Up in Smoke - The Deposit Vanishes

And that one guy is a real estate broker, you would think he would know better. This article certainly proves what I have been saying all along, a pre-approval letter is not worth the paper it is printed on. As for developers who do not allow mortgage contingencies in their contracts, I will never buy new construction in this city.

looks like we posted at nearly the same time....

Actually two brokers fell in the same hole:

"“I’m hoping it’s later rather than sooner,” Ms. Sloane said, “because I need to figure out how to make it work financially. All I can hope is the spring market is going to be crazy busy.”

She has already put the required 20 percent deposit down on the apartment, but has been told by her bank that she will have to come up with another $140,000 to get a mortgage. "

I was considering an apartment listed by Jill Sloane in November 2007. I thought the apartment was overpriced but she tried to convince me that the price was higher than comps because the Manhattan market only goes up. Maybe if she hadn't overpaid for two investment condos in Harlem she would have the money to close at the Harrison.

The Beitler guy who is suing for his deposit really rubbed me the wrong way. He is complaining that he's not getting bailed out by the government. Give me a freaking break. A contract is a contract. Some of us were smart/cautious enough to not get sucked into the real estate bubble, and now we're supposed to pay for everyone who did?*

*This is not a holier than thou attitude: I've lost over half a downpayment's worth in the stock market. Am I entitled to a bailout from people who were smarter than me and pulled out? Hell no. I have to regroup and save up again. It's called personal responsibility. The lack of it is bringing America down. Everybody wants the government (i.e., the taxpayer) to save them from their mistakes. Okay, off my soapbox.

Stay on the soapbox my friend, that's what a messageboard is for. I love the quote from Ms. Sloane "I need to figure out how to make it work financially". It just goes to show you that the people who are selling apartments have no idea what they are doing. She didn't see this coming in 2007? You've got to be kidding me. Indeed, some of us did see it coming and are sitting on the sidelines as articles like this post and the market comes back to earth. No one graduates from college wanting to become a real estate agent. It's always a 2nd or 3rd or even 4th career choice. These people usually have no financial background (except for urbandigs who I hold in high regard and refer my clients to his website all the time) and are the worst people you could ever ask where the market is going, as they have a vested interest. I've always disliked having to talk to "optimistic" broker, because I don't think that they explain risk well enough. Well, here we are: worst case scenario is coming true. Banks are freezing lending, huge deposits are being lost and many of the almost 900 (?!) new developments in manhattan and brooklyn are going to take a hit.

I have to say that buyer brokers are THE worst in advising (can you call it that?) their clients about this. I remember when we bought our new place in 2005 - our broker thought we were nuts. We wouldn't bid on anyplace that wouldn't accept a finance contigency. I had to explain to him that ANYTHING can happen in NYC - from financial markets tanking to terrorism. And that a mortgage contingency didn't say anything negative about MY finances...it's there to share the risk of weird things happening that I may not have any control over. For a buyer, doing a non-contingent deal is like saying that you can do all cash deal. If you can't get the financing, you still have to come up with the cash to buy the place...or lose your deposit. Unlike the posters above, I feel for the the folks who were advised so poorly.

My absolute favorite quote from the article:

Jill Sloane, an executive vice president at Halstead Property: “If I had a crystal ball for this year’s situation back in December 2007, I would have definitely thought twice about buying this apartment,”

Look at this quote, it's really priceless. She has to put a spin on everything. She says that if she had known in 2007 about the unprecedented tsunami of economic evil that hit the market in 2008-2009 and sent the Manhattan real estate market reeling, she would have "thought twice about buying." Curious, isn't it? She doesn't say that she absolutely wouldn't have bought. Only that she would have thought twice. As a broker can't help but still try to find some wiggle room to justify a sale. As far as I'm concerned, I PRAY that she loses her entire $280,000 deposit. Every. Last. Cent. Petty perhaps, but it would bring a little bit of joy to my heart if I knew that Jill Sloan, broker and all around delusional idiot, was crying herself to sleep every night because she pissed away over a quarter of a million dollars.

Congrats, Jill.

"She didn't see this coming in 2007? You've got to be kidding me."

Of course she didn't. Those that did are a tiny minority. You only had to mention something like this on this message board a few years ago (or like Peter Schiff on cable news shows) to get laughed out of the room by experts who said you were insane.

The common "wisdom" of the time, which led to many people flipping homes to great profit, was that things would keep going up. "Buy now or be priced out forever" was the relentless mantra. Her comments reflect the dominant (by far) view of things at the time.

I'm not losing any sleep over the brokers like Jill who should have known much better. What bother me: It's jokers like her and attorneys who were advising clients (like the family with 2 kids) about what and how to buy (contingency vs. non).

