Appraisal Shortfall

You agreed to pay $1,180,000; the appraiser says $1,120,000. The lender funds the lower number, and the $60,000 gap comes out of your pocket in cash on closing day. This calculator sizes that gap and its effect on your down payment, mortgage, and closing-day cash.

What it answers

• The shortfall: agreed price minus appraised value.
• The extra cash needed on closing day beyond your planned down payment.
• Your real loan-to-value after the appraisal, and whether the promised mortgage still stands.
• The numbers if you renegotiate the price down to the appraised value.

What it deliberately does not cover

It does not dispute the appraisal — it cannot say whether the appraiser was wrong, only what the lender will do with the number. It does not model walking away — that turns on your financing condition and your deposit, which is a legal question. It does not estimate how likely a low appraisal is in your market.

Every input, explained

Agreed purchase price. The price on your offer. The lender's commitment was built on this number, and the shortfall is measured against it.

Appraised value. The lender's appraised value — not a realtor's opinion or an online estimate. It usually arrives from your lender or broker one to two weeks before closing. The common error is entering the purchase price instead of the appraiser's number.

Planned down payment. What you intended to put down, in dollars or as a percentage of the agreed price. The shortfall stacks on top.

Insured or uninsured mortgage. Under 20 percent down means an insured mortgage, where the premium is calculated on the mortgage amount — which shrinks when the appraisal comes in low.

How the math works

Lenders advance against the lower of the purchase price and the appraised value. That one rule drives everything.

Shortfall = agreed price − appraised value. Zero or negative means no shortfall — the deal funds as planned.

With a shortfall, maximum mortgage = appraised value × your loan-to-value ratio. Cash needed = agreed price − maximum mortgage. The difference between that and your planned down payment is what the appraisal just cost you.

For insured mortgages, the premium (4.00 percent at 5–9.99 percent down, 3.10 percent at 10–14.99 percent, 2.80 percent at 15–19.99 percent, applied to the mortgage amount) is calculated on the smaller approved mortgage, so it falls slightly. And the insured cap still applies: no insurance above a $1.5 million purchase price.

Worked example

A Burnaby buyer agrees to $1,180,000 for a townhouse with 20 percent down. The appraisal comes in at $1,120,000.

Shortfall: 1,180,000 − 1,120,000 = $60,000.

The plan: down payment 1,180,000 × 0.20 = $236,000; mortgage $944,000 (uninsured at 20 percent down).

What the lender funds: 80 percent of appraised value = 1,120,000 × 0.80 = $896,000 — $48,000 less than planned.

Cash needed on closing day: 1,180,000 − 896,000 = $284,000, versus the planned $236,000. The appraisal costs this buyer an extra $48,000 in cash. The buyer ends up at 75.9 percent loan-to-value against the price paid — but the lender's view (80 percent against the value it recognizes) is the one that counts.

The renegotiation scenario: if the seller drops the price to the appraised $1,120,000, the math resets. Down payment at 20 percent: $224,000. Mortgage: $896,000 — exactly what the lender funds. No shortfall, no extra cash. The $60,000 price cut saves $12,000 in down payment and $48,000 in shortfall cash. This is what the financing condition is for: leverage to reopen the price when the appraisal disappoints.

The insured version of the same $60,000 shortfall, at 10 percent down: planned mortgage 90 percent of $1,180,000 = $1,062,000; funded mortgage 90 percent of $1,120,000 = $1,008,000. Extra cash: $54,000 — and the effective down payment jumps from 10 percent to nearly 14.6 percent of the price. One mercy: lenders often waive appraisals on insured mortgages, so insured buyers hit this less often, but usually later, with less time to react.

Provincial quirks and edge cases

• In BC's designated regions, a foreign buyer's additional transfer tax (20 percent) is calculated on the purchase price. A low appraisal does not reduce it by a dollar.
• In New Brunswick, land transfer tax is charged on the greater of price or assessed value — again, the appraiser's opinion changes nothing.
• Hot markets produce the most shortfalls. When bidding wars push prices past recent comparables, the appraiser — who works from sold comparables, not your enthusiasm — brings the number back down.
• New construction is appraised on plans and comparable new builds. Shortfalls on pre-construction closings are common enough that a financing condition or a large cash reserve is not optional.

Questions to ask a professional

1. Ask your mortgage broker: "The appraisal came in low — can we challenge it with better comparables, order a second appraisal, or try a lender with a different valuation, and what does each cost?"
2. Ask your realtor: "Given the appraised value, what is my best argument for renegotiating the price, and how much time does my financing condition give us?"
3. Ask your lawyer: "If I cannot cover the shortfall and my financing condition has expired, what happens to my deposit — and what is my exposure beyond it?"
4. Ask your lender: "At the lower appraised value, do I still qualify for the same product and rate, or does the loan-to-value change my terms?"