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…
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]
Photo by Mike Hurren
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.
Unemployment is likely to hit 7.0-7.5% using current data.
Don’t walk away unless your employment is in jeopardy.
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.
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…
“The FED is coming to the rescue…”
More comedy gold from sebb.
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)?
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.
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?
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.