Appraisal Gaps in Ontario Real Estate: When the Bank Values the Home Below Your Offer

You won a competitive multiple-offer situation, went firm on the deal, and started planning your move — and then your lender's appraisal came back lower than what you agreed to pay. It's one of the more unsettling moments in a purchase, because it arrives after you're often already committed, and it can directly threaten both your financing and your deposit.

An appraisal gap doesn't mean your deal is automatically dead, but it does mean you need to understand your options quickly, and ideally, you should have understood the risk before you firmed up in the first place.

What an Appraisal Gap Is

When you finance a purchase with a mortgage, your lender doesn't simply take your agreed purchase price at face value — they order an independent appraisal to confirm the property is actually worth what you're paying, since the home is the collateral securing their loan. An appraisal gap occurs when that appraised value comes in lower than your agreed purchase price.

Say you agree to pay $750,000 for a home, and the lender's appraisal comes back at $720,000 — that $30,000 difference is the gap you and your lender both now need to deal with, since the lender will generally only lend against the lower, appraised value.

Why Appraisals Can Come in Below the Purchase Price

• Competitive bidding pushed the sale price above recent comparable sales. In a hot local market or a bidding war, the winning offer can outpace what an appraiser's comparable-sales analysis supports.
• The appraiser used different or more conservative comparables than the ones your realtor relied on when pricing the offer.
• Unique property features (unusual layouts, extensive but unpermitted renovations, or a property type with few nearby comparables) can be harder to value precisely.
• A shifting local market, where recent sales data hasn't caught up to current buyer demand.

What Happens to Your Financing

Because your lender generally won't lend more than a set proportion of the lower, appraised value (not your higher agreed price), an appraisal gap typically means one of two things: you need to come up with additional funds to cover the shortfall out of pocket, or your loan amount needs to shrink, which increases how much you need to put down to make up the difference.

If your mortgage is an insured, high-ratio mortgage — generally meaning a down payment under 20% of the purchase price — the appraisal gap matters even more directly, because default insurers like CMHC set their own minimum down payment requirements and maximum insurable purchase price limits. An appraisal shortfall on a high-ratio deal can affect not just how much your lender will advance, but whether the mortgage remains eligible for insurance at all. Down payment tiers and insured-mortgage price limits do change from time to time, so confirm the current requirements with your mortgage broker or lender rather than relying on a fixed number.

Your Options When There's a Gap

Deposit Risk If the Deal Falls Through

This is the part that makes appraisal gaps genuinely stressful rather than just inconvenient: if your financing condition has already been satisfied or waived when the appraisal problem surfaces, and you can't complete the purchase as a result, your deposit can be at risk. Sellers can pursue remedies against a buyer who fails to close without a valid contractual basis for backing out, and a low appraisal discovered after you've gone firm generally doesn't, on its own, give you an automatic right to walk away.

This is exactly why the timing of your financing condition and your appraisal matters so much — an appraisal gap discovered while you're still protected by an unfulfilled condition is a very different situation than the same gap discovered after you're firm.

How a Financing Condition Protects You

A financing condition that's properly drafted and genuinely tied to your ability to secure a mortgage on acceptable terms — including a satisfactory appraisal — is your structured opportunity to walk away or renegotiate before you're locked in. In a competitive market, buyers sometimes feel pressure to shorten or waive this condition to make an offer more appealing to a seller. Doing so can work out fine on many deals, but it removes exactly the protection that matters most if an appraisal gap does turn up. Talk to your lawyer before you waive a financing condition, particularly in a multiple-offer situation where you're bidding above recent comparable sales.

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