You've been Warned - Blanket Appraisals

By Ridhima Pathak

The pre-construction market has been hanging on by a thread with the ongoing pre-construction condo market crisis, with sales in the first quarter of 2025 down 62% year-over-year. Purchasers that bought during the peak of the market between 2020-2022 are now approaching their Interim Occupancy Closing or Final Closing, and the hard truth behind how much it costs to close. New schemes or financial arrangements are being introduced regularly in an effort to save existing purchases, as per our previous article, and encourage new purchases in the pre-construction market.

The large majority of purchasers in Ontario require a mortgage to purchase. To determine the eligibility of how much of a mortgage a purchaser qualifies for, the bank conducts an appraisal. An appraisal is a process whereby a professional appraiser determines the value of the home. A lender requires an appraisal to be completed to calculate a mortgage amount to the buyer. As a real estate lawyer, I have been hearing more frequently that appraisals are coming in under the agreed purchase price of the home leaving purchasers to cover the difference between the mortgage amount and the purchase price. If they are unable to meet that shortfall/difference amount and cannot close, they run the risk of defaulting on an Agreement of Purchase and Sale. This may include losing their deposits, being sued for damages, being sued for the difference in purchase price if the property is eventually resold for less, and an overall breach of contract.

Some mortgage lenders and banks are offering blanket appraisals to assist purchasers and enable them to close on their purchases. Some developers or builders are even advertising blanket appraisals as a sales promotion.

Blanket Appraisals are an arrangement whereby a bank uses the original purchase price of the property to calculate a mortgage ratio rather than using the true appraisal value. RBC has been quoted as offering more and more blanket appraisals in this market. It must be noted however that while prices of homes are on the decline, borrowing at the original purchase price should inadvertently be cautioned against.

At face value, a blanket appraisal is a fantastic tool for purchasers. It prevents purchasers from being unable to close and/or scrambling for additional funds to cover a shortfall last minute. The issue comes later. Say that same purchaser needs to sell the property a year or two later, and the market has not gone up. The buyer is left to pay off any shortfall of the mortgage balance against the sale price out-of-pocket.

For banks, lending like this comes at a higher risk. Especially if borrowers are unable to repay the mortgage, the default on the loan, and they are left with a property in hand that is worth less than the existing mortgage balance.

See below example WITH a blanket appraisal:

• Original Purchase Price - $600,000
• Current Appraisal Price - $500,000
• Loan to Value at 80% of Original Purchase Price - $480,000
• Deposit required $120,000.

See below example WITHOUT a blanket appraisal:

• Original Purchase Price - $600,000
• Current Appraisal Price - $500,000
• Loan to Value at 80% of Appraisal Price - $400,000
• Deposit required $200,000, or a difference/shortfall of $80,000 that a purchaser must come up with on a cash basis.

If you have any questions real estate related questions, please email Ridhima Pathak at ridhima@sorbaralaw.com