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October 7, 2008

Front Page Forum: Walk Away from Downpayment?

This post from yesterday on the Forum has already received seven comments but we thought it deserved even wider input. Take a gander:

A couple of months ago I entered into a contract on a one bedroom apartment. I put 10% of the $380,000 purchase price down at contact. I am scheduled to close at the end of October. The apartment is great and I can afford the monthly payments (only slightly higher than our current rent). The apartment is priced around or a little lower than comps in the past year. I have been getting cold feet watching the news this past month and have been thinking about walking away and losing my deposit. Is that crazy? Also, is there anyway I could recover even part of the 10% deposit? I've already passed the board interview otherwise I would think of talking about my love of piano playing, etc.

Words of wisdom?
Break Contract or Not [Brownstoner Forum]
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Comments

The writer failed to explain the reasoning for wanting to "walk away" other than getting "cold feet." Where's he getting his financial advice from? The What?

Has he yet to secure the financing? Is there a mortgage contingency in the contract? On top of losing the $38,000 he must factor in as further loss the additional rent he'll be paying as well.

Not enough detail in the post to see if he can break the contract and get the DP back.

Posted by: daveinbedstuy at October 7, 2008 9:57 AM

Personally I wouldn't walk away, but that doesn't mean it wouldn't be the financially prudent thing to do. Definitely try to renegotiate first at least. The developer has some incentive to work with you to keep you from walking.

Posted by: lowintheheights at October 7, 2008 9:58 AM

Coming at the question as just someone with no financial expertise to give an opinion, I would think you need to look to how long you plan to stay in the apartment. If it's really long term, you will probably not lose anything by being there, and the apartment will appreciate over the span of years.

$38K is not chump change, not for me, anyway, and I can't see walking away from that. Granted, no matter what your plans, no one can foresee the future. You may need to leave earlier than you expect for whatever reason, but the same holds true for almost any part of life - that great job could end, relationships change, an opportunity arises somewhere else. Who knows? I just think it's a shame to spend one's life second guessing the unknowable, and thereby do nothing, take no risks, no leaps of faith. I would talk it over with your lawyer and anyone else involved in the buy, and weigh all options, but in the end, go with your gut. If you want the place, that is also a large part of the decision.

Just my $.02.

The fact that the what made a sane, non-insulting advice giving remark to someone should make us all invest in pharmecutical stocks. Medication can work wonders.

Posted by: Montrose Morris at October 7, 2008 10:04 AM

OK -- here's more detail. I am currently month-to-month in my rental apartment, which I love and have lived in for about 3 years. My rent payments are the same as my monthly mortgage and maintenace payments would be. I am am scheduled to put another 10% down at closing (for a total of 20% down). There is a financing contingency and I have already received a loan commitment. Damages for failure to close are limited to the 10% contract payment so the seller shouldn't be able to seek specific performance.

I should speak to my lawyer, but I'm a little embarrassed to even be thinking about doing this.

Posted by: parrotgirl at October 7, 2008 10:04 AM

It may be better to walk away. That condo is becoming a deprecating assets everyday- and probably will continue to be for at least another two years.

I know of a Condo building in Bed Stuy (83 Halsey to be exact) and they have a 2bdrm for 399K. Now they're trying to rent the condo for 1800 per month or the equivalent of a 250K mortgage w/ condo fees. Now, one other condo in the building sold and guess how much in real terms that condo is worth now- 250K. Now, I know some of you will say well of course that's Bed Stuy/Undesirable but just wanted to throw it out there as a real life example.

Posted by: 7andfive at October 7, 2008 10:06 AM

Why is this guy going to walk away? Is this one-bedroom inside the stock market?

Posted by: dittoburg at October 7, 2008 10:07 AM

This is why you don't back out, you never know. The FED is coming to the rescue and will not let this Govt Fail.
Sutton Square mansion sells for $7.5M over asking

Seven Sutton Square
Despite a down market, after being listed at $25 million, Seven Sutton Square sold for $32.5 million on September 23, according to public records posted today. The billing address was given as "care of Wildenstein & Co.," so the buyer is assumed to be art collector Guy Wildenstein. The home was originally two townhouses that were renovated and combined to create a 9,250-square-foot townhouse with five bedrooms, gym, sauna, rooftop garden and 15-foot glass rotunda. There are no mortgages for the property filed in city records, likely meaning it was bought in cash.

