That's Me In The Corner, Losing My Deposit
While there have been a few tales of people voluntarily walking away from their down payments because their equity was already annihilated before it was time to close, there’s another side to the coin: Those people who are involuntarily losing their deposits because the declining market is causing banks to require buyers put up more…
While there have been a few tales of people voluntarily walking away from their down payments because their equity was already annihilated before it was time to close, there’s another side to the coin: Those people who are involuntarily losing their deposits because the declining market is causing banks to require buyers put up more than their original 10 percent. And in many cases, the buyers can’t come up with the extra cash so they are losing what they already put down. In these cases, the developer gets to keep the cash, but has to go out and try to resell the apartment at much lower prices. The poster children for this phenomenon are the Pham family, who scraped together every last penny they had to put down $93,199 on a two-bedroom condo in Hoboken in 2005; when it came time to finally close last fall the they found they were going to need to put up another $150,000 or so. It would take us another 15 years to save that money again, Ms. Pham said. End of story: The Phams remain in their old apartment and Toll Brothers keeps the dough. Another buyer had a slightly better ending: They were able to end up buying a smaller unit than the one they were originally in contract for from the same developer. Anyone know instances of this type of thing happening in Brooklyn?
Up in Smoke: The Deposit Vanishes [NY Times]
Having been on both sides during the bubble (I bought and sold), I can attest to the requirement that buyers pretty much had to sign contracts without a mortgage contingency, or risk losing the property, since there was such fervor that other buyers would step in to eagerly sign without the mortgage contingency. This helped sellers (like myself) but when I was on the buying side, my answer to this was to ensure my mortgage before buying – that is, I would never have signed a contract to buy something unless I knew that I could get the mortgage. Also, my having the pre-approval and/or commitment letter from the bank in hand strengthened our position as buyers since it showed sellers we would not get cold feet due to finance problems. I think it’s tragic that buyers are losing their deposits like this article points out, but I also think it points to overreaching on the part of both sellers AND buyers – as Obama says, buyers need to take some responsibility for making bad decisions such as these buyers, sadly, seem to have done. One silver lining is that the return to mortgage contingencies in contracts should make the whole process more sane from now on.
I don’t know if my last question made any sense at all and I can’t think of how to rephrase it. Feel free to ignore it.
“the people who drive bubbles are rarely savvy buyers.”
Interesting point. I don’t know enough about real estate to agree or disagree with that statement. I would however like to ask this….
Let’s assume that the above statement is true, that the non savvy tend to drive R.E. bubbles. If a home is only worth what someone is willing to pay for it, what does this say for the so-called savvy buyers who bought in the middle of this bubble? If the non-savvy drove up R.E. prices with their, for lack of a better phrase, real estate ineptitude, what is the excuse of the savvy? Why don’t they just refuse to buy until the market looks like it does now?
> “the people who drive bubbles are rarely savvy buyers”
QOTD.
I think stuff like this will postpone the day when things are “high” again.
Real estate is supposed to be “safe” and “smart”. Nothing safe or smart sounding about losing deposits that represent a significant chunk of people’s net worth.
And while savvy buyers will understand they can protect themselves with proper contracts, the people who drive bubbles are rarely savvy buyers.
“Legal issues aside, this is a public relations nightmare that will create a new conventional wisdom among buyers (i.e., “never put down a deposit on a place still under construction”).”
Excellent point.
Yup Snappy….Fish bowl…
Pretty coral…
Pretty coral….
Pretty coral….
“never put down a deposit on a place still under construction”).
Or at the very least not without a mortgage contingency.
But is a P.R. nightmare really likely to have a long-standing impact? I have to wonder when times get ‘high’ again if people will forget the days of yore and go all in again with no protection. Folks seem to lose their heads when it comes to home purchasing.
I hope these developers enjoy the deposits they are confiscating now and quickly throw themselves a few last parties, because when word of this spreads around, they can be pretty sure they won’t be getting any deposits on new construction for a long long time.
Legal issues aside, this is a public relations nightmare that will create a new conventional wisdom among buyers (i.e., “never put down a deposit on a place still under construction”).