What to Do If Your Pre-Construction Condo Drops in Value

Canadian home buyers and investors who purchased pre-construction condos during the post‑COVID buying surge are now discovering that the value of their units at closing can be lower than the price they originally paid. For many, this outcome was unexpected when deposits were placed and contracts signed during the frenzy.

How did we get here, where condo prices have dropped?

Nationwide, condo prices rose sharply between January 2021 and April 2022, with an increase of more than 29% reported by the Canadian Real Estate Association (CREA). Since the spring 2022 peak, condo prices have declined about 12% across the country, with larger drops in some markets. In the Greater Toronto Area (GTA), CREA data shows benchmark condo prices have fallen roughly 19% from their highs.

To illustrate how this affects buyers: a Toronto condo buyer who agreed to purchase at the spring 2022 benchmark of $730,500 and put down a minimum 5% deposit — about $36,525 — now faces a benchmark price near $593,000 as of April 2025. That gap effectively wiped out the deposit and more than $100,000 of perceived equity. Even buyers intent on closing may find that their lender will not finance an amount based on the original purchase price if appraised values are lower at closing.

If you are facing a potential shortfall at closing on a pre‑construction condo, it helps to understand the realistic paths forward and the tradeoffs for each option.

What happens if you sell your condo at a loss

Lenders typically rely on an appraised value at closing to calculate mortgage financing, not the price on a signed purchase agreement. When market values fall, that appraisal can reduce the maximum mortgage a lender is willing to provide. Some developers work with financial institutions to arrange financing based on the contract purchase price rather than the current appraisal, but that only affects financing terms and does not change the fact that the property may be “underwater” — subject to more debt than market value.

A buyer who cannot secure a conventional mortgage might look for other financing options. This can include using personal savings, borrowing against other real estate holdings, or seeking support from family. Private lenders may be willing to bridge the gap, although such loans generally come with higher interest rates, additional fees, shorter terms and stricter conditions. Selling the contract before closing — an assignment sale — is another option, but assignments often require developer approval and can involve assignment fees. In a down market the buyer’s deposit may not cover the full decline in value, and in some cases the contract holder must offer an incentive to an assignee to take over the purchase. For many purchasers, assignment sales are not simple or guaranteed solutions.

Can you walk away from a pre-construction condo?

Walking away from a signed purchase agreement is not a light decision: the contract is legally binding. If you choose not to close, you will typically forfeit your deposit, and the developer may seek additional damages if they resell the unit for less than the original contract price minus the deposit amount. That means you could be held responsible for the difference and for legal costs. Breaking a purchase agreement without negotiated release can therefore lead to substantial financial and legal consequences.

What if you rent out your condo?

Renting a purchased condo has been a common strategy for investors hoping to ride out price volatility until values recover. But when buyers are highly leveraged, carrying costs can overwhelm rental income. Higher mortgage interest rates, increased condo fees, property taxes and rising insurance premiums can push carrying costs up, while rental rates in some cities have softened. For example, market reports in 2025 noted continued annual declines in apartment rents in Toronto.

When deciding whether to keep and rent the unit, try a forward-looking question: if you had the purchase price in cash today, would you still buy this property? If the honest answer is no, selling rather than holding may be the better choice even after accounting for transaction costs. Real estate has higher transaction overhead than stocks, but the core investing principle is the same: make decisions based on future prospects, not sunk costs.

What if you declare bankruptcy?

If you truly cannot cover the closing costs or defend against developer claims, bankruptcy is a possible, though serious, option. Bankruptcy can extinguish certain debts owed to the developer, including liabilities arising from a breached purchase contract. Some assets typically receive protection under bankruptcy law, such as certain pension plan benefits, registered retirement savings plan (RRSP) contributions made more than 12 months before filing, and some life insurance products; exemptions for vehicles and personal property vary by province or territory.

Bankruptcy will significantly harm your credit score and its effects can last several years, so it is usually treated as a last resort. An alternative may be a consumer proposal, which allows for a negotiated settlement with creditors to repay a reduced amount over time; this process is administered through a licensed insolvency trustee. Both choices have long-term financial and credit implications and should be considered carefully with professional guidance.

Where to go for advice when you lose money on a condo

If your pre‑construction condo is underwater or you expect financing challenges at closing, seek professional help early. A mortgage broker can explore financing options and timing to avoid last‑minute surprises. A real estate lawyer can review your purchase contract, explain your obligations and outline the developer’s potential remedies. If insolvency is a risk, consult a licensed insolvency trustee to discuss consumer proposals or bankruptcy and the practical consequences in your jurisdiction.

Other professionals, such as an accountant or a certified financial planner, can help model the tax, cash‑flow and long‑term financial implications of keeping, renting or selling the unit. Acting proactively — communicating with lenders and the developer, getting up‑to‑date appraisals and seeking advice well before the scheduled closing date — gives you the best chance of managing a difficult situation.