Posted by: sebb at October 7, 2008 10:18 AM

Seems to me that if both apartments are similar, I'd rather be paying the same monthlies into my own pocket, regardless of the market. You can't possibly think that you are going to lose your down payment over the long term. Plus there are tax benefits to owning. All that besides losing $38K.

Posted by: heck_of_a_job_brownie at October 7, 2008 10:19 AM

You have probably already lost your deposit. Either you walk away and lose it cleanly or you close and have zero equity on day one. That basically makes you a renter with a tax deduction. Either way your down payment is gone.

Which means your decision boils down to two very simple quesitons:

1. How long (realistically) will you be at this apartment?

2. How much will your total after tax cost of owning be if you close (including maintentance, insurance, improvement, etc., plus closing costs spread over the amount of time you will live there)?

3. What does it cost to rent an equivalent apartment?

If you are going to be in this place for less than, say, seven years, and if it is cheaper to rent, then just rent. If for any reason you decide to move before you are currently planning to (which happens to a lot of people) it will be easier to walk away from a lease than a mortgage.

Posted by: lechacal at October 7, 2008 10:21 AM

As someone who is a bit anxious by nature, I can understand thinking about backing out of this deal given the current market env't. However, if it is a Condo and you can rent the apartment should you need to, I don't see how you can go wrong over time. In terms of losing the 10%, that's real money. Any market fluxuations are just paper losses until you sell. Can you afford to hold onto the place for 7 years -- even if you had to get a renter for a while? If so, I'd move forward and bring a bottle of Single Malt with me to the closing (seriously). BTW - Part of me likes Corcoran's idea of trying to negotiate better terms for yourself before the closing -- using the market env't and your willingness to back out as a reason to do so. However, I'd be very cautious about taking that approach in the event that you'll run into the sellers at some point down the line. Kharma is a factor.

Posted by: MacD at October 7, 2008 10:21 AM

Sebb what does your example of a 32million property have to do with anything?

This buyer is talking about a property in Brooklyn for under 400K.

Posted by: 7andfive at October 7, 2008 10:23 AM

I answered before I saw your post that you will put down another 10% at closing. This completely changes my advice.

Unless you are planning to be in this place truly long term, run, do not walk, run from this closing. Start saving again and you will live to buy again without being trapped underwater and wondering when you will be right side up again.

Posted by: lechacal at October 7, 2008 10:25 AM

And yes, I am aware that I posed three questions rather than two.

Posted by: lechacal at October 7, 2008 10:26 AM

Maybe sebb's point is that even this Brooklyn condo mmight be worth $32 MM.... "in the year 2525" as the song goes!

Posted by: daveinbedstuy at October 7, 2008 10:26 AM

While the media is very informative about the state of the market, there ia also a biased opinion involved as well, the worse the media makes the economy look, the more of a story they have and the more you watch the news, the more you let the media control your decisions.

Do you love your condo? In about a year or so when the economy is getting back on its feet are you going to regret not taking it? Buying a condo is like marrying someone, it's one of the most stressful decisions of your life. Do you have cold feet and are just using the media to furthur confirm your doubts in backing out anyway?

I say turn off the TV, put down the newspapers and really think about what's best for you, not what the media or anyone else here says what's best, not what your family or your friends think what's best, what YOU think is best!

Posted by: sweetpea16 at October 7, 2008 10:32 AM

Review these and make an educated decision based on numbers:

http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/WhyRentToGetRicher.aspx?page=all

http://mysite.verizon.net/vodkajim/housingbubble/new_york.html

The graph shows what historically happened to house prices. Note that those who bought in 1988 didn't get their money back until 2002 (adjusted for inflation). The same thing as in the 1988 (if not much much worse) is very likely to happen now, while the stock market will bounce back sooner than house prices.

Crunch your numbers and make an educated decision.

Posted by: mkop at October 7, 2008 10:37 AM

Maybe a little self-important, but here's a repost of my comment from the forum.

>>Dollars aside, my sense of right and wrong dictates you don't back out of a contract because of cold feet. Lost your job? Family emergency that requires you to move immediately to the West coast? Maybe. But not cold feet.

Remember that there is a seller on the other end of that contract, and your bad faith has consequences for that person, too.<<

Am I the only person who considers the seller's perspective? And, no, I'm not in the market as a buyer or seller at the moment.... but have been a buyer three times and a seller once. It's called a contract for a reason.

