Should I walk from my deposit?

I would never give up 75K!!!

I wouldn't walk away. May I ask which bldg?

No, don't walk away. You will have flushed $75k down the toilet with absolutely nothing to show for it.

There are reasons to walk away and reasons not to.

First, recognize that the ultimate cost of not walking away could be quite significant. If you intend to sell the unit within the next few years and move, you may very well save money by walking away. The last thing you want is to "never give up $75K" then in two years give up $200K.

Second, you may have some leverage if you do want to stay. Clearly, this is a goddawful time for sellers and developers. Your walking away is just as bad for the developer as it is for you, as there is no way in hell they'll be able to find someone quickly to snap up your apartment at your purchase price. So... threaten to walk away, and negotiate for what you can: a price reduction, an upgrade to a larger apartment, parking, additional storage, etc. etc.

Finally, ignore anyone who summarily says "don't walk away" without asking you more questions about your circumstances or considering the factors and your options. They (i.e., brokers) may have their own agenda.

Easy for you to recommend walking away when you will not be the one losing $75k.

You're on a 7-year timeline. Do not walk away now. You'll feel like sh*t for the rest of your life. Nobody can predict the market of 2016 but you'll likely come out ahead.

If prices have dropped by more than 10% from your contracted price you should walk. You should also consider the condition of the development - what % of units are sold, the financial condition of the Sponsor. If less than 50% are sold/ in contract, the development is at great risk. New guidlines for FNMA require 71% in contract to qualify for a mortgage. If < than that, Buyers will need to pay a much higher interest rate for a non-conforming mortgage, which will depress prices even further.

Another option that you have is to list the condo the day after you close. You will lose money, but if your lucky, you will lose less than $75k.

yournamehere is absolutely correct on all three of his/her points.

if you haven't already and if you are seriously thinking about walking away, you should consult a good lawyer to thoroughly review your contract. while it's less likely than not, you may be able to use ambiguities in the terms to recover some if not all of your deposit.

alpine292 - are you addressing me? Wasn't sure.

No, it's never easy to walk away. I understand that. But alpine292, your comment, unfortunately, represents the type of mindset that ends up losing people money.

It's very simple: if your deposit is less than the expected loss on your purchase, then it makes perfect financial sense to walk away, regardless of the absolute $ amount. You'll be losing money either way - you just want to pick the option that loses you the least $$. Try to remove emotion from the equation.

Or, as I suggested in my first post, threaten to walk away and negotiate hard for additional concessions.

That is a long shot newbie. A VERY big longshot. Developer contracts lock you in pretty well and the only way out is to sacraifce the deposit. As long as the building is completed in the time frame you were promised and the apartment is not drasticlaly different than what you were promised, you can't walk away without losing the deposit.

"That is a long shot newbie. A VERY big longshot"

Actually, checking your options with your lawyer is not a long shot at all. It's just smart. :)

Agree with newbieNY that you should have your lawyer review the contract, get a sense of the status of the building/developer (is the building <70% sold, is the developer sweating bullets), identify your points of leverage and consider all and any options.

I meant gettng the deposit back is a longshot, not talking to the lawyer. Right now lawyers are getting flooded with calls from buyers looking to back out of contracts. But in most cases the lawyers can't help you.

"The last thing you want is to "never give up $75K" then in two years give up $200K."

Actually, you could lose less - you should factor in the cost of renting a comparable place.

You also have to consider how much you really like this place as your home - there's something to be said for that. And your time horizon is realistic, so there's a good chance you should be able to recover eventually.

Just some points to consider - good luck!

Bad advice from some posters. First, get it in your head that the $75k is GONE. You will either lose it in cash or in equity in the apartment. But it is GONE already regardless of what you do.

The question is, is the apartment worth buying at $75k less than your contracted price? If not, walk away. This is not just a financial question, but also do you want to be living there.

sad_in_contract, I would absolutely second yournamehere's advice - don't listen blindly to the curt "don't do it!" responses (same goes for those who will urge you to walk away as well). This is a complex and ultimately personal decision.

If you love the apartment, the building, and neighborhood, expect to stay for at least 7 years, and can afford the place, I don't think it'll be tragic. I'm assuming the $75k is about 10%, and though prices have dropped about that much and more in some buildings, that's a sizeable amount. If you think prices will come down 50% all over, you could very well be able to afford Manhattan, though finding a similar unit at the same price in a prime Manhattan neighborhood might be pushing it.

As for the renegotiating/concessions tactic, I would certainly urge you to try that as well, though if you did not waive the mortgage contingency and think you may have trouble locking up financing, that could be your ticket to getting out AND recovering your deposit. Check with your attorney about this if you're not sure - it's in the contract.

you must consider many things. included is the write off of your mortgage interest against your income. this could be close to 5% annually of your purchase price. in addition, the cost of renting a similar unit. this also could be close to 5% annually of your purchase price. with your time horizon id be hard pressed to walk away given your ability to get a mortgage and pay the monthlies. AND what if, the RE mkt holds up better many are prognosticating? we cant just assume as fact that nyc RE will depreciate 50% off peak. especially with the stimulus that is being pumped into the system. last i checked RE in manhattan has outperformed expectations for the past 8 yrs.

What percentage of the building is sold? Is there a large tax abatement in place?

> No, don't walk away. You will have flushed $75k down the toilet with
> absolutely nothing to show for it.

Way too simplistic... particularly if losing $75k can get you $150k discount elsewhere.

