Walking away from a deposit

While it is not entirely crazy to ask, it will hugely depend on which development you are referring to. If it is one of the bldgs. that are doing well, they won't really care if you threaten to walk away.

But if it's one of those struggling conversions, they may be willing to do something.

I'd probably tell them exactly what you said here, and see what happens. Based on what I have heard, developers are still reluctant to reneg on the price post-Contract, but can ammend the Contract to pay the closing costs, throw in additional incentives (e.g., free parking spot, storage, etc.), and so on, to stop a Contract from being broken.

nyc212 I would like to ask you a private question- can I email you?

Sure. Maraman53@yahoo.com

my impression is that developers are still very reluctant to negotiate on this, perhaps because they believe if they do it once, it'll get around. But really it depends on the situation. 15% deposit in a building mostly sold, not as good, 10% deposit in a building struggling to sell, more leverage.

you have an advantage in some respects, you are willing to walk. tell them that, do the math for them. say listen I'm in contract at X, you have my deposit of 10%X, I think I can buy a similar place now or in the near future for 80% of X, I need a 10% of X concession or I'm walking period. Or alternatively that given the state of the world and the added risk you simply value the apt differently and need a $Y concession to be willing to incur the risk on the other 90% of X.

sorry Maraman I needed to speak with nyc212 regarding another message he posted- sorry for the confusion

i'm in a similar situation to Maraman and i purchased a condo in the FiDi area too. i was suppose to close back in March. now it's being pushed to March 2009. is that enough of a cause to walk-out and still get your deposit back?

..and similarly I bought a condo in E harlem that I will be closing soon. I am torn between the thoughts of backing out or moving forward with the deal. Even though my deposit was just 5%(20K), to me it is still a too big of a number to let that go just like that. I asked for the deposit back, I asked for renegotiations on the contract price, I asked for any other concessions with the closing costs but all in vain. I told them that I was going to back out of it otherwise. I thought i had the advantage and could have leveraged the situation - but since my attorneys were handling all of this at this point, I do not know how effective they were in this. Oh well I tried all of that and I know it. I still have the option of not showing up for the closing and let this deal not go through.

tolho,
read your contract. It should clearly state a date of completion for the contract to hold.

tolho - ba is right. your attorney must have put that date. check your contract.

One of the first rules of negotiation is "it never hurts to ask."

That said, I'm not sure that I understand how the buyer is in much of a negotiating position here, especially if he/she has signed a contract and put down 10% -- if the seller refuses concessions, and the buyer walks, the seller has to re-sell your apartment into a slow market ...

but the retained deposit can cover significant costs of marketing to the next buyer -- why wouldn't the seller just drop prices, say, 3%, and offer 4% closing costs concession to the next guy in line, rather than to you?

tolho is in a different situation, if you blow past your estimated completion by an entire year you can generally get your money back through the AG's office.

ali r.
{downtown broker}

If it's past the absolute deadline of completion, the sponsor will give your money back.

thanks for all the input. i've asked for some kind of concession (i.e. buying down mortgage rates, covering closing cost, etc..) and they have refused.

There isn't a date in your offering plan that allows you to back out if 12 months have passed? Are you sure?

New construction building can't start closings unless it has 51% (in declining market it becomes 71%) bonafied contracts.
So even if your building is completed, you may wait longer than expected. I would find as much info as possible and try to use it in negotiation of seller's concession.

On the other hand by the time they are ready to close your pre-approval (commitment) may expire as well - that translates into bank checking all your financials (debt-to-income, FICO, employment!) all over again. So make sure you are still will be able to get mortgage.

elena
(broker)

elena: "New construction building can't start closings unless it has 51% (in declining market it becomes 71%) bonafied contracts. " thats not true - cuz I am scheduled for a closing this month and the bldg is only 35% sold/under contract.

coverdrive, information was given to me yesterday by JPMorgan CHASE. I was surprised to hear it myself, but I doubt that they lie. Are you getting mortgage from the bank that provided building's construction loan?

elena
(broker)

I am going through a broker who has gotten me a commitment letter from Chase already. I will check with my broker if what you said is true.

I am going through a broker who has gotten me a commitment letter from Chase already. I will check with my broker if what you said is true.

It sounds like the numbers quoted by barskaya refer to banks offering loans at 51% vs 71% sold, not actual closings taking place. This Real Deal article refers to it:
http://ny.therealdeal.com/articles/ominous-signs-from-new-condos

"Banks were previously lax about presale requirements because they were confident that buildings would quickly sell. But that's recently changed, and banks are now reluctant to provide a buyer with a mortgage if the building has sold less than 51 percent of its units %u2014 known as "non-warrantable." Some banks want as much as 71 percent sold.

