Are developers really not renegotiating?

If a tree falls in the woods and there is nobody there to hear it, does it make a sound?

Are people tired of this topic or are there just no answers?

I hear developers are renegotiating then I hear they are not renegotiating then I hear of price chops I can't call it and won't stress myself out over this RE debacle.

because they think people are stupid and that there will be at least a few people who will find it hard to walk away from a "sunk cost" no matter how economically correct it is.

i mean - how many times have you finished that extra set of fries after you were full JUST because you paid for it?

there was nobody who cared to hear it....enough already with you guys...you made a bad deal....so did i and millions of others. i'm trying to get over it, not get off it. go find a lawyer...there will always be a bloodsucker for you.

columbia- wherever you are in the stages of grief, you're well ahead of me. i need to go through it myself and i'm not there yet. i may not need a bloodsucking lawyer. i'm not trying to weasel out of anything. i just plan to walk away, and if i'm still in a position to buy, i would like the first opportunity to purchase my unit at current market price, i.e. renegotiate. my deposit is gone and i'm starting to get over that. i'm not over the concept of the developer telling me to f-off and then relisting my unit without dealing directly with me first. did you actually walk away after the developer refused to renegotiate? did they relist your unit, and did it sell? would they have been better off negotiating with you? understand if "enough already" is your attitude. just thought these boards were a good place to share valuable thoughts and experiences, and for us newbies to learn, especially as the market continues to change - developer behavior may change with it. i'm asking a lot of questions now, but i hope i can contribute some knowledge gleaned from my ordeal once i'm through it.

Prices have to drop. I did a study of condos in Wburg 2+ years of supply and counting. still lots of construction going on. Turning them into rentals seems like a reasonable option, but do builders take a bath when that happens?

where did u buy that u are trying to re negotiate- some developrrs are in diff stages based on their construction loan, reserve prices, etc

cartman- agreed, some people will make the economically irrational decision. but the developer is making a bet that by renegotiating with nobody, enough "stupid" people will still close at an irrational price. you could run the numbers a million ways, assuming various pricing declines and percentage of "stupid" people in contract. but in the end, the developer must be betting that the "stupid" percentage is high. what's crazy to me is that if the developer is wrong, they will be staring into the abyss. and i can only imagine that the percentage of "stupid" people is declining every day as reality is harder and harder to ignore. some won't even have the ability to close due to job loss, lack of financing etc. i think it's a crazy bet for a developer to make, but the developers taking that bet so far must be winning, or else we would see a change in their behavior. maybe the article about new condos being sold in blocks at auction is the beginning of a change.

thedeuce, I think it's been mentioned in other threads, but under the terms of their lending agreements, developers might not be able to lower the prices below a certain level. at some point things will change, but for some developments it may not be until bankruptcy.

aboutready- thanks, interesting point. i'll look for those other threads. i'm guessing the construction loan agreement isn't available for buyers to read. does anyone know how much (what percentage) equity is put into a typical new condo project? i didn't think it was too high. i wonder what level banks set as the floor on pricing, and if it's directly related to the amount of debt and equity in the project.

the deuce- where did u buy- there are reserve prices they have to meet for the bank loan but depending on percentage closed n sold they can

jlnyc50- i don't want to "out" myself or the project. i'm not sure that the attention would do me or the other buyers any good. but to answer the question more generally, it's in a solid neighborhood and the best information i have is that both the developer and lender are healthy. i'm not expecting them to be in distress, but i'm hoping to understand the logic - financial or otherwise - they will follow in dealing with the buyers as closing dates approach toward the end of the year.

We are seeing different results building-by-building:

Building A tells the buyers to screw themselves, keeps their deposit, and then resells their unit for 25% less; Building B tells the buyers it wants to keep their deposits, but offers them cheaper units with worse views, which they then close on; Building C eats the closing costs of the transaction, as a sop to buyers to keep list prices high, and then offers discounts to anyone who walks in the door; Building D has filed its ISLA registrations, and doesn't have to defend itself, because its happy buyers think they got a good product at a "deal" price and are eager to close; Building E has a bunch of buyers organizing and trying to take the developer on with arms linked, and Building F tells its buyers to screw themselves, offers no negotiability at all, outlines its defense against ISLA lawsuits, and says it will go to court if it has to.

ali r.
[downtown broker]

not to be unsympathetic but its time to pull the bandaid off in one fell swoop, not inch by inch.

the developers have a huge problem. yes, they are are large companies but no one in a large company (and perhaps you too have shared this wonderful experience with me) wants to raise their hand and say, hey---its time to bite the bullet and take our lumps. much better for near term employment to act tough and hold the company line.

its just not workable, politically or practically for them to open up what could be hundreds of negotiations each of which could set a precedent for all of the others.

this whole situation sucks. you have to make the best decision you can based on your own circumstances and I would urge you to consult a lawyer you trust just to make sure you completely understand all of your options.

good luck.