That being said, I think this is the important part the OP made...
"First of all I’m not sure if I could save enough for a new down payment, especially as it becomes more and more difficult to put less than 20% down. "

Cash position is big here. Losing/gaining matters, but having the ability to buy at all is a factor. If this erodes your cash position for some time, then that could be a factor. Even if you could "gain" more by getting a discount on another apartment, if you can't take advantage, you can't take advantage.

If you had more cash in bank, I'd probably give different advice. But the cash factor is just too large to ignore.

> Actually, you could lose less - you should factor in the cost of renting a comparable place.

But then you'd also have to figure in carrying costs. If you lose $200 in overpaying, you are also paying taxes on that new place... plus you have a mortgage at the higher amount.

If anything, the owning will probably cost more than the renting...

I'm not an accountant or a tax lawyer, but I wonder if you were to walk away and claim it was going to be an investment property, so you could take a loss on your taxes.

sad_in_contract - there are many people in the same boat, and I happen to be one of them. This past Tuesday, I did not show up to the scheduled closing, meaning I have walked away from my deposit. However, my lawyers are working on arguments that will hopefully permit me to recover at least some of it. Alternatively, maybe the developer will be willing negotiate concessions -- we will see.

My reasoning for walking on the deposit: (1) I am fairly certain that the value of the place is already down more than 10% (closer to 20%, and still falling), so my 10% deposit was already gone either way. (2) Due to stock market losses, I no longer have the financial resources to comfortably pay the closing costs and the additional down payment, so I would be pretty much flat broke if we had closed. (3) I expect that my income will be lower this year, which makes the mortgage payments more stressful than anticipated. (4) And the biggest concern of all is job insecurity -- at this point, I no longer have the 5-10 year time horizon that I originally planned - if I lost my job and needed to sell in the next 1-2 years, I am certain I would not be able to get a decent price sufficient to cover the mortgage balance, and would probably have to declare bankruptcy.

Therefore, I am willing to lose some or all of the deposit, rather than have the financial stress of buying an insanely overpriced unit. I realize it will take a few years for me to recover from this, but at least I will be renting and saving during the next few years, rather than killing myself to make a mortgage payment, and worried sick about losing my job.

There are other people who have also walked, and I heard that some of them reached settlements with the developers, and recovered part of the deposit. That's what I am hoping for.

Good luck making this decision. It's been hellishly difficult for me, but we are not the only ones going through it.

wow, that is an interesting thought. You have me curious.
Anybody have an idea here?

If I had to guess though... since you didn't actually buy it, there was no owned property to sell or call losses for.

What if you called it an "option" you bought? Pretend its a stock loss...

sad_in_contract: I'm in a similar situation and am having the same thoughts. $75K is a lot to lose. If you envision yourself living there for the next seven years, then it is apparent (or is it?) you really like the property. Also, factor in that this is a good time to take advantage of the low interest rates. In 2-3 years, re-evaluate your situation and the economic climate, and if Manhattan is still on your mind, trade up. At least you will have your LIC property to leverage your new purchase. The alternative is to try to save another $75K or more over the next two years for a deposit which may be difficult with bonus cuts, job losses, etc. With a long term mindset, you (we) should be fine. And in the meantime, while you wait for the market to rebound, you will be living in YOUR own property that you love. Just some thoughts. Good luck.

Thanks for the food for thought. The building is more than 50% in contract. I like the neighborhood and the building - otherwise I wouldn't have signed the contract. However, it is not the average condo buyer's dream apartment (high floor with super view etc) so I don't know easy it would be to find a buyer if and when I decide to sell. I definitely don't intend to sell before 7-8 years from now. Would I buy it at this very moment for $75K less if I wasn't in contract - probably not but I wouldn't buy anything at this moment, at any price. I am just feeling really scared right now and fear is irrational. It is difficult to say how much the prices have fallen in Hunters Point because all the closings are those who went in contract a long time ago. I don't think are any new contracts, the market has just stalled. I've already consulted a lawyer and there is no way out. If we make a real effort we could probably save another 75K in the next 3 years but I don't really believe that my dream condo in Manhattan will be available in 2011 at this price and with this maintenance. And who knows where the mortgage rates will be in 2011.

have you told the sales team there that you are thinking of backing out??

pjc - sorry for your situation and I think you made the right decision in your situation. If you don't mind me asking, what are the arguments which your lawyers are using? Is it related to a financing contingency? Unfortunately I can get a mortgage.

"but I wonder if you were to walk away and claim it was going to be an investment property, so you could take a loss on your taxes."

Good question, but wouldn't you need a gain to offset the loss for it to matter?

"Cash position is big here. Losing/gaining matters, but having the ability to buy at all is a factor. If this erodes your cash position for some time, then that could be a factor."

nyc10022 makes a strong point here. I think it makes sense to walk for some, but your situation is interesting. If your timeframe is what you say it is, I would close and enjoy the place. I would also take the advice above and try and get some concessions out of it

> At least you will have your LIC property to leverage your new purchase.

Unless you are underwater and don't have the cash for a new deposit.

This is the big X factor I'm talking about - cash. Cash will rule through the bad years.

I have a number of arguments that are specific to my situation, and others that are more general -- but I would rather not divulge the details until this whole thing is resolved, at which point I will share my experience with everyone.

As for the tax deduction question, I had thought that this could be a business loss, since we were going to use part of the unit for a home office. I also considered nyc10022's suggestion that this was like an option premium, similar to a stock loss. However, I consulted one tax advisor who didn't think these arguments would fly, but I don't have definitive advice on it yet.

