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March 4, 2009
20% Sold Condo: In or Out?
My husband i and i negotiated a price for a 2 bedroom condo in a new construction last June and put 10% down. we have something in our contract that says we can get out of the contract in March if we want. The building is only 20% sold although it has been on the market for a while. and yes, it's not completed either. We're tired of waiting and uncomfortable buying at the June 08 price. What to do? Stay in? Re-negotiate? Are they even giving out mortgages for buildings only 20% sold? So many moving parts now and we need to make a decision this month. Any input is appreciated. thanks.
Comments
If you're planning on getting a mortgage you'd better lock that in now or get out. When is it expected to be completed and receive their C of O? I suspect it will be difficult to get a mortgage for that property. Call Adam Dahill who does mortgages. You'll find his contact details on other Real Estate posts.
Posted by: daveinbedstuy at March 4, 2009 8:25 AM
New construction condo? 2009? 20% sold? Opportunity to get your deposit back scot free? RUN. do not walk, run away from this. I think even those who are generally positive about the market will agree in this situation. You have an opportunity to walk away from the riskiest investment in a falling market. If this were a unique home that you fell in love with and negotiated an acceptable price for, my advice would be to consider the risks you are facing and make an informed choice. In this situation my strong advice is that you walk away unless there is something extraordinary about the development *and* the price you negotiated.
In this environment you should try to be the first to the door to get your money back. You never know if the developer is facing a cash crunch (and chances are pretty good in this environment). And if the deveoper says "sorry, I just don't have the money any more", then you will probably still have to write this off and walk away.
Posted by: lechacal at March 4, 2009 8:35 AM
GET OUT NOW!
Posted by: Biff Champion at March 4, 2009 9:02 AM
Totally agree with lechacal. Walk away, unless this is your absolute dream home, and even then, renegotiate hard.
Posted by: phbalanced at March 4, 2009 9:10 AM
Yes, the financial condition of the developer is unknown and it sounds like the completion is uncertain. That's a much bigger risk and certainly puts you ay jeopardy for securing a mortgage.
Posted by: daveinbedstuy at March 4, 2009 9:23 AM
get out of the contract if you can. find a lawyer to review the clause. Sometimes it is not that easy.
Posted by: bobjohn at March 4, 2009 9:24 AM
Consider the following:
1. Unique single family home (say, a nice brownstone) you fell in love with and plan to live in for a long time. The market price for this home will probably go down over some period of years. How much? Not really sure. You should make sure that if you have to sell in the next 5 or 10 years you will have the financial ability to absorb a loss. That being said, you might never find the perfect place again, and you're clearly ready to move. What you do is up to you. Just make sure you go in eyes wide open and understand the risks. Importantly, YOUR RISK IS LIMITED TO THE RISK OF SELLING AT A LOSS AT SOME POINT IN THE FUTURE (sorry, all caps, I know, but it's really important).
2. New condo. 20% sold. Who knows what financial condition the developer is in. Who knows, if you close, what will happen to the unsold units. Will they go rental? What if the developer goes bankrupt? What happens to your monthly maintenance fee? Assuming the few people who actually closed can't quintuple their monthly fees, does major maintenance just get ignored? What about the other buyers? You are taking a risk that they will lose their places to foreclosure and you will have to cover their maintenance (or, again, the building deteriorates). Importantly, YOU ARE TAKING ON THE ADDITIONAL RISKS RELATING TO THE FINANCIAL CONDITION OF THE DEVELOPER, THE FINANCIAL CONDITION OF OTHER BUYERS, AND THE ABILITY OF THE DEVELOPER TO SELL ALL THE UNITS IN THE CURRENT MARKET. Oh yeah, and you are taking on the risk of selling at a loss at some point in the future.
There is an immense difference in these risk profiles.
Posted by: lechacal at March 4, 2009 9:39 AM
Even if you can't get all your money back get out you will be glad you did later. Condos are going down by at least another 50 percent.
