You agree to buy an Ontario home for $700,000, but the lender’s appraisal supports a lower value. What happens next?
A low appraisal can create a financing gap because a lender’s mortgage decision is based on its lending criteria and the value it accepts for the property—not simply the price the buyer agreed to pay.
What is a lender appraisal?
An appraisal is one method a lender may use to assess property value for mortgage purposes. It is separate from a home inspection and serves a different purpose.
The lender determines its own appraisal and financing requirements.
Why can an appraisal be lower than the purchase price?
Possible reasons include comparable sales, property characteristics, rapidly changing market conditions, unusual improvements, limited comparable data or simply a difference between negotiated market price and the lender’s supported value.
How can a low appraisal affect the mortgage?
If the lender bases financing on a lower value, the amount it is prepared to lend may be lower than the buyer expected. That can leave a shortfall that must be resolved before closing.
Example
Suppose a buyer agrees to pay $700,000 and structures their financing based on that purchase. If the lender accepts a materially lower property value, the lender may calculate the available mortgage using that lower figure under its lending rules.
The exact shortfall depends on the mortgage structure, down payment, insurer requirements where applicable and lender policy. Buyers should obtain the actual calculation from their mortgage professional.
What options might a buyer have?
Depending on the transaction and financing terms, possibilities may include providing additional funds, working with the lender or mortgage professional to address the valuation, seeking another financing solution, renegotiating where the seller agrees, or relying on rights contained in a financing condition if one remains available.
None of these outcomes is automatic.
Can you simply cancel the deal?
Not necessarily. A buyer’s rights depend on the agreement of purchase and sale, including any financing condition and whether it has been fulfilled or waived. Once a buyer is in a firm agreement, inability to obtain expected financing can create serious legal consequences.
Obtain legal advice immediately if financing may prevent you from completing a firm purchase.
Why financing conditions matter
A properly drafted financing condition can provide a period for the buyer to satisfy themselves regarding financing, subject to the wording of the agreement. Buyers should not treat a mortgage pre-approval as a guarantee that a particular property will receive final lender approval.
Pre-approval vs. property approval
A pre-approval generally evaluates aspects of the borrower and proposed financing before a specific transaction is fully underwritten. Final approval can still depend on the property, documentation, appraisal and lender requirements.
OntarioHomeIntel buyer checklist
- Get mortgage advice before making an offer.
- Understand the difference between pre-approval and final approval.
- Discuss financing-condition strategy with your REALTOR®.
- Submit property and transaction documents to the lender promptly.
- Do not waive financing merely because you have a pre-approval.
- Keep accessible funds and closing costs in mind.
- If an appraisal is low, get the lender’s actual numbers before deciding what to do.
- Seek legal advice immediately if a firm closing is at risk.
Bottom line
A low appraisal does not automatically end an Ontario purchase, but it can change the financing mathematics. The safest approach is early lender involvement, careful financing-condition decisions and prompt professional advice if the lender values the property below the agreed price.
A worked financing-gap illustration
This simplified example assumes an uninsured mortgage limited to 80% of the value accepted by the lender. It is an illustration, not a financing quote.
- Agreed purchase price: $700,000.
- Original plan: $560,000 mortgage plus $140,000 buyer funds.
- Suppose the lender accepts a value of $650,000.
- At the assumed 80% limit, the mortgage becomes $520,000.
- The buyer would need $180,000 toward the price: $40,000 more than originally planned.
Closing costs are additional, and an offer deposit already paid forms part of the buyer’s contribution. Actual lending limits, insurer requirements and borrower approval can change the result. Get the lender’s written calculation before making a decision.
Does another appraisal guarantee a solution?
No. Ask whether the lender will consider corrected property information or another valuation under its process. A seller is not automatically required to reduce the price, and another lender may have different requirements or timing.
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Sources and further reading
- FCAC: Mortgage preapproval and property approval
- CMHC: Appraisers and your homebuying team (page 18)
Sources checked September 11, 2026. Featured photo by Aaron Lefler on Unsplash. Photo is illustrative.
This article provides general Ontario real-estate information and is not mortgage, financial or legal advice. Lending criteria vary by lender and borrower.