Given that the government has made the gains tax-free (up to a point), I'm sure they did a lot of work to make sure there are no loss tax savings... but who knows what is available. I would not do this one without the accountant..... but definitely let us know what happened.

>>>"but I wonder if you were to walk away and claim it was going to be an investment property, so you could take a loss on your taxes."

Good question, but wouldn't you need a gain to offset the loss for it to matter?<<<

The answer is yes. You would need to have a major capital gain in order for a $75K loss to be beneficial tax-wise. You have mentioned that you've already taken losses in securities. I don't see how trying to claim the $75K downpayment as an additional loss (which would require some fancy footwork on the part of your accountant, if it's even possible at all) would make any sense.

Is the new development on track to make its occupation deadline? If it misses the deadline that would release you from obligation. I agree with the above poster who suggested having an attorney eyeball your contract.

I also agree that there is merit to trying to renegotiate a lower price with the developer; they would far rather have a sold unit on their hands than a vacant one in a falling market. You may also be able to find another buyer who is willing to take on your obligation.

I live in LIC and think that you should go with the apartment. With the major investments made to infrastructure here, you will see a gain in standard of living immediately and in 5 to 7 years see a gain in your price as long as interest rates stay low. In analyzing the market environment, I think that interest rates, geopolitical risks and tax increases are three of market killers for the future. With that said, these problems will affect us no matter where we live...

"I'm not an accountant or a tax lawyer, but I wonder if you were to walk away and claim it was going to be an investment property, so you could take a loss on your taxes."

I'm not one either, but I am pretty sure you cannot write off a loss on an investment property that you do not technically own.

also see this: http://www.streeteasy.com/nyc/talk/discussion/6309-are-people-walking-away-from-deposits

sad_in_contract - one way you may be able to finagle a return of at least part of your deposit is to negotiate a rent-to-own. You can ask for (i) part of your deposit back and (ii) that the rent be credited against any future purchase. The developer, if they're interested, would probably want the future purchase price to be your original price, but you could try to negotiate that.

If you really want to live in the neighborhood, this could be a win-win. You get some of your deposit back, can rent in LIC and watch the market, and have no obligation to buy. The developer collects cash flow while you rent and keeps part of the deposit.

Just a thought.

sad_in_contract, given your situation I would probably recommend that you NOT walk away. 7 years is a good amount of time. Interest rates are extremely low right now. I mean, if your place is $750,000 and you are putting 20% down, that brings you to agency conforming (let's say around 5.375% - which is very fair), you said that maintenance is under $1,000 and since you are in LIC you most likely have a tax abatement, so that brings you to around $4,400 per month. For $750,000, I am assuming that it is at least a good size 2 bedroom 2 bathroom (1,000 plus square feet). That is essentially what you would be paying in rent.

Add that to the fact that you can take the interest tax benefit over 7 years and I find it hard to believe that walking away from $75,000 now will be better than all of the above combined by 2016.

The people that keep saying that you take a 10% loss now or later is not true. Walking away now and there is no question that you will lose $75,000, stick it out a bit and you will very likely make back at least the 75,000. It sounds like you are happy with your place and that you are buying it as a home. If you told me that you would be living there for 3 years and were very unsure of your financial situation then I would probably give you some different advice - it's easy to say walk away when you are not the one walking away from $75,000 in CASH. Either that, or they are in a very different situation.

The only caveat that I would make is that this is assuming that you are in close range of the Vernon/Jackson subway stop. Ct Square/Queens plaza is a lot riskier in my opinion.

The other thing that you have to ask yourself is: what would you be doing otherwise for the next 7 years?

By the way, what development are you in-contract at?
understand that you may not want to disclose.

Why not try and reneg with the builder/seller? Simply say, "I am considering walking away and then we both lose. Can we come up with a new price that allows us to both win?"

Village, I don't disagree with your thinking. The question ultimately is whether or not you are really willing to walk away. You can, of course, try and negotiate a better deal though. An d if you can, there is not reason that you should not.

If the builder re-negotiates with you, then everyone else who bought is going to want to renengotiate and the buidler does not want that. Plus, if the value of your condo INCREASED, how would you like it if the developer came to you and threatneed to walk away unless you paid MORE money?

sadincontract seems to have answered his question in his original post.

absolutely not worth walking. remember, the loss is temporary and only on paper. Since you have no plans on selling immediately, it does not matter that your apartment is worth less than what you bought it for. You can't undo the past, but you can prevent a previous mistake from turning into a bigger future mistake. You can enjoy it, you like it, go for it. You are just being greedy at this point, but we all know what greed got people.

oldbuyer, i think you have some interesting points you make. so, the thing you're saying is that maybe he can get his loses back because they're not real losses, right?

i think i agree with oldbuyer that you don't lose money ever because they are just temporary. why doesn't everybody just never sell? then all their losses wouldn't be lost.

Thanks again. I'd rather not say which development but it's not in the Q Plaza area. That's what I've heard - developers don't negotiate because other buyers would not be happy - and I don't really expect them to but I guess it doesn't hurt to try. Anyway, I'm a bit surprised at the positive tone of many of the answers, as I expected it to be more like "better to limit your losses now than lose hundreds of thousands later".

Good luck and peace in your decision, whatever it is!!

If you are planning to stay there for 7 years then don't walk. In 7 years someone will come along and pay what you paid. That, along with the tax benefits and the fact that you are not renting make it a no-brainer.

If you don't want to be there for 7 years your situation is much worse.

