The Canada Mortgage and Housing Corporation and the other insurers all lend against appraised value rather than contract price, so the shortfall lands on the buyer in cash. The appraisal is ordered by the buyer's lender to confirm the home is worth what the buyer agreed to pay. The appraiser uses recent sold comparables and a walk-through. If your home has improvements that never made it into public records, the appraiser should account for them on the walk-through, but this is exactly where the gap between paper value and real value causes problems.
The best defence against a low appraisal is pricing correctly from the start, using a hand-reviewed comparative market analysis built on the same sold comparables the appraiser will use. When the analysis and the appraisal are built from the same evidence, the numbers align and the financing holds. On a home at the Saskatoon benchmark of $444,700, an appraisal coming in five percent light leaves the buyer needing roughly $22,000 more in cash, which most buyers simply do not have.