Buyers Are Losing Their Deposits. Here’s What’s Actually Going On.
It is a goddamn disaster in the pre-construction market right now. I don’t say that for clicks — I say it because I sat down with mortgage expert Jeff Mudrick on my podcast and the picture he painted was worse than I expected. And I’m in this market every day.
If you bought a pre-construction condo or house in the GTA at any point between 2021 and 2023, there’s a real chance your deposit is at risk. Not a theoretical chance. A real one. And if you’re thinking about buying now, you need to understand what’s happening to the people who came before you so you don’t walk into the same mess.
The appraisal gap is the whole problem
Here’s the chain of events. You bought a pre-construction condo for, let’s say, $850,000 in 2022. You put down 15 to 20 percent — so somewhere around $130,000 to $170,000. That money is sitting with the builder. Now the building’s done, you need a mortgage to close, and the lender sends in an appraiser.
The appraisal comes back at $650,000.
Your lender will only finance based on what the property is actually worth today — not what you agreed to pay three years ago. So you’re on the hook for a $200,000 gap. Out of pocket. On top of your deposit.
Jeff put it bluntly:
Not thousands. Hundreds of thousands. That’s not a rounding error — that’s a life-changing amount of money. And most buyers don’t have it. So they can’t close. And when they can’t close, they lose the deposit. Sometimes they get sued by the developer on top of that.
How the appraisal gap chain works
So what about the “workarounds”?
Some lenders have tried to help. RBC, for example, has offered blanket appraisals on certain developments — basically saying “we’ll let buyers close without the individual appraisal.” On the surface that sounds great. Buyers can actually complete the purchase instead of losing everything.
- Can’t cover appraisal gap
- Lose $130-170K deposit
- Possible lawsuit from developer
- Years of savings gone
- 100% loan-to-value from day one
- Zero equity in the property
- Underwater if market dips further
- Different problem, same stress
I’m not sure that’s actually better. It’s just a different kind of problem.
The lawsuits are piling up
“There’s lawsuits happening every day now. It’s absolutely wild.”
That’s Jeff again. Developers suing buyers who can’t close. Buyers suing developers over delays or material changes. Everyone lawyering up while the bills stack higher. If you’re in this situation, you need a real estate lawyer yesterday — not when the closing notice shows up, not when the developer’s lawyer sends a demand letter. Now.
And it’s not just buyers who live there
A lot of these pre-construction purchases were investors planning to rent the units out. The math was supposed to work — buy at X, rent covers the carrying costs, and you build equity over time. Right?
Except with rates where they are, the math is brutally negative. Landlords across the GTA are losing $1,500 to $3,000 a month. Every month. That’s not a typo. Jeff says even the lenders are upside down:
“They’re not making money until maybe year four on a mortgage.”
When both the lender and the borrower are losing money in the early years of a mortgage, that tells you something fundamental about where the market priced things versus where reality actually is.
You need to understand where rates actually come from
This is something I talk about a lot on the podcast because I don’t think most people get it. Everyone watches the Bank of Canada rate. It’s all over the news. But if you’re getting a fixed-rate mortgage — which most Canadian buyers do — the Bank of Canada rate isn’t the main driver. It’s the bond market.
The Government of Canada 5-year bond yield is what moves fixed mortgage rates. When bond yields go up, your fixed rate goes up. When they come down, rates follow. A 30-second check on bond yields once a week gives you more insight than most talking heads on TV.
Why does this matter for your deposit? Because if you understand where rates are heading, you can make a smarter decision about when to buy, how much to offer, and whether you can actually afford to close.
How to actually protect yourself
I’m not going to give you a numbered list of tips because this isn’t that kind of problem. But here’s how I’d think about it if I were buying right now.
The actual approval happens at closing — with a fresh appraisal, current rates, and a new stress test. Get your mortgage professional to walk you through the worst-case scenario, not just the best one.
In this market, that’s the safer bet. Have a plan for how you’d cover the gap. Keep more cash in reserve than you think you need. If you’re locked into a pre-construction contract, talk to your broker now.
I know that sounds nerdy. I am a nerd about this stuff. But it takes 30 seconds a week and it tells you more about where your rate is going than anything else you’ll read.
Model out the real carrying costs — mortgage, taxes, maintenance, insurance, vacancy — and make sure you can absorb losing $1,500+ a month without it ruining your life. If you can’t, this isn’t the time.
A conversation with a real estate lawyer now could save you from a much worse conversation later. Assignment sales, negotiated extensions, other remedies — they all take time.
The bottom line
The deposit landscape in Ontario has changed. What used to be a routine part of buying a home now carries real risk — especially in pre-construction across Toronto and York Region. Appraisal gaps, negative cash flow on investment properties, and a growing wave of lawsuits have made this something every buyer needs to take seriously.
But informed buyers can navigate this. The people who get hurt are the ones who don’t understand the mechanics — where rates come from, what appraisals actually measure, how carrying costs work in a high-rate environment. If you understand those things, you’re already ahead of most of the market.