Posted by: curiositykilledthecat at October 7, 2008 10:37 AM

Seven Sutton Square....comments?? It doesn't really get much nicer than this anywhere in the world...

http://cityfile.com/dailyfile/2218

Posted by: daveinbedstuy at October 7, 2008 10:44 AM

If the contract says that the buyer gives up the deposit if he walks, then that's the bargain the parties made. The buyer walks, he gives up his deposit. It's what the seller agreed to. If the contract says the buyer has to buy regardless, then that's the bargain they made. But I imagine the contract provides for the former. Sellers need to read and understand the contracts they sign. There is no fuzzy sense of fairness here. There are, however, words on paper that the parties agreed to and judges who will enforce those words.

Posted by: lechacal at October 7, 2008 10:45 AM

sweetpea au contraire - I have been interviewing financial experts all week for a special on cable about the financial crisis and they are MUCH more gloom and doom off the record - people are restraining themselves so they don't contribute to the panic.

To the original questioner - what kind of job do you have that you are sure you won't lose it? I am hearing predictions of tipping into depression once cc defaults start up, cc limits are cut way back and consumer spending plummets even more. I only wish right now that I owned nothing - then you can REALLY take advantage of the deflation that is coming.

HOWEVER, I would do what someone said - start seriously negotiating with the seller with a commitment to really walk away if they won't lower the price. I would be very very surprised if they weren't very eager to make a deal with you. People are freaking out.

Posted by: gkw at October 7, 2008 10:47 AM

Parrotgirl--sounds like you've got some soul searching going on. I think my advice would be to gut it out, especially if you love the apartment AND the neighborhood. The poster who talked about "zero equity with a tax deduction" is on to something. Sure, it might be a wiser decision to walk if you wanted to flip for a killing, but if you live there only for 5-7 years, I think it will all balance out. You'll probably have less equity than you would have if you bought before prices were run up, but more in line with what gains have been historically.

I'm not sure if this is possible, so I appeal to the closing savvy people out there--but do you think she could renegotiate the amount of the downpayment? If the 20% is set by the developer/owner not the mortgage bank, she probably could. I'm sure they'd still like to keep a sale rather than lose one at this point, even if they get to keep 10% as damages.

Posted by: Minmin at October 7, 2008 10:47 AM

based on the facts you provided, if you walk away you will lose your deposit. and if you try to fight losing it, you will pay your lawyer another chunk of cash and have the headache of litigation.

don't have anything to add on walk/don't walk. i first would try to renegotiate were i in your position. as for karma and the seller's perspective, don't worry about that. this is a business transaction, and you don't owe anyone a personal duty. the contract requires that you perform *or* pay the liquidated damages (forfeiting your deposit), and as long as you are prepared to do the latter, nothing in the law or in ethics requires you to do the former. that's assuming you play it straight, which, i agree, you must do. it's not bad faith simply not to perform.

Posted by: i disagree at October 7, 2008 10:48 AM

I personally think you would be crazy to leave 38G on the table. It is not as though this apt is so expensive that it can plummet that far and not regain its value for years and years. The monthly nut on a mortgage of 342,000 is pretty manageable and it just seems nuts to put yourself at that kind of loss no matter what the seller's attitude.

Posted by: wasder at October 7, 2008 10:53 AM

I don't know the answer to this but are there consequences to your credit rating by walking away? If so, you won't be able to buy anything in the future.

Posted by: daveinbedstuy at October 7, 2008 10:59 AM

But wasder, what I was suggesting is that there is no $38k on the table. It has boiled off into space. It's gone. This isn't a question of walking away from the 10% that was put down. That already disappeared. It's a question about whether to chase it with another 10%.

Posted by: lechacal at October 7, 2008 11:02 AM

I wouldn't sweat too much about the seller. They just got $38K, free and clear, if she walks.

I'm in the same boat and thinking it through, thinking it through, thinking it through except that:

* I'm looking at a brownstone, not a one bedroom. I'd think that a one bedroom is by nature a short term investment. Maybe not, but aren't you eventually going to want to share your life with more people and need more space? So you definitely want to do some math about how long you plan to be in this place.

* And, I wouldn't have to give up my deposit. Because the sellers are the ones who dragged it out this far, I'm entitled to just get my deposit back.