Posted by: hannible at March 4, 2009 9:40 AM
I would get out. So many risks and uncertainties in terms of time, money and quality in your current deal. So many other condos and coops on the market and completed or nearly so, with much more secure situations. I can't imagine this is so unique an opportunity as to be worth clinging to. Lots of price drops in the condo market since June '08 and you can lock in a historically low rate. I am sure you will find something to your liking with much less risk.
Posted by: slopefarm at March 4, 2009 10:09 AM
I have to agree with previous posters.
unless the condo is your dream home and you plan to stay there for at least 5 years, I would excercise that clause in your contract and get out now.
good luck!
Posted by: gemini10 at March 4, 2009 10:14 AM
assuming the other buyers have this clause, this building will soon be 0% sold. you have got to walk away. really, is this a question?
did you put this clause in yourself? nice move.
Posted by: Ringo at March 4, 2009 10:18 AM
yes, we put in the clause ourselves with the help of our lawyer.
C of D is expected in april and since they're rushing they are trying for a temporary C of D for earlier but that sounds fishy to us.
appreciate everyones' feedback, this is a big help for us.
Posted by: REnewbie at March 4, 2009 10:31 AM
Just one more vote for Get Out Now. Great move putting the clause in.... give yourself a pat on the back for that one. New developments are almost never finished on time. BTW, when we were looking to buy three years ago, our awesome inspector warned us to never buy a new construction. He opined that a lot of them are built shoddily, so - if you really want a modern place - it's better to buy one that has been lived in for at least 5 years so you can do your due diligence and see if there have been problems.
I agree with most people that the market is going down, at least in the shorter term. If I were you, I'd plan on renting for at least the next two years or so and continue to add to your down payment savings.
Posted by: Kris at March 4, 2009 10:45 AM
Read some of the horror stories on Curbed about Rector Square or 20 Pine Street if you need any more persuading.
Posted by: etson at March 4, 2009 10:48 AM
REnewbie, you may be a newbie, but you were a lot smarter than most people. I just can't see a sitauation in which you wouldn't excercise your option to walk away. And, as someone pointed out, if you have to forfeit some or all of the 10%, I think you're still going to be ahead if you want to buy at a different condo in the next 2 years. I'm sure prices will go down at least 20% more for condos. And the resale for condos that are majority rental is going to be roughly equivalent to, say, a 2002 Volkswagen Phaeton...
Posted by: Bolder at March 4, 2009 10:53 AM
<-- Team Bull member.
GET OUT.
The only condo you should consider is the one that is at least 50% or better. 50% if it is new to the market (less than 9 months). More than a year it should be 60% sold. You should aim for a condo that is 70% sold by the time you close. Anything less than that is too risky and/or will damage your short term equity (as the price of unsold units will drag sold units).
At 20% you will NOT get financing even with banks that have not been effected by the subprime fiasco - even a conforming loan.
And don't fall for the devs trying to renegotiate. If the devs goes belly up the current owners will be left holding the bag - including covering maintenance, finishing construction, etc.
GET OUT
Posted by: crimsonson at March 4, 2009 10:55 AM
Honestly, this is such an easy call I suspected you put the clause in yourself and this post is really just a thinly veiled brag (see how smart we were!!!). Doesn't matter, you were really smart and you deserve the recognition. Now walk out on this thing like you planned to all along smartie!
Posted by: Ringo at March 4, 2009 10:58 AM
This is a blessing!!!! TAKE ADVANTAGE AND RUN DON'T WALK TO GET OUT OF THIS DEAL :)
Posted by: scarter at March 4, 2009 11:01 AM
I'd get out if I could get all my money back, and maybe even if I couldn't get it all back - I hope that isn't too hard to do and sincerely wish you luck doing so.
This brings up something that I hope other posters can chime in on, because I've never understood how this might work: What if a buyer received a mortgage to purchase an apartment in a new development, signed the deal, moved in, and then realized that they were the only purchaser and the developer was going to rent the rest. Is the developer forced to cancel the deal and return the mortgage money to the bank if the buyer wants to get out??? Is there a minimum percentage of units to be sold that needs to be met for the building to be called a condo rather than a rental building?
