Assignment
Holland Homes Inner Circle - Issue 15
Pre-Construction Chaos: When the Numbers No Longer Add Up
Buyers — it’s not fair to call them speculators — of 2021–2022 pre-construction condos in Toronto are not having fun. Assignment sales are popping up everywhere. For clarity, assignment sales are when buyers try to resell a new-build condo before they even take possession.
Why? Because today’s condo values no longer justify the prices paid back in the record-low interest rate days. And now, many buyers are scrambling to offload properties they haven’t even stepped foot in.
Let me break it down:
The Easter Bunny (why not) buys a pre-construction condo in 2022 for $1 million. He puts down 20% ($200,000), and his lender agrees to finance the remaining $800,000 on closing.
Fast-forward to 2025. That same condo is built and ready to be occupied but now it appraises at just $800,000.
Uh oh.
Assuming his lender still offers 80% loan-to-value (LTV), they’re now only willing to lend $640,000 — 80% of the appraised value. That leaves our Bunny friend with a $160,000 shortfall.
So what are his options?
Cough up the difference from personal savings (easier said than done).
Find a secondary lender, likely at a higher rate, if he qualifies at all.
Walk away, lose the deposit, and possibly face legal action from the developer.
It’s a lose-lose-lose.
And just when you think it can’t get messier—it does.
Some lenders, like RBC, are offering blanket appraisals — essentially ignoring the current market value and using the original purchase price instead.
At first glance, this is a good thing; buyers can close as planned, avoiding a ripple effect that could include:
Buyer defaults
Developers missing occupancy thresholds to form a condo corp
Projects collapsing
Lenders losing money
Lawsuits flying
And fewer homes being built in the future
UGLY.
But blanket appraisals are not without complications. In some cases, lenders only offer it if they financed both the developer and the buyer. Is that fair to buyers who financed elsewhere? Not really. Is it ethical? Highly debatable. And even when the deal does close, any equity from that original deposit? Poof — gone.
Still, for buyers lucky enough to have this option, the blanket appraisal is probably the lesser of two evils. At least the deposit isn’t permanently gone — just on hold until the market rebounds.
Ultimately, the blanket appraisal buys time — and time might be exactly what this market needs.
It’s a sobering reminder that when pre-construction optimism crashes into market reality, someone’s left holding the bag. And unsurprisingly, maybe even appropriately, that someone is the buyer—Easter Bunny and all.
Thanks for reading!