I think the really important question is about how long you plan to be there. You can't game the market, even if thwackamole does have me pining for a $90K apartment. If you know that your lifeplan is to sell it in two years and cash in on your equity, I'd start to re-arrange that lifeplan.

Posted by: serpentor at October 7, 2008 11:03 AM

I think advice to walk away is terrible advice. Similar to advice that the 800 point drop yesterday should be sold... but worse because this is real estate.

Nobody knows what is going to happen. The advice to walk away would need to be based on some profound understanding of what the consequences of government action is going to be, and then knowing that over the next 5 years or more property in Brooklyn will drop more than 10%. We don't have that knowledge, many peoples advice here is clouded by a personal desire to buy at a cheaper price or a personal desire not to lose money on homes they already own. Others are clouded by the near hysterical panic of working on, or supporting a trading desk when markets seem to have no bottom.

What we do know is that real estate is at the root of the trouble in our financial system and governments will be doing something (effective- maybe, maybe not) to stem further losses in real estate. If real estate drops another 15% then credit markets and stock markets have already shown us what they will do. There is a huge effort behind this and it is all focused on unclogging credit markets and pushing a recovery in real estate. The panic will end and real estate in Brooklyn will be fine.

Posted by: Aussie at October 7, 2008 11:14 AM

Lechecal how do you know the $38k is already off the table? She has said the original price was at/under comps. If other properties are selling or are offered much cheaper I can see your point, but until that happens (and she hasn't said it's happened yet), what you are saying is pure conjecture asserted as if it is fact. It is not fact, it is your opinion.

For every person crying that the sky is falling I know of another person (you and myself included) sitting on a pile of cash. Ask yourself how many people you know who are hoping to purchase a distressed property in the next year or two. I don't understand why so many of you are so negative on NYC market when in reality I'm sure many of you also know people who have a lot of money right now they don't know what to do with. These people = demand. Nothing is trading right now because everyone is in wait and see mode, but don't confuse wait and see mode with the preamble to a cataclysmic decline in prices. It might not happen. I am much more bearish on the financial markets and the national real estate market than on NYC market.

Posted by: setancre at October 7, 2008 11:20 AM

7andfive : You ask me what does that 32.5 Million dollar Home have to do with brooklyn? Everything Wake up . Do you see homes going for that much over asking in Florida Or anywhere else in America in this market? NO NO NO. Does it mean that people will Look at Brooklyn as a Bargain? YES YES YES> does it mean those that choose not to buy and rent Will loose long term YES YES YES.

Posted by: sebb at October 7, 2008 11:22 AM

I would not walk away. Who knows what your rent will go to. You will also have a large tax deduction. 380k x 80% = 304k x 6% = $18,420 tax deduction. Assuming that you have a fully amortized loan you will also be paying down your loan over time.

I would NOT say that you lost you down payment already as some of these posters are. People are making generalizations and quoting figures, and I would be wary about putting your faith in the media. Their job is to sell advertising and newspapers, not protect you.

It seems pretty simple to me. monthly costs are on par with your current rent AND you are not counting the tax deduction... you will be fine.

Also- daveinbedstuy- Walking away from a contract will have no impact on your credit so IF you do choose to walk away then don't worry about your credit.

Posted by: Adam Dahill at October 7, 2008 11:22 AM

Aussie, I respectfully disagree. I am of the view that national real estate is close to a bottom and will stabilize in the next year or so. I am also of the view that the New York market, for many reasons, has been very slow to correct, but will do so. My bets have been laid as follows:

1. Real estate will stabilize on a national level.

2. Credit and equity markets will recover. Those who have been buying equity at current levels will do very well.

3. The New York market has just begun dropping sharply. It will take as long as the national market to find a bottom, but will do so several years later.

Posted by: lechacal at October 7, 2008 11:22 AM

I am also in the same situation. Signed the contract at a price we were comfortable with, got the appraisal for $20k more than we paid and 6 weeks later banks are gone, the dow is down 14% since that time and everything looks a hell of a lot worse. We considered walking away but would lose the money because we only had a financing contingent and were able to secure financing. We are looking at a 5-7 year holding period and are not that concerned with price depreciation. Our main concern is losing one of our jobs and struggling to make the mortgage payment. There is no way I would be willing to walk away from my down payment (which is substantially higher then yours). Bottom-line is that we love the unit and the area and really want to be there. We have no idea what the future will hold financially but we know that whatever time we are able to spend there will be enjoyed.

