Falling GTA condo appraisals leave pre-construction buyers facing massive losses

A Vaughan man says he lost hundreds of thousands of dollars after a pre-construction condo purchase fell apart, something experts warn is becoming common with condo prices falling and appraisals coming in lower at closing.

“It’s sad because you put your life savings into something and then all of a sudden just gets taken away from you,” said Vitor, who purchased a two-bedroom, three-bathroom unit in a Vaughan condo in 2020.

Now, he has lost his entire deposit and could still be on the hook for up to $100,000 more.

“We bought it for approximately 675,000. We gave the builder 20 per cent down of that. And then now at closing, the appraisal came in at 590,000. So there’s that huge difference between what we bought it for and what the condo is actually worth,” he explained.

Industry experts say Vitor’s situation reflects a bigger market shift.

“People who purchased condos a few years ago, pre-construction condos who have not secured their mortgages properly are finding out now when it’s closing that the appraisals come in lower and leaving purchasers on the hook to the developer for that difference in price,” Patrick D’Aloisio, a lawyer based in Vaughan, said.

Reassignment of listings

When buyers face that gap, experts say there are typically only three options available. Close on the property, reassign it to a new buyer, or default on the contract and risk legal action.

“We have to price assignments basically where the market is or maybe a little bit even below the resale value because of the high closing cost that they’re going to face,” said Amir Zeinalpour Parvin, a realtor with The Zadegan Group

Reassignment listings have flooded social media, as desperate sellers look for someone willing to take over their contract.

For Vitor, reassignment wasn’t an option. He asked the builder to allow him to reassign the unit, but the request was denied. The builder then terminated his agreement.

“I lost my 20 per cent,” Vitor said. “Now they’re sending me letters saying that they’re going to sell it for whatever the market value is now and they’re going to come after me for their losses.”

Experts say buyers considering pre-construction condos should speak to a mortgage broker to protect themselves.

“Make sure that what you’re agreeing to is a firm approval that will last the test of time,” D’Aloisio said.

As the market continues to shift, experts warn that failing to secure long-term financing early could leave more buyers facing costly outcomes.