​Understanding Blanket Appraisals in Real Estate

​Pre-construction properties have long been a popular investment and option for homebuyers alike. In markets like Toronto, a practice called "blanket appraisals" has long been a popular option that builders have been offering to pre-construction buyers.

However, recent developments and turmoil in the pre-construction market, have raised concerns among buyers and industry professionals alike, where blanket appraisals, which are typically arranged privately with the builder, are problematic, or even legal.

What is a Blanket Appraisal?

In simple terms, a Blanket Appraisal is a financing arrangement where the bank assumes the original purchase price of a new build rather than the true appraisal value. magine that you’re purchasing a pre-construction condominium or a house that’s to be built by a developer, and these are closing well into the future.

A blanket appraisal refers to a valuation method where a lender assigns a uniform value to multiple units within a development, often based on the purchase price or a general market estimate, rather than conducting individual assessments for each unit. This approach is commonly used in pre-construction projects to streamline the financing process.​

Blanket Appraisal: With a Simple Example

Imagine a condo developer is building a new 20-storey building in downtown Toronto. Units on different floors have different views, layouts, and features—some face the lake, others face a wall. Some have two bedrooms, others have one.

Now, a few months before completion, the lender wants to appraise the units to finalize mortgages for the buyers. Instead of appraising each unit individually, they do a blanket appraisal—assigning one value across all units in the building (or a large group of them).

Let’s say 5 buyers bought these condos two years ago:

The bank performs a blanket appraisal and says:
“All units are worth $850,000.”

Now:

• Buyer A feels lucky — their unit appraised higher than what they paid.
• Buyer E is in trouble — their unit appraised $50,000 lower than their purchase price.

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Why Is This a Problem?

Appraisals Impact Financing
Lenders base your mortgage amount on the appraised value, not what you agreed to pay. If your unit is appraised at $850,000 but you agreed to pay $900,000, the lender might only finance 80% of $850,000 (not $900,000).
That means you, the buyer, need to come up with an extra $50,000 — out of pocket.

Not All Units Are Equal
Blanket appraisals ignore the uniqueness of each unit. A corner unit with a lake view is not the same as a small interior unit facing a brick wall. When one generic value is applied across the board, some buyers lose—especially those who paid a premium.

Buyers Can Be Caught Off Guard
Many pre-construction buyers don’t expect to renegotiate their mortgage or top up their down payment years later. When a blanket appraisal undervalues their unit, it can delay closings, cause financing issues, or even lead to legal battles or lost deposits.

While this method can expedite transactions, it may not accurately reflect the unique characteristics or current market value of individual units, potentially leading to discrepancies between the appraised value and the actual worth at the time of closing.​

The Risks Associated with Blanket Appraisals

The primary concern with blanket appraisals is the potential for significant valuation gaps at the time of closing.

For instance, a buyer might agree to purchase a pre-construction condo at a set price based on a blanket appraisal. However, by the time the unit is ready, market conditions may have shifted, and an individual appraisal could reveal a lower value.​

This discrepancy can result in the lender offering a mortgage based on the lower appraised value, leaving the buyer responsible for covering the shortfall. Such situations can lead to financial strain, especially if the buyer is unable to secure additional funds or sell the unit to recoup the investment.​

Real-World Implications

The Toronto Realty Blog recently highlighted a case where a buyer purchased a pre-construction condo for $2.195 million. Upon completion, the unit was appraised at $1.6 million, a 27% decrease from the original purchase price. Consequently, the buyer faced a substantial financial gap, as lenders typically base mortgage amounts on the appraised value, not the purchase price. ​

Such scenarios underscore the risks associated with relying solely on blanket appraisals, particularly in volatile or declining markets.​

Protecting Yourself as a Buyer

To mitigate the risks associated with blanket appraisals:

• Understand Contract Terms: Review the purchase agreement carefully, paying attention to clauses related to assignments, deposits, and potential penalties.​
• Consult Professionals: Engage with real estate professionals, including agents, and Real Estate lawyers, to navigate the complexities of pre-construction purchases.​

Frequently Asked Questions (FAQ)

Q: Are blanket appraisals legal?

A: Yes, blanket appraisals are legal and commonly used in pre-construction financing. However, they may not always reflect the individual market value of each unit.​

Q: Can I request an individual appraisal for a pre-construction unit?

A: Absolutely. Buyers have the right to commission independent appraisals to ensure the property's value aligns with the purchase price.​

Q: What happens if the final appraisal is lower than the purchase price?

A: If the final appraisal is lower, lenders will base the mortgage amount on the appraised value, requiring the buyer to cover the difference, which could involve additional funds or renegotiating terms.​

Q: How can I protect myself from potential appraisal discrepancies?

A: Conduct thorough due diligence, seek independent appraisals, and consult with real estate professionals to understand the risks and safeguards associated with your purchase.

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