In June 2024, I wrote a column titled "Is Canada Propping up Condo Investors to Prevent Prices From Falling," highlighting an alarming and growing trend - blanket appraisals.
Many new condominiums completed in 2024 were not worth what buyers had paid for them because they had purchased them at a 30-40% premium above resale prices in 2019 or 2020, while resale prices have remained relatively flat since then. This typically presents a challenge when buyers seek mortgage financing.
Imagine a buyer who purchased a condominium for $1M and contributed $200K in deposits to the builder. By the time they were ready to close, the bank appraised the unit at just $800K. Normally, the buyer would need to provide an additional $160K—20% of the new $800K valuation—since their original deposit was lost due to the decline in value.
However, with new condos, banks didn’t require buyers to come up with an additional deposit because they pretended the condo was worth the original purchase price—a practice known as a blanket appraisal. In effect, the bank issued an $800K mortgage on a condo worth only $800K, effectively creating a zero-down-payment mortgage.
When I originally published my column, I framed it as a question because banks had not admitted to this practice, and proving it was difficult—even though it was an open secret in the real estate industry.
This week, however, a Globe and Mail article revealed that Royal Bank has admitted to offering buyers blanket appraisals on new condos.
The article describes a buyer who paid $2.2M for a condo in Leaside, which appraisers determined is now worth only $1.6M. Unable to bridge the $595K gap between the purchase price and the actual market value, the buyer was informed by the builder that Royal Bank was willing to turn a blind eye to the property’s real value.
“According to documents viewed by The Globe, the developer, Gairloch, sent him an e-mail saying it had partnered with Royal Bank of Canada to offer a so-called blanket appraisal, which would allow buyers such as Mr. Barardziej to secure mortgages for their units by having the bank appraise the unit at the original contracted price. Mr. Baradziej declined.”
This revelation is significant for two reasons.
First, it demonstrates just how far Canada’s banking regulators are willing to go to prop up the housing market. They are prepared to pretend a $1.6M condo is worth $2.2M in order to prevent condo prices from falling.
Second, this practice could have serious implications as Toronto’s new condo completions in 2025 will likely face the same issue. It remains to be seen just how far this will go and what the long-term consequences will be.
John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
Have questions about your own moves in the Toronto area as a buyer, seller, investor or renter? Book a no-obligation consult with John and his team at a Realosophy here: https://www.movesmartly.com/meetjohn