Posted by: AndYouWillKnowUsbyTheTrailofRenters at October 7, 2008 11:24 AM

You really should have this conversation with your lawyer - don't be embarrassed at ALL - I am sure hundreds of people are having this conversation with their lawyers right now. Again, really think the answer here is to negotiate for a lower price.

Posted by: gkw at October 7, 2008 11:26 AM

You would be foolish to walk away. You said yourself it is a great apartment, and you can afford it, and you need a place to live. Take a deep breath and just do it. If you need to sell at some point before the price increases, take the loss then, after you have lived there and enjoyed it for a few years.
You entered into a legally binding contract. To break it now would cause your credit rating to suffer. Not sure if you can renegotiate either. The sellers may opt to keep the 10% and rent the place out, you will also pay more in attorney fees than you are likely to save on a modest unit like this. Really, It is no biggie, just do it and live there for a three or four years -is that so hard?

Posted by: sam at October 7, 2008 11:30 AM

Also, to all of those who think we are headed to a depression, I suggest you really read up on what that means.
The Great Depression saw GDP declines of 20%, unemployment of 25%, wage decreases of 40% and millions of people homeless. I am 100% confident in saying that is not what will happen now.

Even if you temper that we would still need to see a double digit decline in GDP, unemployment levels in the low teens and a general crisis of people unable to stay in homes, feed their families, etc. As bad as things are, we are so far from that right now I do not believe we could get there without a major catastrophe or exogenous shock to the market.

Posted by: AndYouWillKnowUsbyTheTrailofRenters at October 7, 2008 11:33 AM

sam, where did you get the idea that someone's credit rating will suffer if they exercise their contractual right to walk away and pay liquidated damages (i.e., the deposit)? And where did you get the idea there will be any lawyer's fees involved (other than talking to your lawyer and confirming that the contract works as I just guessed)?

Posted by: lechacal at October 7, 2008 11:34 AM

"The FED is coming to the rescue..."

More comedy gold from sebb.

Posted by: SnarkSlope at October 7, 2008 11:34 AM

tough call. the advice to stay is sound, but if you want to roll the dice and play the market a little more effectively, walking away could work out very well for you...

Posted by: travy at October 7, 2008 11:40 AM

AndYouWillKnowUsbyTheTrailofRenters - If you use the same criteria for measuring unemployment that was used during the Great Depression, some say we are already at 15% unemployment.

Google "Pollyanna Creep" to get an idea of how cooked the government numbers are.

Posted by: SnarkSlope at October 7, 2008 11:43 AM

Unemployment is likely to hit 7.0-7.5% using current data.

Don't walk away unless your employment is in jeopardy.

Posted by: daveinbedstuy at October 7, 2008 11:45 AM

Here's my take for what it's worth. You live in a month-to-month rental, that is by definition unstable, and if your landlord needs the apartment for a relative or friend, or thinks s/he can get a better deal by asking you to leave, s/he can do just that. Second, you have a stable job (possibly with the government) so you don't feel like you're going to be unemployed any time soon. Third, you have finance arranged already, undoubtedly at a rate you can afford. Fourth, you will have 20% equity, which is more than a lot of the recent foreclosures have had. Fifth, living in a home that you are buying and will eventually own is so much nicer than living in a rental, no matter how nice the rental. Sixth, a $399,000 co-op will be much easier to sell in a year than a million dollar co-op, the lower end of the market is much easier to take a risk on that the luxury end.

You can afford to buy this property or your mortgagee would not have lent you the money. Real estate should be seen as a seven to ten year investment, I am pretty sure that in seven to ten years, you'll make money on this place.

Ultimately the decision is yours, but seeking advice from your lawyer is always going to be worthwhile. Personally, my husband and I are proceeding with our purchase and can't wait to move into our new condo.

Posted by: bohuma at October 7, 2008 11:48 AM

Hi Lechacal. Sure that could happen.

But I prefer to think that what I have seen in the past and in other markets will happen again. Those markets that showed strength amidst general weakness tend to show strength in general strength also ... rather than strength in weakness simply meaning there is a lag.

This makes sense to me because there is typically a fundamental reason why one market holds up when other markets do not. A quick way to discover this is by shorting stocks that stay strong when their sector falls. Sometimes you will make money doing this but most of the time you will make more selling the stock that fell in the first place.

