I'm not really a person who gambles. I might spend some money but I'm pretty conservative and the same goes when I buy property for investment reasons. I might make a purchase....but I won't put all my eggs in one basket.

First off...when I go to the casino I usually have too much to drink and that seems to dull my senses enough that if I start to gamble.... I usually don't care whether I win or lose...I just want to have fun and hopefully play with the houses money and come home with a few extra bucks in my pocket.

But before I get there I usually prepare to lose all the money that I bring. Not to be negative but let's face it...when you gamble ......the odds are usually in the favor of the casino and not you. Oh yeah...if you're a big shot and you have lot's of money to play with...then maybe you might get lucky but even if you can spend more you could still lose...it just might take longer. The addiction of playing a sure thing is quiet enticing but when you start to lose...... sometimes it's just better to cut your loses and go home.

We all know what has been going on in our Real Estate market over the last few years. We saw homes reach unimaginable values and we saw many of them being purchased today for X and then the next day being sold at a crazy profit. Everyone was jumping on that bandwagon but if you look back and think about it you will realize that those things are just not normal. Here's an example...how can you buy a condo that was new construction for $500K today ....wait 2 years for it to close and expect it to be worth than what you paid when you signed the purchase agreement? So you buy it now and pay for it later...that's a great concept except for one thing... but when you pay $500k today and then the project is finished you find out it's worth a hole lot less. You realize that you can't make the monthly payments on your mortgage no matter what rate you get. "That's called gambling speculating.

That brings me to this unfortunate story about a few good friends of mine. Back when the market was still crazy they really didn't know me well and didn't know I was a Realtor® so they found out that a particular project was bring offered and they kept seeing all these consumers buying these condo's and expectied that when it was done that they could just turn around and sell it for more money and walk away with a nice profit. Well it might not turn out that way. If I knew about this then instead of now...I would have suggested that they don't take such a risk and maybe purchase something for a lot less money.

Eventually we became very good friends and all the kids play together and our families now get together on a regular basis for some fun. They are two couples that went into this together. Lets just call them the A and B families.  

They approached me recently and wanted to discuss what was going on with this condo. They told me they purchased it for $500K and gave the developer 100K as their down payment. Supposedly none of the units in the building have closed yet and they were just waiting for the CO and were told that they should expect to close around June. They told me that they are a bit nervous and weren't very enthusiastic that the market was going to get better. They asked me if there was anything I could do. I told them I needed to look at their contract and I mentioned that most of these contracts that people sign with these developers generally will say that you may go out and get a mortgage but if you can't qualify or get one.... that you were still obligated to close with cash.

Basically it's a contract not contingent on getting a mortgage and if you can't close then you would have to forfeit your deposit. Well they showed me the contract and I was correct...they had that type of contract. I have seen these contracts before...I should know because I had purchased a unit in a different area but it was for a lot less money and a lot less risk of loss. We discussed the possibilities and figure that there isn't much they could do.

There's really no way out. 

I told them that the problem is when you buy in this type of situation now for a price determined by the developer.....there is no way to figure out what it will be worth when you close on it 2 yrs later. They figured it was a sure thing and they would make a profit because if prices kept going up then they figured it would be worth a lot more when they close and they could flip it. Family A wants out of it and family B is not sure what they want to do. Family A discussed the possibility that maybe it's just better to walk away and not close on it and lose their 100K.

Now 100K is a lot of money to lose... and not many people will make 100K in a year so I can understand their concerns but if you look at it sensibly.....they have to figure that if they close in the next few months and have to carry it and have no idea how much it will sell for ....it's losing proposition no matter how you look at it. One thing is for sure is it will most certainly sell for a lot less than they paid so it might be better to lose 100k instead of possibly lose even more.

Their payments most likely won't even cover the nut so even if they try to rent it out they'll still be losing money ... and they might be carrying it for a long time anyway before they can get someone in there. The maintanence fess are over $500 per month and the taxes will probably be around 10K a year as a non homestead property.

Walking away from your deposit is a very common thing right now but the trouble is how can a developer offer a unit for $500k and then make you close on it if it's worth let's say $400K? The problem is even if they get qualified with a lender...how can it appraise and how can it appraise if there aren't any local comps to use?

Here's what could happen...the developer could say that if you use or in house lender you will be qualified but you'll have to pay their rates so the purchaser really has no choice but to use them. Or the developer will say that you signed a contract that was not contingent on financing so if you pay cash you will not be required to have it appraised.

So ....if you were in the same position as these really nice people are.....what would you do?

For more information please contact Neal The Real Deal Bloom-Realtor® /RE/MAX Premier Associates

2500 Weston Road ,Suite 103

Weston FL 33331

(954)608-5556

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