> why doesn't everybody just never sell? then all their losses wouldn't be lost.

Breaking even in nominal terms after 7-10-20 years is a loss in real terms. Add in the cost of carrying the mortage, and it might not be a small one.

"Riding out" a loss doesn't make it any less of a loss, it just makes it more "palatable" for some folks.

> Anyway, I'm a bit surprised at the positive tone of many of the answers, as I expected it to be more
> like "better to limit your losses now than lose hundreds of thousands later".

Personally, I think that would be more the case if cash position wasn't an issue. The logic is true, but if it means you lose your down payment money and can't likely get it back, that creates a second issue.

If cash were not an issue, financially, yes, dropping the deposit can make sense in some situations. The last article posted on this board on it noted that 10% of buyers were backing out....

Some are because they can't make the payments. But some are likely from folks who realize that they can get a better deal even minus the deposit loss.

I can get a mortgage...
I can afford the monthlies...
I plan to stay at least 7 years...
I like the building...

Look - you're going have to pay to live SOMEWHERE, no matter whether you take this place, or you walk from the deal and give up your 75K. So assuming your monthly mortgage and maintenance will be roughly equivalent to your monthly rent if you walked, it all comes down to two things -

1. loss of 75K
2. figuring ossible depreciation/appreciation of your place if you resell in 8+ years.

Nobody on this board, and I mean nobody, has any idea what the real estate market will be like in 8 years from now, and if they tell you they DO know, they're an absolute idiot. So the bottom line is that you're rolling the dice on #2 - there's no way to know. As for #1. (the loss of the 75K) in this case, well, that's quite personal. In this ase I would have my lawyer threaten to walk and see if you can reduce the purchase price - if you can, I would probably close the deal.

As someone who just walked from a contract, there is a wealth of information in this thread. It's impossible to say which direction you should go in, and no one knows it better than someone who just walked, for every time you think you've made the decision in your head, you think of plenty of reasons to go the other route.

Several lawyers told me that based on the contract, I was screwed in terms of getting my deposit back. The only tidbit I could add to this thread that I don't think has been mentioned is that regardless of the contract, no one wants to go to litigation. To avoid it, putting in a fight for your deposit back can, in my opinion, only have four outcomes:

1. Get your entire deposit back.
2. Get some of your deposit back.
3. Get none of your deposit back.
4. Leave the opportunity for the sponsors to offer incentives to stay in contract (lowering price, offering parking or storage, offering to help with transfer taxes, etc.)

Regardless of the above four, you're not worse in any way then from where you started if you try.

You may have no legal options, but like the skinny wimp who is held overnight in prison, sometimes the best strategy if you can't keep to yourself as a strategy of being ignored is to be the crazy guy. I recommend considering going to the sales office or finding the developer's main office and being irrational ... anything from just having a weird tick and touretts syndrome in the office for both pity and attention to going completely postal.

The developer does NOT need to resort to litigation to keep your deposit. They can keep it just like that.

And CraigY22, you are inasne. Please take your meds for the love of God.

Alpine292, thanks for your diagnosis. Regardless of my mental health, acting or actually being crazy is a superb strategy in deal negotiations. People expect rationality, and absent rationality they expect emotion. But few understand the inner workings of the mind and can therefore counter the crazy strategy. It quite often works very very well.

uhhhh, not in real estate negotiations for your home, no, it doesn't....

>>The developer does NOT need to resort to litigation to keep your deposit. They can keep it just like that.<<

Exactly true. It is the BUYER who would need to resort to litigation to get the deposit back.

bite the bullet and if you plan on living there for 5+ years and can afford it - then enjoy and be happy -go for it

Squid
about 1 hour ago
ignore this person
report abuse >>The developer does NOT need to resort to litigation to keep your deposit. They can keep it just like that.<<

Exactly true. It is the BUYER who would need to resort to litigation to get the deposit back.

Exactly true exactly true, which is why a strategy of crazy crazy may be a strategy before a long drawn out litigation (which shouldn't be ruled out).

All of the posters saying don't lose the $75k have it wrong. The $75k is already lost, gone, sayonara.

The only question is, assuming it was a $750k apartment, is it (effectively) worth buying for $675k? If yes, buy it, if not, walk.

The $75k is already gone and should not even be a factor in the decision process. Any economist will tell you sunk costs don't matter on a cost-benefit analysis.

I agree that litigation, or threatening litigation, could be beneficial, but your contract (i) is probably pretty clear that the sponsor gets to keep your deposit and (ii) may state that the developer and the escrow holder (who is just the sponsor's condo atty, but he/she wont hesitate to bill for legal fees in the case of litigation) are entitled to have their legal fees paid by you if and when they win the litigation. Also, there will obviously be your own litigation costs (unless you can find an atty to take this on contingency). I do see the threat of litigation as a potentially decent strategy to trying to negotiate a lower purchase price. I see actually suing as a risky move that I would only do if my atty really knows what he/she was doing and has a sound legal strategy that doesn't involve trying wearing the sponsor out in court.

Don't hold up threatening litigation as your saving grace. Threatening litigation is for amateurs. I can't tell you how many times litigation has been threatened against me. ... I assess two things, 1 - legitimacy of the case and 2 - the balls of the potential litigant. Even if #1 is on the side of the party, #2 rarely is ... they usually have anger and indignation, but when it comes time to putting down a litigation retainer, well, litigation is for rich assholes.

