If your Toronto home appraisal comes in lower than your purchase price, your lender will only base your mortgage on the lower appraised value. To save the deal, you must cover the financial shortfall in cash, successfully renegotiate the price with the seller, or walk away safely if your OREA Agreement of Purchase and Sale still has an active financing condition.
Buying a home in the Greater Toronto Area (GTA) is both exciting and highly competitive. Once your offer is accepted, your mortgage lender will typically order an independent home appraisal to confirm the property’s true market value. Lenders want to ensure that if you default on your mortgage, they can sell the home and recover their money. However, in a fluctuating market, it is completely possible for the appraiser to value the home for less than what you agreed to pay the seller.
This situation is known as an “appraisal gap,” and it can be incredibly stressful for a homebuyer. 💰 For example, if you agreed to pay $900,000 CAD for a semi-detached house in Scarborough, but the appraiser values it at $850,000 CAD, the bank will only lend you money based on the $850,000 figure. This leaves you with a sudden $50,000 shortfall that your standard mortgage will not cover. How you handle this depends entirely on the specific clauses written into your real estate contract by your agent or real estate lawyer.
Step-by-Step Process in Toronto
When you are faced with a low appraisal, time is strictly of the essence. Whether you are buying in downtown Toronto, Etobicoke, or North York, you usually only have a few days before your closing date or condition expiry date to figure out your next steps. Here is the standard process to follow.
Step 1: Review Your Financing Condition
The very first thing you should do is call your real estate agent and lawyer to check if your OREA (Ontario Real Estate Association) Agreement of Purchase and Sale includes a “Condition of Financing.” 📄 If you included this crucial safety net, and the condition period has not yet expired, you have the legal right to back out of the transaction entirely and get your full deposit returned without any penalties.
Step 2: Request a Second Opinion or Dispute the Appraisal
If you genuinely believe the appraiser made a mistake, you or your mortgage broker can attempt to dispute the report. You can ask your real estate agent to provide better “comparables” (recent sales of similar homes in the exact same Toronto neighbourhood) to justify your purchase price. Alternatively, your mortgage broker might be able to order a completely new appraisal from a different certified appraisal company, though this is not always guaranteed to yield a higher number.
Step 3: Cover the Shortfall or Renegotiate
If you cannot walk away because you submitted a “firm offer” (no conditions), or if you simply still want the house, you have two main options. 💵 First, you can pay the difference out of your own pocket using cash savings or a gift from family. Second, your real estate agent can approach the seller and politely ask them to lower the purchase price to match the appraisal. While the seller is not legally obligated to lower the price, they might agree if they are desperate to close the deal and avoid putting the house back on the market.
How Much Does it Cost in Toronto?
Dealing with an appraisal gap involves unexpected financial hurdles. Here are some of the typical costs you might face when trying to resolve a low home appraisal in Ontario:
| Service or Penalty | Estimated Cost (CAD) |
|---|---|
| Standard Home Appraisal Fee | $350 – $600 (often paid by the buyer) |
| Covering the Appraisal Gap | The exact difference in value (e.g., $10,000 to $100,000+) |
| Losing Your Deposit (If you walk away from a firm deal) | Typically 5% of the purchase price (e.g., $40,000+) |
| Real Estate Lawyer Consultation | $250 – $500 per hour |
- Cash is King: You cannot use your standard mortgage to cover the gap. You must use liquid cash, a line of credit, or borrow from family.
- Legal Risks of Firm Offers: If you bought the home with absolutely no conditions and you fail to close because of a low appraisal, the seller can keep your deposit and sue you in the Superior Court of Justice for any additional financial losses they suffer.
- Private Lenders: If your traditional bank refuses to lend more, a mortgage broker might suggest a private lender, but be prepared to pay significantly higher interest rates and hidden setup fees.
How Long Does the Process Take?
An initial home appraisal in the GTA usually takes 2 to 5 business days to be scheduled, completed, and sent back to the lender. ⌖ If your OREA contract has a standard financing condition, you typically only have 3 to 5 days to resolve the appraisal issue before you must officially waive the condition or walk away from the deal.
Frequently Asked Questions (FAQ)
Does the seller have to lower the price if the appraisal is low?
No. The seller is under no legal obligation to reduce the agreed-upon purchase price. It is entirely up to negotiation between your real estate agent and the seller’s agent.
Can I use my RRSP to cover the appraisal gap?
If you are a first-time homebuyer, you can withdraw up to $35,000 CAD from your RRSP tax-free under the Home Buyers’ Plan (HBP). You can use these funds to help cover an unexpected appraisal shortfall, provided you meet the government requirements.
What happens if I bought firm without a financing condition?
If you submitted a firm offer, you are legally bound to complete the purchase. If a low appraisal means you cannot secure a mortgage, and you cannot find the cash to cover the gap, you will breach the contract. The seller can keep your deposit and sue you for further damages.
Can the appraiser change their mind?
It is rare, but possible. If you or your agent can provide strong evidence that the appraiser missed a major home upgrade or ignored a highly relevant recent property sale in your specific Toronto neighbourhood, they might issue a revised report.
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