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
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.
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.
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.
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.
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.
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.
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.
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%.
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.