And to that, my advice, all of those of you who have ever received a threatening letter on some joker lawyer's letterhead with big words to make you feel scared ... consider those words as being served notice that you are dealing with a joker, real attorneys with real cases won't ... you'll know when you are dealing with them, they are the smart, suave, non-threatening types until it gets real - they look for resolution because they are good and only after you get past legit resolution can you expect your balls to be cut off ... can't tell the difference, run info on the party you are dealing with, how big time is he, figure it out.

Oh, and acting crazy, seriously, that marginally scary party, you'll pretty much be able to put him on one side of the fence or the other by the crazy strategy. Try it. Don't have shame, this is a person you disagree with.

can't tell the difference? ... run info on the party you are dealing with, how big time is he, figure it out.

modern, read the posts. A number of people have already acknowledged your point of view and explained why they feel that is incorrect. The loss is on paper (if there is indeed one). The person will be living there for 7 + years. They do not have the amount of cash that would allow for another purchase after walking away. Cash flow is good and the person can afford to carry the unit. Walking away from 75K now is a sure way to never get it back. A temporary dip on paper will eventually be returned -- plus, in the meantime this person is living in a home. It's not an investment, so they are OK.

Anyhow, everyone is posting their "opinion" - I can at least acknowledge that. You are making a "factual" statement that everyone is "wrong".

Anyhow, my opinion is that walking away in this situation doesn't make much sense. I feel that it only makes sense for 4 types of people:

1) You are a wannabe investor that made a mistake.
2) You plan to live in the place for a very short amount of time and do not plan to rent it out.
3) Your financial situation will prevent you from carrying the apartment.
4) You have enough cash so that if you were able to find an apartment with a big enough discount (more than 75k) you could afford to come up with the another down payment after walking away to buy another place, and that's considering that you could a) find a place with such a discount b) have the cash to make it a reality

I really can't see any other reason for walking away if you plan to buy a home that you will be living in and like. For most people 75K in cash is a lot of hard earned money that won't be replenished overnight.

modern is 100% correct. The $75K is a sunk cost. You need to look at the purchase decision with a fresh pair of eyes.

First of all, the sunk cost does matter in this case considering that the buyer does not have the cash to for the alternative. Second, sunk costs are a microeconomic theory, it should be used to make business decisions and not to buy a home (my opinion)

A brief explanation for those that don't know what a sunk cost is. A sunk cost is NOT recoverable, ever. So, for example, you are in the middle of building and airplane and you have already spent $3 million on it. Under your current contract it will cost you $6 million to finish. You then find out that you can build an new airplane with a different contractor (from scratch) for $3 million. Then you say ... hey, I got screwed, I can either walk away and build another plane from scratch and spend $3 million or I can keep building my old one and spend another $6 million. Then he says "but wait, I have already spent $3million on this plane". But he looks back and realizes that leaving his 3 million behind will actually save him 3 million because he would have had to pay another 6 million if he continued building the plane... The 3 million that he would leave behind is his sunk cost ... he will never have the opportunity to see that money again, even if he wanted to. A simple decision ... The person has set aside a total of $9 million for a project and at the end of the day they can sell the same plane but make an extra $3 million that they saved in costs. (the funny flaw in this economic theory is that the sunk cost actually becomes quite relevant in this decision making process, but I understand that the point is that you have to assume that you are not getting back, not that you really ignore the money).

Anyhow, what is the key difference? In this case you are left with a half built plane. In other words, your $3 million is not able to be recovered and is considered a sunk cost. You can then make the rational decision that it makes sense to walk away and build a new plane from scratch. In the case of this home, 2 key points make the sunk cost very relevant:

a) The cash that would be needed for the alternative (buying another apartment)allowing the purchaser to make this rational decision is not available.
b) The person is buying a home and will live there for 7 years (longer if necessary). This is very different from a making a business decision which is what a sunk cost is intended to help with.

Anyhow, with the absence of an alternative, it is not really a business decision; it is a question of fear: Will my apartment be worth what I paid for it in 7 years or will I be forced to sell it at a loss?

So, asking "is this place still worth buying at $675,000?" is not relevant. The real question is: "Will my apartment be worth $750,000 in 7+ years or not". No one here can really answer that question (which is what the question really is). In my opinion, yes, you will probably get at least your original value in 7 years. Others may not share that opinion.

either way, the point is that you can look at it as a sunk cost if you really want to but the cost benefit that you are looking at (in the absence of cash) really comes down to fear. Also, a sunk cost is ultimately relevant because the person will eventually get the money back. It is not a half built plane or non-refundable ticket.

With a sunk cost of $75,000, would you be willing to wait and face the fear that in 7 years you may owe more than the $75,000 to the bank or do you walk away from your sunk cast and not have to live with the fear that in 7 years your apartment may not be worth what you originally paid for it?

So, we can sit here and debate what the value of the apartment will be in 7 years but I think that there are plenty of other threads that make it clear that no one here is going to really agree on that. I don't believe that the person needed a lesson in how to make a decision, but rather, they wanted to hear different opinions that would help them make the decision.

Anyhow, my long winded point is that the sunk cost is irrelevant to this thread. The person has already said that they have 75K that they can't get back and you have basically told them that they have 75K that they can't get back. Thanks.

You should definitely close on that condo. Nothing on your profile has changed since the day you signed the contract. You plan on staying in the apt for at least 5-7 years so what is the problem?
The condo was worth 750k to you a year ago and it is still worth 750k to you now, til you decide the sell. Keep the condo and enjoy.

lobo and ba294: Well said.