"Traditionally, there were no requirements," Weinstein said. "Then it grew to 25 percent, and now very few lenders are doing anything unless you can hit that 51 percent mark." "

Credit has tightened massively -- for example, some banks that used to require that a building had 50% of its units "in contract" now require that 50% of a building's units be "sold and closed"

but I can think of at least two new development condos that are around 40%-45% in contract where banks are lending and the first units are starting to close -- you may need a good mortgage broker to help you find the right lender, but they're out there.

ali r.
{downtown broker}

I am going through a broker who has gotten me a commitment letter from Chase already. I will check with my broker if what you said is true.

I am going through a broker who has gotten me a commitment letter from Chase already. I will check with my broker if what you said is true.

I am going through a broker who has gotten me a commitment letter from Chase already. I will check with my broker if what you said is true.

I am going through a broker who has gotten me a commitment letter from Chase already. I will check with my broker if what you said is true.

It all depends on the lender. I believe JPChase is requiring 51% contracts signed before closings are scheduled. However, not all banks have this restriction. Every lender works differently.

Additionally, you may want to double check w/ your mortgage broker on the actual commitment. There may be additional documentation requirements that may need to be satisfied prior to closing. Often you will find this out a little too close to the deadline.

As for "asking to negotiate" - I think it's always worth it to be forthright. I still believe that there is some goodwill out there in this world! :-)

Good Luck!

(sorry for the multiple posts earlier - that was a compuer gitch)

developers are very reluctant to negotiate after you already signed contract. But if youre really going to walk away then you have nothing to lose to negotiate. If they dont budge then youre walking away anyway, right?

Yes, most lenders have a 51% pre-sale requirement. We can go down to 15% pre-sale as long as the building hasnt been stuck at 15% for a year. We base it off sales velocity.
sunny_hong@countrywide.com

Sunny, so is it lenders requirements or new guidelines set by Fannie and Freddie?

"JPMorgan Chase officials said they were only following guidelines set by Fannie Mae and Freddie Mac, which call for banks to lend in new condo conversions only when more than half of available units are sold."
http://ny.therealdeal.com/articles/elliman-retail-partner-buys-at-manhattan-house

elena
(broker)

Wells Fargo also requires 51% pre-sale requirement.

Going back to the main point of coverdrive's post, I would definitely advise to either negotiate a MASSIVE reduction of price or walk away from your deposit. E. Harlem is one of those failed-gentrification neighborhoods where prices are already falling at blazing speed and which are likely to suffer the most when all is said and done with this downturn. Your 5% deposit, although is a substantial amount for you, is nothing compared to the 40% or more loss in value of your apartment from the time you negotiated your purchase to, let's say, 2010.

51% pre-sale is a guideline set by Fannie Mae an Frddie Mac. However, every bank has a different contract with them. Our pre-sales have been negotiated with Fannie so we can go lower. However, most banks want to follow Fannie's guidelines, even for jumbos, where there is little or no secondary market for. Reason being because later when and if things turns around they want to be able to see these loans.

trompiloco - thank you for your inputs. I calculated all that of that. you are absolutely correct about the depeciation possibility. however what if my resale horizon is longer than that about 5-7 yrs? e harlem may not gentrify but what do you think of Target and the HUnter college setting their bases up there in the next few years? wont that help in minimizing the damage tof the re collapsE?

maraman - where did you get that information regarding the 51% pre-sale requirement of Wells? is that before CLOSING?

Honestly, coverdrive, if the plunge ends up being as momentous as many are now expecting, it could take decades, not a few years, for prices to come back to mid-2007 levels in real dollars. I don't know how high you bought, but right now I don't think most Harlem luxury condos are immune to the risk of becoming testaments to human folly. Basically, bldgs. that, considering their prices, amenities, the crowd that they expected to attract and didn't, etc. should have never been built. That can't be ruled out IMHO.

I applied for a mortgage with Wells Fargo.

How frequently does StreetEasy or some other source report on the number of contracts on which the buyer has forfeited their deposit. Last info I saw was for September.

Maraman: I don't know the precise answer to your question, but whatever number StreetEasy (or anyone else) reports won't include broken contracts to purchase in new developments and conversions, as those listings are never reported as being "in contract" in the first place.

The following was posted by a Miami RE broker on the Urban Digs article on Nov. 20:

"Noah
Get ready for approx 25% walkaway rate. Miami is very well into our adjustment and 25% seems to be the number that developers won't say aloud.

In many of the cases (except for super-prime units/developments) the decision for contract holders to walkaway has been the right one."

Here is the link to the article and blog:

http://www.urbandigs.com/2008/11/adjustment_phase_reveals_new_d.html#comments