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A low appraisal means your lender will only advance funds based on the appraised value — not what you agreed to pay. As an Ontario buyer, you have 4 options: cover the gap in cash, renegotiate the price, request a second appraisal, or exercise your financing condition to walk away. The best defence is understanding this risk before you write the offer.
What Is a Bank Appraisal — and Why Does It Come in Low?
A bank appraisal (also called a mortgage appraisal) is an independent property valuation commissioned by your lender before approving your mortgage. A licensed appraiser visits the property, reviews comparable sales in the area, and delivers a written report estimating its fair market value. Your lender uses that number — not your purchase price — to calculate your maximum mortgage amount.
According to the Canada Mortgage and Housing Corporation (CMHC, 2024), all insured mortgages with a loan-to-value ratio exceeding 80% must have the property value confirmed through a formal appraisal or an automated valuation model (AVM).
In competitive markets like Toronto, Mississauga, and Markham, appraisals frequently come in below the purchase price because bidding wars push prices beyond what recent comparable sales can support. Appraisers are bound by historical closed-sale data, not real-time market sentiment.
Why Appraisals Come in Below Purchase Price in Ontario
Understanding the cause helps you decide which response makes the most sense for your situation.
Multiple offers drive prices above rational market value. Appraisers are tasked with finding fair market value — not the emotional ceiling a competitive auction produces.
Appraisers rely on closed sales, typically from the past 90 days. In a rapidly appreciating market, historical data lags behind current prices.
Unusual lot sizes, rare floor plans, or premium locations with few recent comparables lead appraisers to be more conservative to manage uncertainty.
Lender-commissioned appraisers tend toward caution — their job is to protect the bank’s security interest, not validate the purchase price.
Your 4 Options When the Appraisal Comes in Low
Say you agreed to pay $900,000, but the appraisal came back at $850,000 — here is what you can do with that $50,000 gap.
When Does a Lender Require a Full Appraisal?
Not every mortgage triggers an in-person appraisal. Many lenders use Automated Valuation Models (AVMs) for lower-risk transactions. However, a full physical appraisal is typically required in these situations:
- Loan-to-value ratio exceeds 80% (CMHC-insured mortgages)
- Purchase price exceeds $1,000,000 (conventional high-ratio threshold)
- The AVM result diverges significantly from the purchase price
- Refinancing or mortgage switches
- New borrower relationship where the lender has no prior collateral history
- Unusual property type: rural acreage, waterfront, mixed-use, or non-standard construction
Pro tip: Ask your mortgage broker before writing your offer whether the lender will require a full appraisal and what the expected turnaround time is. This lets you build adequate time into your closing timeline and avoid last-minute surprises.
How to Protect Yourself Before You Write the Offer
The most effective way to manage appraisal risk is to plan for it during the offer strategy stage — not after the appraisal report arrives.
Appraisal risk is a structural feature of competitive real estate markets, not a fluke. A skilled buyer’s agent should walk you through appraisal scenarios during offer strategy — not after you are already committed to the price.
If you submitted a firm offer (no conditions) and the appraisal comes in low and you cannot bridge the gap, you may be in default of the Agreement of Purchase and Sale. Default consequences typically include forfeiture of your deposit (commonly 5% of the purchase price) and potential further legal liability to the seller for additional damages. This is one of the most serious financial risks in Ontario residential real estate.
Frequently Asked Questions
When a bank appraisal comes in below the purchase price, the lender will only provide a mortgage based on the appraised value, not the purchase price. The buyer must cover the difference — either by paying cash, renegotiating the price, requesting a second appraisal, or exercising a financing condition to cancel the deal and recover the deposit.
Yes, in some cases. You can request that your lender order a second appraisal or use a different appraiser, particularly if you believe the original appraisal relied on inaccurate comparable sales. Not all lenders will agree, and success depends on having strong supporting data. You can also commission your own independent appraisal as leverage in the discussion.
If you submitted a firm offer, you are legally bound to complete the transaction at the agreed purchase price regardless of the appraisal outcome. Your only practical options are to cover the appraisal gap out of pocket or attempt to renegotiate with the seller — who has no obligation to agree. Defaulting on the purchase could result in losing your deposit and potential legal liability to the seller.
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