So, asking "is this place still worth buying at $675,000?" is not relevant. The real question is: "Will my apartment be worth $750,000 in 7+ years or not".

You're wrong. Why?

If now or in a year the same apartment can be purchased for less than $675K or a larger, better apartment can be purchased for $675K (factoring in interim rental costs, transaction costs, etc.), then the decision should be to walk away.

It's really very simple. It's not "microeconomic theory" mumbo-jumbo, just grade-school math, if you can handle it.

Further, I love how people are getting fixated on the magic of "5-7 years". The "5-7 years" is idiot-speak for "if you wait long enough, your purchase (while still a bad investment) will cosmetically seem like an okay investment".

Sorry the comment:

"So, asking "is this place still worth buying at $675,000?" is not relevant. The real question is: "Will my apartment be worth $750,000 in 7+ years or not"."

should be entirely in quotes, since I am responding to it.

farquhar: Cash flow has been highlighted by a number of posters. If sad_in_contract walks away, it does not appear he/she will have $67K (or > 10%) now or in a year to purchase a "larger, better apartment." So the decision "should be to walk away" is not the best scenario for this individual. I could be wrong, but I don't think the original poster was motivated to buy by the idea of making a killing on the property. I think he/she wanted to get into the NY RE game, was ready to move beyond his/her current housing situation, found a desirable property, saw her/himself living there for a few years hoping that the place would not be worth less than what was paid a few years from now.

"I think he/she wanted to get into the NY RE game, was ready to move beyond his/her current housing situation, found a desirable property, saw her/himself living there for a few years hoping that the place would not be worth less than what was paid a few years from now."

Let's face it BillyRes, if the poster had no interest in the property's market value, they wouldn't be asking if they should walk away. Right? Plain and simple.

If an apartment buyer just wants to be "in the game" or "move beyond his current situation" or "found a desirable property", does that mean that they should buy regardless of price? Of course not. Don't be stupid. Price is always a factor, and right now the original poster has asked us to help him/her with a critical decision that has arisen as a function of PRICE (and price alone). The whole reason for his question is price. So, how can we ignore price in our response?

Now, to your point. The fact that the OP doesn't have much cash left is a red herring - in fact, it is being used as an argument to lose more money. What you and others are arguing is that the person be shackled to an overpriced apartment simply to avoid losing $75K. Think about it - by signing on and "saving" the $75K, the owner is slave to his/her apartment as long as it is underwater, which could be a very very long time. During this time, without the owner cannot (i) sell without a loss, (ii) refi without significant additional equity, (iii) buy a cheaper apartment, etc., because of the albatross that is now a grossly overpriced apartment. This may even limit their flexibility in a number of life decisions (whether to move for job/family/lifestyle reasons). If the OP is committed to spending 7 years in this new place, yes that helps, but that doesn't guarantee any return on the apartment either.

All of this needs to be considered. It is far from a cut-and-dry decision.

should read:

"During this time, the owner cannot"...

As someone who walked from my 10% deposit - I think the "we plan to stay 7 years" factor is irrelevant. No one can predict that far into the future. Like anyone else, we "planned" to stay at our unit for 7 years, but there is always the chance that I could lose my job in the near-term, or have other reasons that we need to (or want to) sell in far less than 7 years. In that case, we would be screwed, since other units in my building were already marked down over 20%, still falling, and still not selling. I couldn't stomach the risk of "throwing good money after bad" and being stuck with high mortgage payments on a place that I could not re-sell if I needed to in the next 1-3 years. Therefore, the deal became way too stressful, so we forfeited our 10% as a reasonable price to pay for avoiding an unacceptable level of stress. Other factors that weighed in the decision:

1. we currently live in rent-stabilized place, so we will be able to save and essentially recoup our financial set-back in a couple years.

2. I believe I have reasonably decent legal grounds to recover at least some of the deposit. But we'll see.

Farquhar, I don't disagree that it is not cut-and-dry, I am just saying that you can't just "forget" the 75K that the owner has put down in this situation. It is very relevant to the decision. What are their alternatives? I'm not saying that the alternatives are good or bad, I am just saying that the owner knows them best and needs to weigh them, including the 75K: As pjc points out, are they living in a rent-stabilized unit? Can they afford to carry the apartment? Do they have a stable job? Do they have time to wait if necessary? or... do they live in a market-rate rental? do they not have the cash to come up with a second down payment? If so, how long will it take them to come up with another 75K? In that time how much will they have spent on rent? In 7 years, how much do they think that the apartment will be worth? If they need to wait longer, are they willing to do so?

Most of these questions seem to have been answered already. They seem to be in good financial shape. They can afford the mortgage. they like the neighborhood. And they are buying a "home". The person also does not appear to be a multi-millionaire that can just magically come up with another 75K. That doesn't mean that they are in over their head, it just means that they have worked hard to save 75K and walking away from it is not "cut-and-dry" either.

So, back to my point, the problem is that you can't just look at the sunk cost as "simple grade-school math" in this case because it is far from a simple decision. So if you are going to give "simple grade-school" reasons for buying an apartment (or not) then maybe your advice should be questioned. You say that the decision is not "cut-and-dry" but you are supporting your opposing point in an overly simplistic "cut-and-dry" way. So before you call it "idiot-speak" think about how other people may view what you have to say. And by the way, some people do not view their home as an investment, but I realize that this may be a hard concept for you to digest.

Hey lobo,

How about if I give you a Beanie Baby and you give me $75k cash? You haven't lost anything until you sell the Beanie Baby, right?