I'm also wondering how many deals like this will be canceled because of falling appraisals from banks, lost jobs, and people choosing to walk away from security deposits...Definitely not a good time to be buying into new developments, IMO.
Posted by: appoggiatura at March 4, 2009 11:14 AM
TAKE YOUR LOSS ON YOUR 10% DEPOSIT AND WALK AWAY FROM THIS CONTRACT. ASAP
Posted by: Gowanus_Bklyn at March 4, 2009 11:44 AM
It was likely already mentioned but the avoidance of massive depreciation will more than recover your deposit. This was the logic in six and seven figure Manhattan cancellations. Don't be penny wise and pound foolish.
***Bid half off peak comps***
Posted by: Brownstones Half Off at March 4, 2009 11:58 AM
Yeah, get out.
If you really love the building and space, chances are you will be able to come back in a year or two after it's completed and buy at a comparable or lower price than June 08.
Posted by: northsloperenter at March 4, 2009 12:20 PM
There is nothing I can add to what has already been written above, except to add my vote to those who said GET OUT NOW. Remember, I didn't advise to get out now, I advised to GET OUT NOW. I am a condo owner, and all the risks mentioned above are very real.
Posted by: benson at March 4, 2009 12:49 PM
Please to share the name of your excellent lawyer who put in the get-out-of-jail free clause. When you do get out, send that attorney some flowers and candy.
Posted by: Brooklyn Chicken at March 4, 2009 12:51 PM
i bought in a new development and it had a similar clause for all units, not anything my lawyer put in. i'm guessing the developer is probably mandated to provide one. you cant expect someone to sign a contract and not have some sort of date that they can't get out if not completed by then. ours was so far off in the future i never thought it would even come close. but of course, we didn't have a c/o by then (so many delays - i could've opted, but didnt - was much different environment then and was 100% sold). so hold off on the flowers and candy, but yes - exercise it for sure.
Posted by: Danny Noonan at March 4, 2009 1:30 PM
Doesn't anyone want to know which condo or at least the hood? I know I do...
Posted by: noah at March 4, 2009 1:56 PM
Appogiatura, I don't know, but I used to live in a co-op building in washington heights that had gone under in the 80's and the owner rented out the sponsor units. What that seemed to mean was they weren't rent stabilized. Loved the building and actually asked about buying into it and was told nothing was for sale. Actually that was our second rented co-op building in Washington Heights... in the first they refused to renew our lease because they wanted to actually sell it (they offered us financing -- we thought $170K was too much for a one-bedroom. Ah well.).
I too am actually curious how all this works. Seems like failed co-op/condo (if prewar) is a way to dodge rent stabilization laws in the end, providing you can actually rent the apartments at market rates.
Posted by: Heather at March 4, 2009 3:04 PM
RUN, GO, GET OUT!!!
Lechacal laid it out it very well in his posts.
We'd love to know the name of your lawyer. It's always nice to know that some of them really do watch out for their clients.
Posted by: TownhouseLady at March 4, 2009 5:31 PM
Some banks will give you financing but the vast majority will not. Local Savings and Loans will most likely lend on the project but none of the big boys that sell to Fannie/Freddie will so it's probably not the best idea.
There are plenty of Condos out there with less hurdles for financing. Why give yourself the added grief in this market?
-Impartial Advice from a Banker
Posted by: Adam Dahill at March 4, 2009 5:57 PM
We agree with lechacal here 100%. RUN go quick and get your deposit back before the developer changes tactics on you. You are in a unique position here. Just this past Sunday the NYtimes reported people walking away from 6 to 7 figure deposits...get the money now while you can.
Look even Adam Dahill who is a banker is telling you to run for it dude...er dudette:)
Posted by: pierre de taille at March 4, 2009 7:17 PM
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