Appraisals Are Coming in Short What Canadian Buyers Need to Know Right Now

Appraisals are becoming one of the most common and costly surprises for Canadian home buyers. I am seeing it more frequently in conversations with clients and hearing it echoed across the industry. Deals that appear solid on paper are suddenly at risk when the lender’s valuation comes in below the agreed purchase price.

That reality is why I recently sat down again with mortgage broker Dion Beg to talk through what is happening in the market and why buyers need to pay close attention to appraisals in 2024.

Bank of Canada Stability Brings Uncertainty

The Bank of Canada’s latest decision to hold interest rates steady has brought some sense of stability, but not clarity. From my perspective, holding rates is better than volatility, but it does not necessarily signal confidence in the economy.

Dion described it bluntly.

“I think it’s neutral because things are kind of neutral,” he said. “When you don’t know what to do, you just stand still.”

Many buyers are still waiting on rate cuts before making a move, but Dion does not see marginal changes moving the needle.

“A quarter percent rate drop doesn’t make a material impact in people’s decision to buy,” he said. “What is making a difference is that sellers are ready to meet the market.”

That shift is something I am seeing as well. When pricing reflects reality, buyers are willing to step in. But even when buyers and sellers agree, the lender still has a major say.

Why Appraisals Are Becoming a Deal Breaker

Appraisals have become one of the biggest pressure points in today’s market. According to Dion, resale properties are generally holding up well.

“In the resale market, we haven’t had any issues in lenders agreeing that the price the buyer has paid is the price,” he said. “Most of our deals are getting computer passed.”

That suggests resale pricing is largely aligned with current market data. Pre construction, however, tells a very different story.

“We’re seeing the exact opposite of what we saw five to seven years ago,” Dion said. “Now values are coming in lower than what people paid.”

He shared a recent example of a buyer who purchased a condominium for six hundred forty thousand dollars. The appraisal came back at four hundred twenty five thousand.

“When I looked at the comparables, there was no opportunity to challenge it,” he said. “Pre construction is a big concern right now.”

What Happens When an Appraisal Comes in Short

Many buyers do not fully understand the consequences of a low appraisal until they are facing one.

“The bank is going to lend you eighty percent of the lower of the value or the appraised value,” Dion explained. “If it comes in one hundred thousand lower, you have to make that up yourself.”

That difference must be covered through savings, equity, or family support. In some cases, buyers simply cannot close.

Appraisals also play a critical role during renewals and refinances. Computer valuations often fail to capture interior improvements.

“When there’s been a material change to the property, we’ll request a full appraisal,” Dion said. “The appraiser is going to see the value.”

Preparation Is the Difference Maker

One theme that consistently came up in our conversation was preparation. Buyers who understand their numbers and structure their finances properly are the ones succeeding in this market.

Dion shared an example of a family that secured a home nearly two hundred thousand dollars below their expected budget because they were pre approved and ready to act.

“They feel like they’ve got two hundred grand extra in their pocket,” he said.

Another buyer improved his borrowing power by eliminating a car loan.

“What the lender cares about is the monthly payment,” Dion said. “A five hundred dollar car payment reduces borrowing power by about one hundred thousand dollars.”

That single change allowed the buyer to qualify independently.

What Buyers Should Know Before Making a Move

As we wrapped up, I asked Dion what he wishes people understood before calling a mortgage broker.

“I need to know what you can really sell for, what you owe, and what your income actually is,” he said. “Especially if you’re self employed.”

That advice sums up the market we are in today. Appraisals coming in short are not random events. They reflect a market still adjusting after years of rapid price growth.

For buyers and sellers alike, understanding how lenders view value and preparing accordingly can mean the difference between a smooth closing and a deal that falls apart.