What happens if the appraisal comes in below what I agreed to pay?
The lender lends against the lower of price and appraised value, so the shortfall becomes cash you must find. With a financing condition you can walk; without one you must close or breach.
An example makes it concrete. You agree to pay a price, the lender appraises lower, and they advance their percentage of the appraised value rather than of your price. The gap is one hundred percent yours, in cash, on closing, on top of your planned down payment.
This is a routine outcome of bidding wars on strategically underpriced listings, because the appraiser is valuing against sold comparables and you have just paid above them.
Options if it happens: fund the gap in cash, ask the lender to review with better comparables, try another lender or a B lender, or renegotiate with the seller, which rarely works and is worth trying anyway. With a financing condition still live, you can also walk with your deposit intact.
Which is the argument against waiving financing in a hot market. If you must go firm, know before you bid how large a gap you could actually cover.
Next questions
What happens if my financing falls through after I have an accepted offer?
If you kept a financing condition and it fails within the deadline, you walk away and your deposit is returned. If you waived it, you must close anyway or breach the agreement, losing the deposit and exposing yourself to a claim for the seller's loss.
Ontario
How do bidding wars actually work in Toronto?
The property is listed below market, offers are held to a set date, and you bid blind: you are told how many competing offers there are but not what they contain. Winning usually requires no conditions, which is where the risk sits.
City of Toronto