Closing coming up on a pre-construction home in November and the contract was already signed last year. However, the builder has reduced the price of same model home by $100k and is not offering a price match on the reduction. Builder is mentioning that market fluctuations are out of their control and binding us to the original purchase price. I am now 100k short for my closing because of the potential appraisal gap.
What are my options ?
We frequently encounter buyers facing this exact situation. While we can't provide specific legal advice without reviewing your particular situation and purchase contract, we can help you understand your options and potential paths forward.
You're unable to close your pre-construction property. Understanding Your Situation
You're not alone if you're facing a significant appraisal gap on your pre-construction home.
With Ontario's volatile real estate market over the past few years, many buyers who signed agreements during peak pricing periods are now discovering their homes may not appraise for the original purchase price.
When builders reduce prices on identical models by $100,000 or more, it creates a challenging situation where your lender may not approve financing for the full original amount, leaving you to bridge what's called an "appraisal gap."
What Does Your Agreement of Purchase and Sale Actually Say?
The first step is carefully reviewing your Agreement of Purchase and Sale (APS) with a qualified real estate lawyer. Most pre-construction contracts in Ontario include specific clauses about Market fluctuation provisions. Unfortunately, most builders include language protecting them from market downturns while binding buyers to the original price. In most circumstances, you are going to be bound by the contract and have to close your transaction.
Your Options Against the Builder: The Reality Check
Let's be honest about your position. Market fluctuations are indeed out of the builder's control, and your contract is legally binding to the original purchase price. This works both ways - think about it this way: if housing prices had increased by $100,000 instead of decreased, would you be writing the builder a cheque for the difference? Of course not. Although it is an unfortunate situation, the same principle applies when prices drop.
Limited Legal Grounds
Your legal options against the builder are quite narrow:
- Breach of contract - Only if the builder failed to meet other specific contractual obligations (timeline delays, material changes to specifications, etc.)
- Misrepresentation - Only if the builder made specific false statements about price protection or market guarantees (rare and difficult to prove)
In both cases, consulting with a qualified Real Estate Lawyer and having them review your contract in detail is highly recommended. This isn't something you want to DIY or "ChatGPT" as the liability and implications can be significant.
Negotiation Reality
While you can certainly try to negotiate, builders typically have little incentive to reduce prices for existing contracts because:
- They're legally protected by the contract terms
- Price reductions set precedent for other buyers in similar situations
- They've likely already factored market risks into their pricing models
However, you need to keep in mind that you not the only one who may be having trouble closing, so sometimes negotiating in good faith with the builder, might put both parties in a better position. Despite the tightly written purchase agreements, builders are in the business of selling homes and they want you to close.
You can formulate your negotiation strategy and even engage a lawyer to try to negotiate on your behalf. You never know if the builder is willing to negotiate and possibly help you get the deal to the finish line, so negotiating in good faith is often the best option, however, to be clear, there are no gurantees that your builder will cooperate.
Options to Bridge the Appraisal Gap
If legal action or negotiation doesn't resolve the price difference, here are practical solutions to help you still close:
Traditional Financing Solutions
1. Larger Down Payment
- Use additional savings or liquidate investments
- Borrow from family members
- Consider a gift from relatives (with proper documentation)
2. Alternative Lenders
- Private lenders who may accept higher loan-to-value ratios
- Second mortgages to cover the gap
- Bridge financing solutions
3. Assignment of Contract
If your contract allows assignment, you might:
- Sell your contract to another buyer (though likely at a loss)
- Partner with an investor who provides additional capital
6. Builder Incentives
You can try to negotiate for:
- Extended payment terms
- Upgraded finishes in lieu of price reduction
- Assumption of legal fees or other closing costs
- Delayed closing to allow more time to arrange financing
Steps to Take Right Now
1. Get Professional Help Immediately
- Consult with a real estate lawyer experienced in pre-construction disputes
- Speak with a mortgage broker about financing options
- Consider getting an independent appraisal now to understand the gap
2. Document Everything
- Save all communications with the builder
- Document the price reductions on comparable units
- Keep records of your attempts to resolve the situation
3. Explore All Financing Options
- Contact multiple lenders and mortgage brokers
- Consider private lenders as a short-term bridge solution
4. Act Quickly
Pre-construction closing deadlines are typically firm, and you'll need time to arrange alternative financing or legal action.
The Bottom Line
While builders generally aren't required to match price reductions, you may have more options than you initially realize. The key is acting quickly and getting professional guidance to understand your specific situation.
Remember, thousands of Ontario homebuyers have successfully navigated similar challenges through creative financing solutions, legal negotiations, or alternative ownership arrangements.
How Can We Help?
Our experienced Real Estate Lawyers at Deeded have dealt with thousands of Real Estate Transactions and can help you negotiate a better outcome and reduce your legal risks.
We offer a flat-fee to review your pre-construction contract and negotiate with your builder on your behalf. If you are interested in having our lawyers negotiate for you, contact us and we’d be happy to help.
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