Why Toronto Property Closings Are Failing

The Big Picture: What the Numbers Say

Here are some of the most striking stats driving the closing crisis:

• Pre-construction condo buyers in Toronto are facing appraisal shortfalls of 10% to 30% compared to their original purchase price. Mortgage Professional America
• In one example, a buyer agreed to pay $2.195 million, but the final appraisal came in at $1.6 million – a 27% gap –forcing him to either cover ~$595,000 or walk away. Mortgage Professional America
• In Toronto, some brokers report 30% of condo closings fail, meaning nearly one in three buyers abandon their deals. Benefits and Pensions Monitor
• New condo sales in the Greater Toronto & Hamilton Area dropped 62% year-over-year in Q1 2025, reaching their lowest quarterly total since 1995. Urbanation
• Unsold condo inventory is at record highs: over 23,900 units reported unsold (pre-construction, under-construction, and completed), that’s a stock equal to 78 months of supply at current sales rates. Urbanation
• Condo values have also fallen: since their 2022 peak, Toronto condo prices are down 16.5%. Macleans.ca

These numbers underline why closings are collapsing: buyers signed contracts in a hotter market, but by the time the building is ready, the market has cooled, and appraisers and lenders are no longer willing to support the old (higher) number.

Why Closings Are Falling Apart

1. The Appraisal Problem

When someone buys a condo or house (especially pre-construction), the lender checks how much it’s worth before handing out the mortgage. The problem is that many new units are now being appraised for less than what buyers agreed to pay years ago.

For example, if a buyer signed for $2.1 million but the appraisal comes back at $1.6 million, the bank will only lend based on $1.6M. That leaves the buyer scrambling to come up with the difference, often hundreds of thousands of dollars, or risk losing the deal altogether.

2. Rising Interest Rates

Higher interest rates mean higher monthly payments. A lot of buyers who were pre-approved when rates were low can no longer qualify when it comes time to close. Even if they still qualify, the payments can be far higher than they originally expected.

3. Too Many Condos at Once

Toronto has a flood of new condos hitting the market, but not enough demand to keep prices climbing. This oversupply pushes prices down, which only makes the appraisal problem worse.

4. Tough Contract Rules

Most pre-construction contracts are strict. They don’t always allow buyers to back out gracefully or delay closing. Developers often refuse to renegotiate, because it could affect all their other sales.

5. Buyers Walking Away

When the gap is just too big, some buyers decide it’s cheaper to lose their deposit than to force a closing they can’t afford. It’s not ideal, but for some it feels like the only option.

Practical Solutions: What You (or Your Client) Can Do

Here are steps you can take to protect yourself or help others navigating this mess:

For Buyers

• Arrange access to additional cash or a short-term “bridge” loan so you can cover the difference if appraisal comes in low.
• Ask for incentives: covering closing costs, giving credits, delaying the closing date, or absorbing part of the shortfall.
• Before signing, insist on protective clauses (financing conditions, appraisal protections, extension rights) that give you options if things go sideways.
• If your contract allows it, you might sell or assign your purchase rights to someone else who can close.
• If you must abandon, do so legally and with good recordkeeping. Sometimes forfeiting the deposit is less costly than forcing an impossible closing.

For Developers & Builders

• Partner with lenders so buyers can qualify based on the original contract price, not just the lower appraised value.
• Offer extension windows, absorb closing costs, or provide credits to buyers stuck with gaps.
• Build smaller units, lower-cost options, or phased launches with more realistic pricing to match what buyers can actually afford.
• Reducing reliance on financing-dependent buyers can reduce deal risk.

For Policymakers & Industry Stakeholders

• Governments or agencies could offer secure short-term loans or guarantees to help buyers cover appraisal gaps.
• Regulate default and closing clauses, appraisal risk disclosures, and buyer protections in pre-construction contracts.
• Support co-ops, modular construction, rental housing that isn’t purely speculative, less dependent on volatile financing.

How It Could Work in Practice?

Here’s a simplified scenario showing how a buyer + developer might navigate this:

1. Buyer signs a pre-construction agreement for $1,200,000 (deposit paid).
2. Upon completion, the appraisal comes back at $1,050,000, a $150,000 shortfall.
3. Buyer arranges short-term bridge financing for $150,000, with agreement to refinance later.
4. Developer offers a $25,000 closing credit to soften the blow.
5. Buyer refinances after a year when the market recovers somewhat, and pays off the bridge loan.

In this way, the deal closes, both sides stay better off, and the buyer doesn’t have to forfeit the deposit.