In reality, there is no such thing as a "paper" loss, that is like saying if a stock is down it is not a loss until you sell. So I guess Enron holders who still own the stock are happy.

Now, as to the $75k at issue. Assuming that was 10% down, the odds are that the apartment is down another 10% or more, probably another 20%, soon, if not now.

So is it worth losing $75k or $150k MORE by overpaying for an apartment to "save" $75K? I doubt it.

As to saving for another downpayment, renting is cheaper, maybe the buyer can save up over the next 2 years. But if not, renting is not horrible in NYC. And losing ANOTHER $75-150k on top of the initial $75k is a lot worse then renting.

farquhar: As I mentioned in an earlier post, I'm in the same boat as sad_in_contract. I signed a purchase agreement in January 2008 and am anticipating an April 2009 close. I'm going through the same thought process, doing the same due diligence, trying to understand other points of view, and have been challenging my decision. And trust me - I'm not discounting price or any of the other factors.

sad_in_contract: farquhar is right. Walk away. Even though you are prepared for a 7-8 year ride, you don't want to be shackled down and a slave to your apartment. Start saving again for the next deposit. And perhaps when 2011 comes around (your aggressive 3 year plan) you will be in a position to buy again.....or not.

farquhar,
I agree with you mostly, but the sponsor in LIC condo is not selling the condo at 75k loss from the offering plan. If he is, then OP should definitely walk away.

Lobo - you state that "some people do not view their home as an investment" - with all due respect, I think that is totally wrong. A home is ALWAYS an investment. Of course, it is also more than that, but still, it is an investment, and probably the biggest one any normal person makes. More to the point, if it's a bad investment, it could cause financial ruin. That is how I saw it - although we loved the place and had many grand dreams of decorating, and enjoying all the modern finishes and "planned" to stay there a long time, given the ongoing market collapse I could not bear the stress of the potential ruinous INVESTMENT loss.

I actually think Farquhar put it best: "by signing on and "saving" the $75K, the owner is slave to his/her apartment as long as it is underwater, which could be a very very long time. During this time, the owner cannot (i) sell without a loss, (ii) refi without significant additional equity, (iii) buy a cheaper apartment, etc., because of the albatross that is now a grossly overpriced apartment. This may even limit their flexibility in a number of life decisions (whether to move for job/family/lifestyle reasons)." The last part is the key.

modern,
You are wrong. RE value varies by tremondous amount. Look at 15CPW vs TW on columbus circle.
In RE, it's a loss/gain til you sell your RE.

"So before you call it "idiot-speak" think about how other people may view what you have to say"

"Idiot-speak" is the simplistic "in 7 years, everyone will be okay" bullshit. I love that stuff. If only because, by definition, you guys pull it out of your ass and cannot in any way defend that logic.

"And by the way, some people do not view their home as an investment, but I realize that this may be a hard concept for you to digest."

Again, lobo, what you fail to understand is that the poster asked the question based on the perceived decline in the value of the apartment. THE POSTER established the context of the discussion, which is PRICE (i.e., INVESTMENT).

Lobo, I thought of a good way to capture one of your arguments: stay in your apartment long enough and you'll break even. Or you'll be dead. Whichever comes first.

ba294,

I'd respond to your post but I find it incomprehensible. Perhaps you can clarify what I am wrong about.

A "paper loss" is a real loss whether you want to plug your fingers in your ear or not. Otherwise, what does a loss mean? Anything that isn't a stock/bond/cash doesn't have real losses until you sell? Some banks around here would like to use that accounting method.

When you ask for the removal of PMI because you have greater than 20% equity, does the bank reject you because it was a "paper gain"? No of course not. The gain was real, it just takes more money and effort to capture those gains/losses in a house than most other investments.

First of all, great example. An apartment is like a beanie baby. :) Back to my point about over simplifying things...

Anyhow, how can I look at a home as not being an investment? I bought my first home to live in. I lived there for 8 years and the value was flat. It didn't matter because I had never planned to sell. I had already purchased a second place and I rented the first place. Which, I could do because I didn't get in over my head. I waited long enough and now, I own one (almost outright) and both properties have significantly increased in "paper value". But that doesn't matter because I still don't plan to sell. I have plenty in stocks in bonds (more than the value of one of my homes) and I consider those my investments, which, unfortunately are currently under-performing my homes. But that's the risk you take with investments.

PJC, why would you ever be refinaincing when rates are at 5% (in some cases just under). I can pretty much guarantee that you can remove that issue from your equation. They also can't buy a new apartment in the immediate future because they do not have the cash, so that removes two of your 3 points. That leaves them with selling at a loss. An no, I can't guarantee that they will get their money back in 7 years. But what I can guarantee is that they will lose 75K if they walk away and they will be spending $4,000 per month on rent for however long it takes them to rebuild their down payment. Let's say it takes 4 years. That's $192,000 in rent and 75K in down payment that they walked away from. total: $267,000.

On the other hand, they could keep the 75K, live there for 7+ years, pay down some of the mortgage and benefit from the interest deductions on income.

Anyhow, there are pros and cons no matter how you look at it. It does not make your philosophy right though...or mine for that matter...it depends on each person's individual situation and the way that they view buying a home. they can weigh the information themselves.

Anyhow, this thread is going nowhere. everyone has expressed their point of view. It is now just a bunch of people arguing their opposing points. That will not change. I'm done beating this dead horse.

Good luck sad_in_contract.

modern,
What I am trying to say is that OP has no loss unless an identical apt in the same building is selling for less. Why does 15CPW goes for 10k per sq when TW building goes for 3-4k psf? You can't really say there is a definite decline of >10% value in OP's apt.