Everyone can look back and say "how did you not see it coming", but just last fall on this website people were debating HARD whether NYC was going to go down. I've told my clients for the past several years that they should hold off from buying NYC real estate. I'm their stockbroker. I have no vested interest in whether they buy or not. Very few listened. The ones that did are quite happy. The ones that didn't? Well, let's just say we don't talk much about it. I have a client who's supposed to close on a $3Million place at the Rushmore in the next few months. The money doesn't matter to her (she could pay cash to close), so we're debating walking away versus the cashflow she could get for renting it.

Folks, caveat emptor. If some of us took significant risks and/or made decisions that didn't go our way, we should be grown ups and accept the consequences. Why do so many people blame the consequences of their autonomous decisions on others when those decisions lead to unexpectedly bad results? Some of these stories are very sad if not tragic, but there is not one person out there who does not walk into a real estate purchase without having ample opportunity to assess the risks and engage in (worst-case) scenario planning.

Why doesn't she live in the $3 million condo? If I could afford such a place, I would live in it until I kicked the bucket. Who in their right mind would want to rent out a brand new condo and have tenants destroy it??

can anyone splain to me why these folks did not have mortgage contingency clauses? seems 100 level to me but perhaps i'm as dense as a bag o' hair.

Alpine, she already owns 30,000 square feet on riverside blvd. It's just another unit in her portfolio. Trust me, her apartment that she lives in is very nice.

Here's the kicker kids;
'So, for a $1.12 million apartment — the median sales price for condos in Manhattan at the end of last year — a buyer who put down a 10 percent deposit of $112,000 about a year ago, now must come up with an additional $112,000 to $448,000 just to get a mortgage.'
Does everyone get this???
The deals have, for the time being, changed. I'll only type this 980 more times. The only buyers out there have deep cash filled pockets and stellar credit. I met with these buyers the other night and we all squeezed into a booth at the diner and decided to hold off for a few months. We should have a significant effect. If I had property that I was not willing to keep for the next 10 years I would get out NOW!!!!!
407PAS makes a great point for all buyers. Without a mortgage contingency clause the seller can shove the RE up their.........................................................................

What does she do for a living? I need a new job.

Once you really understand the effect the financing constraints are having at every level, it's hard to see any recovery in this market anytime soon. It is touching every transaction, those already signed and yet to be signed. It is absolutely catastrophic for NYC real estate.

For those people who believe that the Fed's easing will help the situation, all you need to look at are the tightening lending standards to know that it will be ineffective. Easing will lower rates, surely, but it won't have a meaningful impact on loan volume unless lenders loosen their standards significantly, which simply will not happen.

She's rich. That's about all I'm saying about my client. She's .000001 of this market. What I don't like reading about is all of these people losing deposits because they were advised by idiots. You would think that if you were going to engage in a million dollar transaction, you would talk to a professional other that the person selling you the commodity.

What we have now is a city full of zombie apartments offered by zombie sellers hoping to find a real live buyer (so they can eat their brains).

It is important to recognize that there is a pipeline of deals that needs to be cleared before the true horror sets in. Cash buyers need to let the '08 new developments in contract close/not close before assessing the market situation.

"We wouldn't bid on anyplace that wouldn't accept a finance contigency. I had to explain to him that ANYTHING can happen in NYC - from financial markets tanking to terrorism. And that a mortgage contingency didn't say anything negative about MY finances.."

grunty, man, we are of the same mind. I have a couple of words for any seller or developer who will not take a mortgage contingency. No Thanks. Other two word phrases also work.

I hate to pick on Jill, but I've met her and she wouldn't get off the couch when we stopped by her open house. If she wants to sell crazy busy in the Spring, I suggest she stop instant messaging during open houses and get up and start talking to potential buyers.

http://www.streeteasy.com/nyc/sale/75678-condo-101-west-24th-street-chelsea-new-york

So the two guys who bought at Stratus, this is their apartment.

And they are trying to rent at $4300 http://www.streeteasy.com/nyc/rental/448764-condo-101-west-24th-street-chelsea-new-york

but it has been sitting on the market for 3 months because it is overprices. So these people who make bad decisions want someone else to pick up their bad decision.

All these now stupid looking buying decisions were made in a super-hot tulip-style market where buyers believed to be able to make a quick buck for themselves. If you have taken part in one of these cracy frencies in the stockmarket you know what I mean. E.g. the tech.
At that time I bought a stock (I had only 3 eggs in my rather large basket :) at 12 / 19 / 25 / 39 (all within 2 months time) which finally went to 200 in less than 6 months. It went to 30 in 3 months afterward, now it is 1.10 or so. Let's say I did not sell all at 200 LOL

It is always exciting to find the next one.

