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 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.
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.
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.
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.
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.
Seven Sutton Square….comments?? It doesn’t really get much nicer than this anywhere in the world…
http://cityfile.com/dailyfile/2218
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.
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.
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!