Buying a pre-construction home or condo can be an exciting opportunity. Buyers are often drawn to the idea of owning a brand-new property with the latest design features, built in a location that’s expected to grow in value. However, one of the major – and often unexpected – challenges in a pre-construction transaction arises at closing, when the property is appraised for less than the purchase price. This situation can create real financial pressure and uncertainty for the buyer.
What Happens When a Pre-Construction Property Appraises for Less?
Let’s say you bought a condo in 2021 for $800,000 during the pre-construction sales phase. Now, in 2025, the project is completed and ready for occupancy. As part of the closing process, your lender will order an appraisal to determine the current market value of the unit. If the appraisal comes in at $720,000, this creates a problem: the bank will only finance a percentage (usually 80%) of the lower value – not the original purchase price. That means you’re responsible for covering the difference out of pocket.
In this case, 80% of $720,000 is $576,000, which is what the bank is willing to lend. But since you agreed to buy at $800,000, you need to come up with the remaining $224,000 on your own — even if you were initially expecting a mortgage of $640,000.
Why Does This Happen?
Appraisals are based on current market data. If the real estate market has cooled, interest rates have gone up, or comparable resale properties are selling for less, your unit’s appraised value may not reflect the price you agreed to years earlier. In booming markets, this isn’t usually an issue. But in periods of economic uncertainty or declining home values, appraisal shortfalls are becoming more common.
The Risks for Buyers
Appraisal gaps in pre-construction can be particularly challenging for a few reasons:
- Long timeframes: These transactions often span 2–5 years from agreement to occupancy, during which market conditions can change dramatically.
- Non-refundable deposits: Buyers typically put down a substantial deposit (often 15–25%) during the early stages of the build. If they cannot secure financing and complete the deal, they risk losing their deposit — and possibly being sued by the builder for breach of contract.
- Limited recourse: Unlike resale transactions, there’s no renegotiation with the seller when the appraisal is low. Builders generally won’t adjust the price based on the current market. The buyer must either find a way to make up the difference or risk defaulting.
How Can Buyers Protect Themselves?
- Plan ahead for closing: Buyers should not assume that their original mortgage pre-approval from years earlier will still apply. Start speaking with a mortgage broker or lender well before the final closing to assess your current borrowing power.
- Have a financial buffer: Be prepared with extra funds in case the appraisal comes in low. If possible, have access to additional savings or a backup line of credit.
- Understand your agreement: Pre-construction agreements are often one-sided in favour of the builder. Have your agreement reviewed by a real estate lawyer before signing, and make sure you understand your obligations, risks, and timelines.
- Know the market: Keep an eye on real estate trends in your area. If you suspect a downturn, speak to your realtor or mortgage advisor about your options early.
Final Thoughts
Buying pre-construction can be a smart long-term investment, but it’s not without risks — especially when property values shift between the time of purchase and closing. A low appraisal is one of the most common and difficult challenges buyers face in these deals. The key to navigating this risk is education, preparation, and the right professional advice. With careful planning and the right support team, buyers can minimize their exposure and complete their purchase with confidence.
Feel free to discuss this blog further with Eran Gevantschniter if you are considering a pre-construction purchase or are preparing to close.