so if there is a limit to price reductions under the terms of the bank loan, they can't renegotiate down to market levels and must re-list the newly unsold units at or above the reserve price? now they have unsold inventory offered at a price that won't sell. what accelerates the process? shouldn't the bank just step in right away and take over, or else if the developer is trusted, allow them to lower the prices?

depends on a lot of non public factors. get an attorney.

the deuce- email me- djm456@aol.com

i have a comparable to give u u dont have to give me your info- building is solid too- but the developers are negotiating significantly on the units people have walked from yet they are priced higher.. so the ppl who negotiated and settled for a price are still getting screwed bc the reaming units are going to be sold at a huge discount

ali r- you seem really plugged in. i may be in contact with you soon. i will ultimately be buying *something* once this shakes out, and will rent or sell my existing place, so there would be some business for you on the back end - not just free advice :)

in all these other situations, aside from the developer's compliance with, or attitude toward the ILSA, is there any pattern to the behavior? i mean, why does one developer offer to cover closing costs and another tells buyers to screw off, knowing they will take an immediate loss when they do? is it more personality or something about the financial situation of the developer, the percentage of the property already in contract, etc? or as columbia says, a lot of non-public factors and i'll never figure it out.

thanks deuce, you can reach me at ali [at] dgneary [dot] com -- put "streeteasy" in the subject line pls.

ali r.
{downtown broker}

TheDeuce, Check out the "From Contract to Close" discussion that's going on on another thread. There are clearly negotiations going on, on the down low, as is evidenced from the discrepancy between listed and recorded sale prices.

Why should they?
You signed a contract which is binding.
Would you?

Sure, but that binding contract just means that you can walk and lose your deposit. If the deposit was 10% and you think the market has fallen 25, it may be worth it for you to renegotiate. You're under no obligation to, and if you take the 10%, you can mark the apartment down by that much, but that may still mean losing more money than if you renegotiated.

From what I understand, there are lots of us who are suffering like thedeuce. I am trying to figure out what to do...and I to cannot understand the lack of motivation of the developer, no matter how stellare his reputation. It is a "house of cards" with all the new development bldgs expecting to close in the next few months...the competition will be extraordinary and they will be devouring each other. And the arrogance and the dimissiveness of those already in contract is mind boggling.

please don't shoot the messenger....I have tried to explain this a number of times.

note: i am not, never have or will be a developer.

how do you expect a developer with multiple buildings at different stages with perhaps 300-400 units in play to negotiate? clearly, they cannot do it across the board---that would be a classic case of negotiating against yourself and clear financial suicide. how can they logistically deal with all of the separate entities knowing that each discussion potentially creates a horrible precedent.

you will not get anywhere until you can clearly see this from their side of the table and you may still not get anywhere.

the most pragmatic action that a developer can take is to pretend for as long as possible that all is well. being first to "pull the plug" does not create an advantage.

and then there is simple human nature. how many people who should know better continue to smoke? how many people drink and drive thinking that they can handle it? both are illogical behaviors but unfortunately speak volumes about all of us.

my advice remains: try to remember that these are financial transactions, stall as long as you can (because you never know what can happen), don't have any expectation of "rescue," do the best you can for yourself and your family and either move on or remain in for the long (long, long) haul.

Shoot it good into the messenger........Columbia?
Don't you see? you are talking to the dregs.

columbiacounty - you may be right, but bds' point is, what are all these developers
going to do with all the unsold inventory. They can make believe everything is
fine all they want, but that's not going to move the inventory.

Columbiacounty, Being the first to pull the plug would create an advantage if you the lower price leads to a sale a developer would not otherwise have made. The advantage is the advantage of moving inventory. Seems pretty clear to me. On another point: I've been hearing from a number of brokers who represent overpriced properties that the developers' hands are tied because the banks simply won't let them go below a certain price point. Any thoughts on that line of argument?

i have no idea but none of you seem to understand...this is not about rational behavior. tell me more about why educated people smoke cigarettes?

yep, i'm in a similar position as you deuce. my only hope is that some of the planned closings before mine choose to walk and this softens them up a little bit, otherwise i will probably leave my 10% on the table and hope to recuperate it as all those empty units sit and possibly get foreclosed on.

i believe that you are going to "recoup" rather than recuperate. either way, unfortunately, you
re out the bucks.

I’m still piecing this stuff together from various sources, but from what I can tell this bank reserve price argument is a bunch of bull. The developers will use it to attempt to set an artificial floor on the price, claiming there is nothing they can do. But there is something they can do - talk to the bank about going below the reserve price. If this discussion happens before closings have begun, it will inevitably lead to a discussion of default, i.e. the market value of the development being less than the construction loan. So it's the last thing the developer will voluntarily do early on as it could lead to them turning the keys over to the bank.

In fact, they have every incentive to hang out indefinitely at/above the reserve price hoping for a miracle. This cannot go on forever and at some point, the bank will foreclose on the development. Or if enough irrational people do close at their original contract price rather than walk away, the developer may luck out. They could close enough units at 2007 prices to be in a stronger position to talk to the bank about the reality of the unsold inventory. As long as the bank believes their loan can still be repaid, between the irrational closings at 2007 prices and the remaining sales at current prices, the bank will allow prices to be set below the reserve.