In the end it is all a gamble.

Posted by: Aussie at October 7, 2008 11:50 AM

Alot of panic bubbling on this board. This is the psychology of extremes that is causing the volatility we are seeing. Walk away and leave $38,000 on the table??? Im stunned so few posters don't find this reasoning out-of-whack. Even if a homeowner temporarily loses equity in their investment, this is your home you are investing in. There are clearly very good reasons that got you, OP, into buying the property, and they are presumably reasons that one hopes will continue to be valid for you. No one can know with any kind of certainty how things will be play out in the local and global markets, but if you love your new home and plan to stay for awhile, there is little reason to think you wont be a) happy with your purchase and b) find yourself with much more equity in the coming years. Your down payment didn't "evaporate" over night, even if market values soften further, it still wont--until the property is sold.

Posted by: housebywe at October 7, 2008 11:50 AM

Might as well buy if you're it for the long haul. Seems like an awful lot of money to lose, particularly if the monthly payments are the same as your rent.

Posted by: SnarkSlope at October 7, 2008 11:55 AM

Lechacal--what is your guesstimate for when the NYC market bottoms out?

Posted by: wasder at October 7, 2008 11:59 AM

Maybe you can negotiate a reduction (5%?) in the purchase price. So as not to disturb all of your financing documents, it might be possible to arrange it as a credit paid by the seller to the buyer at closing. The lawyers could probably work something out.

It's possible that the seller would rather sell the unit for 5% less than pocket a 10% deposit but have an unsold unit on his hands. If so, and if the seller is afraid that you might walk, then maybe you can strike a deal.

Posted by: brooklynrulz at October 7, 2008 12:19 PM

I would go back and negotiate with the seller for a reduced purchase price. Perhaps split the difference . . . $19K off the original $380K. Alternatively, do some work and determine what you would offer for the condo today if you could start from scratch. In short, the seller would probably be crazy not to accept some discount, but if you love the apartment I wouldn't try to get to greedy.

I don't agree with lethacal's comment about the additional 10% down at closing being a deciding factor. Essentially, that is just a financing decision. You're either financing with equity (the additional 10% down) or with debt (a higher mortgage).

Posted by: upandup at October 7, 2008 12:26 PM

I don't see how walking away from $38K is even an option. If you lose that and on top of it pay rent towards a non-asset over the next few years, you're losing more money that way than by buying this place and perhaps seeing its value dip. The value will come back up, the question is just when. But your lost cash if you walk way won't come back to you. Lastly, the harder it is to get mortgages the fewer if any properties you can buy with only 10% down.

Posted by: traditionalmod at October 7, 2008 12:32 PM

If you are planning on staying there, and you have a steady job, I'd go through with the deal. If your mortgage will be similar to your rent, it shouldn't a financial strain. Rents will be higher in ten years. Your mortgage won't.

I bought my first apartment in CG in August of 1987 (nice timing), and it took until 1997 for its value to pass what I had originally paid. Sold in 1999 for a nice profit and bought a larger place.

BTW, the average price for a 1br coop in uptown Manhattan in 1988 was 299K. 1990, 285K. 1993 was the bottom at 193K. It took five years after the last downturn for prices to hit bottom before rebounding.

Posted by: buttermilk channel at October 7, 2008 12:52 PM

This is why you generally have to decide if you want to buy (vs rent) figuring in ZERO price appreciation at the eventual sale.
No one (ever) knows what is going to happen and therefore it is intellegent to determine if buying makes sense on a cash flow basis (not based on SPECULATIVE capital gains).

Now given the cycle your in, I'd figure a price depreciation over the near term 1-5yrs (certainly a safer assumption than figuring a price appreciation) - so if your going to be in the place less than 5yrs you have to sit down and make a prediction (guess) on how much the place is going to fall in value - use 'early 90's data (the closest analogy in NYC) -if you predict the value is going to fall by less than 32G than you should go through with it, if you predict the value will fall by more then you have to determine how much "psychic" benefit you will get from living there. If it doesnt exceed your predicted loss then leave your deposit on the table.

Two other things 1. Your (rational) guess as to price movements is probably as good as anyones - no one has an f'in clue no matter what they say. 2. Once you decide - enjoy where ever you live and dont spend time researching your decision to see if you would have 'made money' the other way - a home is a place to live - NOT AN INVESTMENT

Posted by: fsrg at October 7, 2008 1:03 PM

Wasder: Guesstimate? Mid-2010.

