The valuation gap that catches pre-construction condo buyers off guard

Buyers who sign a pre-construction condo agreement often lock in a price years before the building is finished. By the time it closes, the market has moved, sometimes up and sometimes down, and the appraised value the lender relies on at closing can look very different from the number on the original purchase agreement.

Why the appraisal at closing is a fresh event

A lender financing a pre-construction purchase orders an appraisal near the actual closing date, not when the deal was signed. That appraisal reflects current market comparables for similar units, not the price environment from years earlier. If the market has softened since the original purchase, the appraised value can come in below the contracted price.

What happens when the numbers don't match

If the appraised value is lower than the purchase price, the lender bases the mortgage on the lower figure, which means the buyer needs a larger down payment to make up the difference. This is one of the more common and stressful surprises in a soft or cooling condo market, especially for buyers who budgeted their down payment years in advance.

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• Lenders finance against the lower of purchase price or appraised value
• A gap forces a larger cash down payment at closing
• Building-specific factors like unsold inventory can weigh on the appraisal
• Comparable units in the same building carry significant weight

Planning ahead of an assignment or closing

Buyers approaching a pre-construction closing should get a sense of current comparable values in the building and surrounding area well before their firm closing date, rather than assuming the original purchase price will simply be confirmed by the bank's appraiser.

A clearer picture before you close

An independent valuation of comparable units, done ahead of your closing date, gives you time to plan for a possible shortfall rather than discovering it in the final weeks before you need financing in place.