The Gap Buyers Never Saw Coming

In 2021 and 2022, thousands of buyers signed pre-construction contracts on Markham condos and townhomes at prices that seemed reasonable in the moment. Deposits were paid, financing seemed straightforward on paper, and closing was three or four years away. In 2026, those contracts are now closing into a market where condo values have corrected roughly 6% year over year, some buildings have corrected considerably more, and the appraisal that determines mortgage funding no longer supports the original purchase price. What buyers do not realize until their mortgage broker calls with bad news is that they are personally responsible for the difference in cash.

Successful pre-construction buyers understand this risk in advance and plan for it. The buyers being genuinely hurt right now are the ones who signed with 20% down assuming the mortgage would cover the remaining 80%, and who now face a situation where the mortgage covers only 80% of the current appraised value rather than 80% of the original contract price. The math on a $700,000 pre-construction unit appraising at $600,000 leaves a $80,000 shortfall the buyer must fund in cash at closing. Multiply this pattern across thousands of Markham buyers and the scope of the problem becomes clear.

How Appraisal Gaps Actually Work in Ontario

When a pre-construction unit closes, the buyer's mortgage lender orders an appraisal of the unit as of the closing date, not as of the original contract signing date. The mortgage the lender is willing to fund is calculated as a percentage of the appraised value, not the contract price. If the appraisal comes in at or above the contract price, financing proceeds normally and closing is straightforward. If the appraisal comes in below the contract price, the buyer is required to fund the difference in cash at closing to satisfy the lender's loan-to-value ratio.

The critical detail is that the buyer's original deposit does not solve this problem. The deposit is already committed to the developer. What is at risk is the additional cash the buyer needs to bring to closing to complete the transaction. If the buyer cannot fund the additional cash, they typically cannot close, forfeit the deposit already paid, and face potential legal action from the developer for breach of contract. This is the reason appraisal gap risk is so significant in a correcting market.

The Markham Specifics — Which Buildings and Price Points Are Most Exposed

Not all Markham pre-construction is equally exposed to appraisal gap risk. The buildings signed at 2021 to early 2022 peak pricing carry the highest risk, particularly in the entry-level and mid-market condo segments where price correction has been sharpest. Downtown Markham condos, Highway 7 corridor buildings, and some newer Cornell townhome developments have all seen materially different appraisal outcomes than the same units would have generated at signing.

Luxury pre-construction, by contrast, has held value more consistently. Pre-construction detached homes in premium neighbourhoods have shown less appraisal gap exposure than pre-construction condos in mass-market buildings. This does not mean luxury pre-construction is risk-free. It means the risk profile is different and the buyer strategy needs to be tailored to the specific product and location. Michael John Lau, top real estate agent in Markham Ontario, works with pre-construction closers regularly and can assess the specific exposure of a particular building or contract.

Protecting Yourself Before Closing

Buyers currently holding pre-construction contracts that will close in 2026 or 2027 have several protective steps available if taken early enough. First, request an early appraisal or comparable market analysis to understand the likely gap. Second, engage a mortgage broker with pre-construction experience who can structure the closing financing to minimize the shortfall. Third, review the assignment clause in the original contract to understand whether the unit can be sold to another buyer before closing, which sometimes limits the loss compared to forfeiting the deposit entirely.

Fourth, and often overlooked, review the specific contract language regarding closing extensions, developer occupancy periods, and any interim financing options. Some Markham developers, recognizing the market situation, have offered extended closing timelines, purchase price adjustments, or financing accommodations to buyers who cannot fund the gap. Not all developers offer these, but the ones who do rarely advertise the option publicly. Buyers who ask early sometimes receive materially better outcomes than buyers who wait until closing week.

If Your Appraisal Comes in Low — Options When the Gap Is Real

If the appraisal has already come in and the gap is confirmed, several paths remain available depending on the specific situation. First, funding the cash shortfall from savings or a Bank of Mom and Dad contribution completes the closing and preserves the deposit. Second, negotiating with the developer for a price reduction, extended closing, or seller financing sometimes works, particularly with smaller developers facing broader closing difficulties across their building. Third, assigning the contract to another buyer before closing sometimes limits the loss compared to forfeiting the deposit and facing potential legal action.

Fourth, and most difficult, if none of the above works, the buyer faces the choice between funding the closing with whatever additional resources can be assembled, or defaulting and accepting the deposit loss. This is not a decision to make under time pressure without professional advice. A real estate lawyer, a mortgage broker, and a REALTOR® experienced with pre-construction closings should all be involved before any final decision. The Kaizen Real Estate Team walks buyers through exactly this analysis when the situation requires it.