy of the appraisal to the seller. Earnest money is refunded if the buyer terminates this way.
What if 49-1 isn't attached at all?
Nothing changes — the deal falls back to the standard Property Approval mechanics under Paragraph 2B of the financing addendum: the 3rd-day-before-closing deadline, plus notice and the lender's written statement.
FHA and VA loans work differently
TREC 49-1 doesn't apply to FHA-insured or VA-guaranteed financing at all — the form says so directly. Those transactions instead use Paragraph 4 of the Third Party Financing Addendum: the buyer isn't obligated to close or forfeit earnest money unless given a written appraisal statement from HUD/FHA, the VA, or a Direct Endorsement Lender showing the appraised value isn't less than a dollar amount on the form, or the contract price exceeds the VA's established reasonable value. Notably, Paragraph 2B's 3-day notice requirement does not apply to this FHA/VA provision.
The paperwork if the buyer does terminate
If terminating specifically under TREC 49-1's Paragraph (3), the buyer checks that ground on the Notice of Buyer's Termination of Contract (TREC 38-8) — and that ground requires the buyer to have already delivered a copy of the appraisal to the seller, matching the delivery condition built into 49-1 itself.