Pre-Construction: What If Your Home Drops in Value?

Many Canadians purchased pre-construction homes and condos during the peak of the housing market, when historically low interest rates helped push prices higher. Now, as mortgage rates and market conditions have changed, some buyers are choosing to walk away from those contracts because the properties are worth less than the prices they agreed to pay. These buyers risk forfeiting deposits that can total $100,000 or more.

If you’re in this position, it’s important to understand your options. Below is a clear guide to how pre-construction purchases work in Canada, why some buyers are having difficulty closing, and practical steps you can take to reduce the risk of losing a large deposit.

How does buying a pre-construction home work in Canada?

Pre-construction purchases come with several advantages. You receive a brand-new property and often have the opportunity to select finishes and upgrades that aren’t available with resale homes. New builds typically require less immediate maintenance and repair, and developers commonly allow buyers more time to accumulate funds because deposits are paid over a schedule rather than up front.

Unlike a resale transaction—where a deposit is usually paid shortly after an offer is accepted—pre-construction purchases use staged deposit schedules that spread the down payment over months or years. That structure can make entering the market more accessible, but it also introduces different timing and financing risks.

Payment schedule for pre-construction homes

Deposit structures vary by builder, but a total down payment of roughly 20% to 25% of the purchase price is common for new homes. Rather than requiring the entire amount immediately, builders often ask for an initial nominal deposit when signing the agreement, followed by several scheduled payments—for example, 5% within 30 days, 5% within 90 days, another 5% at 180 days, and a final percentage at occupancy.

Because developers typically publish a standard deposit schedule, buyers should review it carefully and, if necessary, negotiate terms that better match their cash-flow needs. Always get any alternate payment arrangement in writing.

Mortgage rules and timing for pre-construction homes

Mortgages for new builds are subject to the same regulatory rules as mortgages for resale properties, including the requirement to pass the mortgage stress test. The critical difference with pre-construction homes is timing: you sign a purchase contract long before the property is ready, and mortgage approval and appraisal usually occur close to the closing date.

Lenders will typically base an approved mortgage on the lesser of the purchase price or the appraised value. That appraisal often happens when the property is nearly complete—frequently around 97% finished—so appraisal value can reflect the market several months or years after you first locked in your purchase price. If housing values have fallen in the interim, the appraisal may come in below your agreed price, creating a financing shortfall you must cover.

Why some buyers are walking away from their down payments

Two main factors have driven recent walkaways: changing mortgage rates and shifting home prices.

Rising mortgage rates

Mortgage rates in Canada rose sharply during 2022 and 2023. When you bought a pre-construction property, you might have expected rates to be similar or lower by the time of closing. Because builders control the timing of completion, closing can be delayed beyond the original estimate. If rates rise substantially before your mortgage is finalized, your monthly payments could increase to the point where the purchase no longer fits your budget.

Falling or stagnant home prices

Interest rates are a major driver of housing values. Higher borrowing costs have led home prices in many markets to flatten or decline. If your agreed purchase price was established during a stronger market, the property may appraise for less at closing. For example, a purchase price of $700,000 that appraises at $650,000 leaves a $50,000 gap between the mortgage amount and what you agreed to pay. Many buyers cannot cover such a shortfall, and in severe cases the gap can exceed $100,000.

Options if your pre-construction home is appraised for less

If your pre-construction home is appraised below your purchase price, you still have several possible paths forward. Evaluate each carefully and consult professionals—mortgage brokers and real estate lawyers—before deciding.

Bring in a co-signer or co-buyer

A co-signer or co-buyer with sufficient income and credit can help you bridge the shortfall and qualify for the mortgage. This can be a trusted family member or friend. Any co-signer agreement should be documented and reviewed by a real estate lawyer so all parties understand the legal and financial responsibilities involved.

Explore alternative or private lenders

Alternative and private lenders accessed through mortgage brokers may offer more flexible underwriting than major banks. Some will lend based on the contract purchase price rather than the lower appraisal, though they generally charge higher interest rates and additional fees. Carefully compare the long-term cost of such financing against other options.

Consider an assignment sale

An assignment sale lets you sell your contract to another buyer before closing. While this may mean accepting a lower price and forfeiting part of your deposit, it can limit further legal exposure and ongoing financial risk. Assignment sales can be complex and are best handled with experienced legal counsel. This option is typically a last resort.

Closing thoughts

Walking away from a pre-construction purchase is a serious decision with financial and legal consequences, so explore all alternatives before forfeiting a deposit. Pre-construction homes offer compelling benefits, but they also carry timing and valuation risks not present with resale transactions. Plan ahead: understand the deposit schedule, keep communication open with your lender and builder, and have contingency plans—such as backup financing or a co-signer—in case appraisal values or mortgage rates move against you.