Tulip mania was a period in the Dutch Golden Age during which contract prices for bulbs of the newly introduced tulip reached extraordinarily high levels and then suddenly collapsed. At the peak of tulip mania in February 1637, tulip contracts sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble. The term "tulip mania" is often used metaphorically to refer to any large economic bubble.

This kind of mass delusional behaviour can be explained but most will laugh about it.

By the way, in Wall Street lingo a buck = one million

One lesson one can learn from these manias is that they never come back.
So based on that I believe that real estate INVESTMENTS will be dead for a long time.

We bailed on a RE deal last summer because the seller refused to allow a mortgage contingency. Broker kept telling us how 'irregular' mortgage contingencies were, that they were 'not standard practice', and urged us to go through the transaction without it. We told her (and the seller) to stuff it and walked away. Glad to have dodged that bullet...

Good work Squid! We walked away on one also.

Again, it just comes down to advice. Most people get crap advice from people that have no idea what they are talking about.

$4300 for a 1-bedroom at the stratus. Um, yeah, good luck with that.

so many good posts on this thread, its hard to know where to start..glad to see so many people reacted exactly as I did after reading this article this morning...goes to show you how many people are so clueless about the risks they are assuming in taking on a mortgage and buying real estate...tho I try to be a compassionate person, i cant seem to feel sorry for folks who leave themselves so exposed and stretch so far to purchase real estate....imprudence has consequences

btw, would love anyone's response to discussion thread I started today titled "What level of mortgage debt is prudent/smart to take on?" really curious what people think

Positivecarry: Don't you think you are being a little harsh? I mean you're a stock broker,how many of you guys called the collapse in the financial markets? I went cash in January 2008, my fathers broke because he listened to his broker.

positivecarry, your client's story about the Rushmore is very upsetting to me. I too am suppose to close on a condo there (much less expensive, and my pockets are not nearly as deep) and the developer is offering NO CONCESSIONS. I find it amazing that your client cannot get this developer to respond. You would think that there are very few people who have her discretionary income to buy her condo if SHE chooses to walk away. The developer will be left with another very expensive piece of inventory.

I kid you not.... the Sunday of the week that October crisis really hit (so basically before any panic, but still with evidence of the global slowdown and case shiller already showing major RE decline) I said to a broker that I was looking for another rental instead of buying (her suggestion) because of the global recession and RE housing decline.

She said "oh yeah, they say that every year" and argued this with me for a good 15 minutes.

Burkhardt,

How many people saw the crash coming? The smart ones did. We've been putting clients into bonds since 2006. I feel bad that your dad lost a lot of money in the market, but what is someone who's approx 60/70 something with that much stock exposure? I'm not being harsh at all, I'm a realist. Most brokers have no idea what they're doing. They have no understanding of macroeconomics. Buyer beware indeed. This board is filled with quotes of idiotic statements of broker babble. What % of brokers were around the last time NYC RE crashed? I would guess a large amount of them will close up shop and go do something else, as they starve to death this year.

BDS,

I don't really understand your question. Who cares about the developer? My client spends $300k a month on jewelry and clothes. The deposit means nothing to her. Why would she grovel with the developer? The debate we're having is mentioned above.

It really isn't about your client...I understand that. If she chooses to walk away, so what, no big deal. But my question is about the mindset of the developer. All this walking away has to have some impact on his awareness of a "pile up" of inventory. And there are very few people in your clients financial situation who can come in and buy these properties.

Ahhhh. You're waiting for a discount. It's happening in brooklyn, maybe it will happen on RSB. I doubt it. You're going to have to wait until lots of people walk away before you have any power. Hope you're in the last group to close. Seriously, how could you possibly think prices were going to keep rising when they were so far out of touch with reality/incomes? I would really like to hear your thinking.

bds, do you have a closing date yet? do you know what % of the building is sold?
any intel on what developer is offering to potentially new buyers off the street?

Thanks for responding. I am suppose to close within the month. I am in the first group and I honestly didn't think that were prices were going to rise or fall. That at the time wasn't the intent. This was a terrific bldg and I thought it would meet all the needs we requested...proximity, size, access to Westside Highway. The developer is standing firm. And ostensibly, the same offer is for potential buyers...we don't believe it. I hope I have answered your questions. This is a very difficult time for many of us.

If you're going to live there and you can afford it, who cares if the price is dropping after you bought it? Remorse over not catching the bottom in a falling market? Stop trying to time the purchase of a illiquid market.

Thank you.

positive carry, I work for a real estate broker who was around for the last down cycle -- it's nice to have someone around with that sense of history. One thing I will tell you is that all the new development condos are very very visible, and the buyers who have been burned by them are yowling loud and long, but they're NOT a very big part of the Manhattan market. The majority of the housing stock in this town has been and continues to be co-ops.

ali r.
{downtown broker}

Ali,
What does your comment have to do with this post? I would say almost 900 buildings is a lot of inventory.