San Diego Housing Market News and Analysis
"Apartment Buyers Abandoning 6-Figure Deposits"
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Submitted by partypup on February 28, 2009 - 5:31pm
Can you see the bottom yet?
"THE real estate market in Manhattan has become so unnerving to buyers that some are forfeiting six-figure deposits rather than close on deals they have made.
At 304 Spring Street, a sleek condominium building in SoHo with stunning Hudson River views, the buyer for the duplex penthouse recently decided he would not go through with the deal and walked away from a $780,000 deposit.
At 1120 Park Avenue, a classic prewar co-op filled with multimillion-dollar apartments, it appears that a buyer forfeited a deposit of as much as $1.1 million.
Real estate agents representing buyers of at least three other multimillion-dollar properties also report clients who knowingly left deposits of more than $1 million or hundreds of thousands of dollars on the table.
In each case, the buyers had signed their contracts before the financial meltdown last fall, but decided in recent months that because values in the luxury real estate market have dropped 20 to 40 percent, it no longer made sense to go through with their deals.
Sam Chandan, the president of Real Estate Economics, a research company in New York, said the fact that people were forfeiting such large deposits was “indicative of the degree of uncertainty in the market.”
Given how difficult it has become in recent months to get a mortgage, he said, even buyers at the high end may be concerned about getting financing to complete their deals.
And because the volume of sales has dropped to a trickle in the luxury market, “there are so few comps that it’s hard to even know what a property is worth,” he said, referring to comparable-sales data. “That uncertainty undermines people’s sense of what the actual value might be, so they’re taking actions designed to limit their exposure.”
In some cases, agents say, buyers who signed contracts before the market started to fall have managed to renegotiate the sales prices to reflect the current market more accurately.
Frederick W. Peters, the president of Warburg Realty, said his agency had had two multimillion-dollar deals in which buyers had forfeited six-figure deposits. “In both cases,” he explained, “the buyers felt that any renegotiation wasn’t going to satisfy them and they preferred to remove themselves from the market for a while.”
Their decisions, he added, were “driven by the fact it’s a new world and they were not sure what they wanted to do with their resources in the face of that.” When they re-enter the market, Mr. Peters said, they will very likely be able to buy similar properties at prices low enough “that they will still have saved money, even after walking away from their deposits.”
Other walk-away buyers, though, have not given up on the current market and are already searching for other properties to buy.
Penny Toepfer-Guttman, an agent at Brown Harris Stevens, represented someone who gave up more than $1 million in a deposit on an apartment in a new development in Manhattan. She said her client had decided that the original apartment was too unusual a space and that he was now looking for something more conventional.
The first unit, she said, had a huge amount of outdoor space, and because it was priced above $10 million, “he would have been paying more per square foot than anyone else in the neighborhood.” The developer, whom Ms. Toepfer-Guttman would not name, refused to renegotiate the price, so the buyer walked.
Ms. Toepfer-Guttman, who has been an agent for 17 years, said, “I have never seen numbers like this being left in deposits; this is new territory.”
At 304 Spring Street last August, a buyer went into contract on a three-bedroom three-bath penthouse with three terraces, for $7.8 million. But when the market ground to a near-standstill in October, the buyer, a professional basketball player, backed out of the deal and gave up his deposit, said Richard Orenstein, an executive vice president at Halstead Property.
The penthouse, which first went on the market in October 2007 at $9.25 million, has since been appraised at $6.5 million, and its owner has decided to offer the property in a sealed-bid auction-like process in March, with a starting bid of $4.995 million.
Mr. Orenstein says the owner decided on this process because he plans to move soon to Italy with his wife and baby. “This is a seller — and it’s rare — who is really being realistic,” he said. “He feels this is the best way to get the best offer for the apartment quickly and to close the deal.”
The starting bid has been set below the appraised value to generate interest. “Somebody is going to get a very good deal on this,” Mr. Orenstein said. “If someone wants value, they’re not going to get better than this in downtown Manhattan.”
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