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I am in contract to buy a new condo, but prices have dropped 20%, shouldn’t I just walk away?

If you’re still employed, walkaways because of price drops don’t make any sense to me.

If the price had gone up 10% or 20% or 30% you wouldn’t be beating the developer’s door down to pay him more money.

Presumably, when you decided to buy an apartment, you thought that buying made sense, that you were financially capable of it, and that the unit you’re buying was the best unit for you ..unless you’ve lost your job, which changes factor #2, why not continue to buy?

I don’t know what your original time horizon for this unit was, which is obviously one of the inputs to this decision, but presumably it was at least a few years.

So what is the price of the unit going to be in a few years when it becomes time to sell? No one knows now, post-crash, anymore than they knew pre-crash.

However, you are making assumptions that you now know what it is, which doesn’t seem fully rational to me.

If you were walking away and moving to buy something else where the price had dropped that would be one thing, but it doesn’t sound like you’re doing that. You’ve moved from “A versus B” to “A versus Z.”

Financial theorists tell us it doesn’t make sense to try to market-time stocks, which are fairly liquid and fairly substitutable; along those lines, I don’t understand the theory behind trying to market-time a fairly illiquid, not very easily substitutable asset.

Just my two cents.

Making the decision to buy depends on what the subsitutable good is — your best alternative.

Obviously, if you can now buy the $1MM thing you loved for $800K, you walk away from your $100K deposit, and then buy the $800K thing.

But in actuality, it’s not that simple. Just because the market has dropped 20% overall, does not mean that you can necessarily find an equivalent to the particular $1MM thing that you loved that is now priced $800K.

Why not? Because you were A NEW DEV BUYER IN THE FIRST PLACE. Your universe of substitute goods is very very small.

The psychology that said “I want it new, I want it never lived in, actually untouched, I want the hottest technology, I want the latest finishes” …that’s generally not a person who’s going to go, “oh, okay, I can get more space and a bigger master bedroom in a 60s-era co-op.”

The OP presented his/her alternatives as “closing” and “renting.” Given that scenario, and given OP’s probable psychology, I would pick “closing.”

If the OP had presented his/her alternatives as “not closing” and “buying something else at current market price that would make me pretty happy” I would have picked the latter, but that wasn’t how the choice was framed.

Posted in Uncategorized 9 years, 9 months ago at 6:23 pm.

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