15CPW 2br is appraised at almost 3-4times lower than what the bank book says btw.

lobo, many of us know exactly what you are talking about, and I definitely share your perspectives. At the same time, there are many renters (or even out-of-towners with no NYC connections) on this board who just want to tell the world that renting is superior to buying--which is fine.

For my purposes, renting makes no sense; by the same token, buying makes no sense to them. Nuff said. I appreciate their perspectives, and my life is richer now that I know what some others feel about renting vs. buying. This doesn't change my attitude that, if you can afford it, living in an apartment you own, love and enjoy is better than saving money by living temporarily in an apartment someone else owns. Not everything in life is about saving money.

I personally agree with nyc212 and would buy in any given market over renting. But, you are already in contract and sunken in 75k. Unless you can get an identical unit in the same building for less than 75k (or better unit in different condo for less than your condo - 75k), you should just close on it.

typo,
....same building for less 75k...

I generally agree with modern and farquhar. The $75K is paid. The question is - do you want to buy the apartment for $675K, with whatever additional downpayment you have to put down (if any), mortgage, monthly costs, closing costs, etc. To answer that question, you have to consider:

a) How much you like/love the place
b) What your thoughts are on appreciation/depreciation likelihood of the apartment, recognizing that there are no certainties
c) What you think you can afford to buy now or in 1-3 years if you walk, factoring in the need to save for a new downpayment
d) I don't think I've seen a lot of focus on this, other than lobo: The monthly cost comparison to renting. With your time horizon, if renting is more expensive or same, the case for staying becomes a lot more compelling. 7 years is a long enough time that if you're living where you want to live at a price that's better that renting, it may be worth the depreciation risk down the road. But if you can rent the same place for a lot less, or a better place for the same monthly costs, then I'd strongly consider walking. Lobo's logic in his calculation makes sense to me, but he made a lot of assumptions on the numbers, so I'd recommend you do your own rent research and do the comparison with real numbers.

Good luck in any case.

My suggestion is changed to smaller unit one of my friend signed the contract in the city and because of economic situation he can't come out with additional fund/closing and he switched to smaller unit! if you speak with sales/developer team they will let you change the unit. don't walk away from 75k down payment.

Asking this question proves you are not married. No married dude would ever walk away from such a big deposit. For the rest of your married life you'll be nagged to no end about that $75K that you lost.

Adampt: That is an incredibly simplistic way to look at this. I'm sure an intelligent 'married dude' would look at this as a complex financial situation.

Uh, I take it you are single

I agree with Adampt. I tell you, Hillary still never lets me forget Monica. Nag nag nag. If I lost $75K in the White House, I'd never hear the end of that either.

Adampt - I am a "married dude". My wife and I are willing to lose our deposit and face a one-time, fixed loss, rather than close on our unit and face unknown, possibly disastrous losses, and the resultant stress. We think it's the lesser of two evils in our case. Joint decision. Good luck with the ladies. I think you'll need it.

Hahah, well, as America's first black President, I'm in pretty good shape with the ladies.

I see you are trying to renegotiate on your deposit, the case will be weak by convention methods, but I have some pretty good attorneys who can help you out, they may try to argue about what the definition of "non-refundable deposit" is. is. oops.

sad_in_contract: this may be a little off the wall, but in the name of creative thinking: could you possibly somehow get the developer to take an adjacent unit off the market for now, and give you an option to combine the apartments down the road? was thinking that if the unit drops a lot in value, maybe you could entice a future buyer (say, a year from now) with the idea of being able to buy the combined units, and turn them into a rare, large apartment?

adampt, I am married. If you make a $700K+ financial decision based on your fear of your wife nagging you, um, you may have married the wrong woman. Or just have other issues yourself.

I have an old friend who walked away from his contract deposit during the last downturn. Years later, the property value not only recovered but tripled in value. He keeps telling us the story over and over again with tremendous regret.

Conversely, I had another friend who parents purchased a home in what they thought was the bottom of the market over a decade ago. Come to find out later find out it wasn't the bottom and they got underwater. They didn't walk away, instead lived there for several years. It took a VERY long time but eventually the property got back to its original value and then some.

Nobody knows where prices will be in 7 years. But history has shown us, in the NYC area, prices in the LONG RUN will keep going up. It can take a very long time (even > 7 years) but RE is cyclical. If you can hang in there (i.e. rent the unit out once you want a bigger place) then there is no need to walk away. But IF you have the money to buy again in the next few years then it might be worth walking away to take advantage of the short term correction. But it doesn't sound like you have this option.

sad_in_contract, you really need to get your priorities in order. Do what will be beneficial to you. Best too you in your decision making process.

hrdnitir - the rare, large apartments aren't so rare anymore (search 4 BRs on StreetEasy). Will combos still make sense when you can now buy classic 7s, 8s, 9s, 10s and 11s? Also, after this financial wreckage, are people still going to want to raise kids in the city with expensive lifestyle costs and private school instability? Also, with demographics changing (e.g. more empty nesters and retirees, less young families), won't smaller, less expensive apartments be in hotter demand? Also, won't a big, combination apartment have an eye-popping maintenance cost, coming soon, with tax hikes? And, finally, with real estate in a downward spiral, or perhaps a flat investment in a few years, won't real estate buying habits be changing significantly? Will most people in the city be renters, and sales of big apartments be few and far between? Just a few thoughts.