Posted by: lechacal at October 7, 2008 1:47 PM

This is what I'd keep in mind:

"For every person crying that the sky is falling I know of another person (you and myself included) sitting on a pile of cash. Ask yourself how many people you know who are hoping to purchase a distressed property in the next year or two."

There are a lot of people who were priced out of NYC real estate over the last few years and are holding out until something they want and can afford comes on the market.

Sometimes, when I look at it, I look at it like this: there are a lot of people in NYC with stable salaries, partners, money in the bank. People who are good and ready to own their home and would have bought ten years ago if they lived anywhere else in the country (I guess except San Francisco or something). So all of those people (us), if they have half a brain, realized that they need to take saving very seriously if they want to own. And some of them did. Or they went to dad. Whatever, they're ready to buy and they still can't freaking afford it. Not to cash in on the crazy ride, but just to own their home. To know that if they can afford to get someone to build the perfect counter or tile the bathroom as per fantasy, that they can do that and they won't just be doing the landlord a big old favor.

And while we all kind of want to get the most bang for our buck, we're also not wanting to get left out again. So when the market-grapes finally sag to within our reach, we're grabbing them.

It is a theory. I don't think anyone really knows.

Posted by: serpentor at October 7, 2008 3:48 PM

Easy decision:

Postpone closing a week (this is always possible), wait until after the election. If McCain-Palin wins, walk away. If Obama-Biden wins, stay and enjoy your new home!

Posted by: yass at October 7, 2008 4:17 PM

Parrot girl:

Take a deep breath. Do not walk away from the deal, or lose $38,000. Look at it this way-each month you are throwing away money paying rent with no tax advantages. Even if the apartment is not appreciating in value right away, you will be paying the same amount each month and getting tax benefits. You will always come out ahead owning. You have to live somewhere. The problem is the economy is bad-we all know that and it will be rough for a while, but current state of the media and our electronic frenzy is putting people into a panic. Turn off the radio! I bought a condo in 1990 when real estate was down. I sold it in 1995, for a small loss, but purchased a house for a good deal. Real estate is always a good investment because you need a roof over your head. Why not own it, if you can, instead of paying off someone else's mortgage?

Posted by: Bklyn born at October 7, 2008 7:02 PM

gosh, buy this! your rent may or may not change, but a month to month means you are probably out sooner rather than later. with the tax benefits, you'll be ahead i'm sure on a monthly basis. rent usually goes up. plus, it'll be your home, and you can definitely make it better to suit you in a way that it is not possible to do when renting.

don't worry!

good luck.

Posted by: wine lover at October 7, 2008 9:47 PM

Why would you walk away from this deal? The market value of the place is irrelevant until the day you sell it.

Posted by: mopar at October 8, 2008 12:30 AM

This is insane... with irrational fear like this, no wonder the markets are tanking.

Let's consider this: mortgage plus maintenance equals current rent. Renters' common refrain is that a down payment on real estate could be put to better use invested in stocks or whatever than in real estate... but here you'd be giving up half your down payment just for the privilege of remaining a renter. And with the way the financial markets are right now, with even some money market funds breaking the buck, it would be very difficult to make up the difference.

- So if you walk away, you have an apartment you're comfortable in, you have identical monthly expenses, you have 38 grand burning a hole in your pocket, and you give 38 grand to some jerk.

- If you go through with the deal, you have an apartment you've decided you would be comfortable in, you have identical monthly expenses, you're building home equity, and you have 76 grand in a solid, long-term, illiquid investment.

By my math, you'd have to be crazy in the head to walk away from this deal.

Posted by: sdrubbins at October 8, 2008 4:27 PM

Parrotgirl-- Where are you? Have you spoken to lawyers or anybody else? More comfortable with you decision? Just curious.

Posted by: Minmin at October 9, 2008 1:55 PM

I have not discussed this as a real possibility with lawyers. I've read the contract and I'm pretty certain that there's no way to avoid losing the deposit, but that is also the limit of what I will lose.

Realistically, I doubt I will walk away. I have a relatively stable job and a decent amount of liquid funds post-purchase. I may lose some money, but so be it.

Posted by: parrotgirl at October 10, 2008 6:46 PM

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