So a warning to all those who choose to close rather than walk away - the developer will lower prices on the unsold inventory as soon as they can, or the bank will once they have control. Either way, you can count on the unsold unit next to yours being offered well below your exercise price. Don’t close, attempt to renegotiate something much lower, or walk away. You can always find something similar at current market prices, maybe even fire sale prices. It could even be your original unit back on the market once you’ve walked and the bank or developer is faced with reality.

it would obviously help people with our mindset if they did start to walk, but i doubt that's going to happen to often, many will close.
columbia, lets hope your real estate advice is better than your spelling, the word is "RECUPERATE", but thanks anyway for your attention to orthography on the message board.

if you are a developer--- here are your choices....take the deposit and pray that things get better and by the way taking your deposit gives those prayers a little more time or....

drop all of your prices and go out of business immediately.

why would anyone chose alternative b?

the developer will not choose it, but an organized group of buyers could potentially choose it for them, or even an uncoordinated group of buyers could choose it for them if we all acted rationally, that is, walked away. lets say nobody in contract closed. the developer would have the deposits but only temporarily until the bank seized all the assets. once the bank is in control it's a whole new ballgame. they want some recovery of their loan, and fast.

sorry...but dream on...

if the bank takes it and they start an auction process, you're still out your deposit. the bank is not going to screw around; once there is an auction, another party is as likely to buy as one of the original deposit holders. either the developer will find a way to keep your deposit or the bank will take it from them. unfortunately, neither of those outcomes helps you.

if i bid the bank current market price for my unit immediately, why would they bother with an auction? from what i read in those articles, the auctioneers think they need to leave the listings open for at least a couple months before the auction actually beings. wouldn't the bank hit my bid immediately rather than take their chances with an auction? the bank has to consider not only the time value of money but also the possibility (likelihood) of prices continuing to decline. i also don't think my unit is a commodity-type apartment that would find a lot of interested buyers these days.

and one more thought. don't most people dispute their default under the contract and the developer / bank isn't able to re-list the unit until that dispute is settled? wouldn't the bank have an incentive to deal with you, since they cannot deal with anyone else for your unit?

what would be the basis for your dispute? if your contract says you have to pay up or lose the deposit as liquidated damages, what are you disputing?

you would dispute anything you could make a reasonable case for
-that the developer violated a term of the contract or offering plan filed with the AG
-that the unit was not delivered as promised, either in time, dimensions, area, finishes

Exactly, other possibilities: the developer did not follow a procedure set forth in the offering plan (and more likely a problem, they didn't follow a procedure according to regualtions) or they omitted or misstated material facts, etc.

thedeuce: regarding price reductions, I believe I have noticed a pattern with one building where the sponsor is "rolling back" prices to a previously listed price - this probably eliminates any problem with the bank. If you recall, when released, many new developments had a price schedule which was amended several times (most apartments back in 2007 never saw their first, second, or third amendment price), so perhaps they could roll back a price a few amendments now and satisfy the bank and the buyer.

Just to add my experience to the discussion: In December, I threatened to walk on my new-construction contract if they did not lower the price. The developer didn't blink. So I walked, since it was the only sensible economic decision. Closing at last year's prices would have been insane!

Once the developer realized I was serious, they have grudgingly started negotiating. So far they have dropped the price a bit, but not enough. Plus, I doubt I will even get financing anyway.

I have gotten past the grief stage -- the sadness that I will not get to live in the place that I wanted, and the sadness about (possibly) losing my deposit. I am actually kind of relieved to be out of this brutal market. I have re-evaulated my goals in life, and realize I will be much more happy as a renter, at least for a while longer. I will have no debt, I will have more freedom, I will not be stressed out like other recent buyers - wondering if I made the worst financial decision in my life, wondering if I have lost my life savings. I know how much I lost - 10%, at most.

That being said, I have left the door open for them to cut the price a little more, and I have also been gearing up to sue to recover the 10% deposit. Not sure where it will go in the end, but the short answer is, yes, some developers are willing to negotiate (a little) if you are actually have the courage (or good sense) to walk away. But they seem unbelievably stubborn - I guess they are betting on the idea that some rich person (or their parents) will swoop in and pay all cash, and not care about price.

note bottom line from poster above. time to move on. don't waste a lot of time trying to understand why other people are irrational.

pjc- thanks. did they relist your unit or did you dispute the default? how much have they offered you? just price or other concessions?

columbia- did you ever post details of your experience dealing with your developer on these boards? you're a frequent poster so it's nearly impossible for me to find it via search.

hearing 290 Mulberry going into default. bank taking over. it's starting to happen folks.

pjc--i think that's good advice. i'm in a little earlier stage than you, but i think once you come to grips with losing the deposit $, you are in a better position to negotiate more rationally. It is actually also relieving to realize that your loss limit is 10% as opposed to wherever the market may bottom out.

Out of curiosity, on what are you basing your suit to recover deposit? is it this interstate land act?