Turns out, there are more and more people backing out of their agreements to buy new homes, even if it means losing a lot of money.
The way things usually work, you find a home you like, and put down a deposit (usually 5% in Boston). For a condo in a new building, however, the developer is more likely to ask you for 10%, or even 20%, even though the building won’t be completed for a long time.
One of the reasons (the only reason?) the developer asks for so much money is because he doesn’t want a lot of speculators to buy and then flip right away, once the project is completed. (The other reason developers were able to do this was … because they could. In a hot market, the developer set the rules. Not any longer.) Speculators don’t want to tie up a lot of money on a property where they can’t make a profit very quickly, so they are unlikely to invest.
However, in the hot market of the last several years, a lot of speculators did put up 10% or 20%, because they figured they’d make so much money on the other side.
Now, however, a lot of those speculators are backing out, cancelling their purchases, and, in some cases, walking away without their deposits.
This can lead to opportunities for other buyers, such as yourself.
When housing prices are shooting upward, cancellations aren’t a problem for builders. They simply put the units back on the market — often at a higher asking price. But in markets where sales are slowing and inventories of unsold homes are on the rise, higher cancellation rates can create new opportunities for buyers. In some cases, builders are selling completed homes at prices lower than those charged for units still under construction; in others, they are offering other incentives, such as free upgrades or builder-paid closing costs.
With the housing market cooling, a number of people are backing out of their agreements to buy new homes — spawning some opportunities for bargain hunters.
So, if you know of a development that’s almost completed, and are thinking of buying, it might be worth it to start poking around, to see if the developer is offering any incentives to buyers.
(If you’re a typical buyer, you’d never walk away from a pending purchase, because your money would be at risk. Usually, the only way you can walk away and get your deposit back is if you aren’t able to sell your current home, and therefore can’t qualify for a mortgage loan on your new home. It’s called a mortgage contingency clause, and it should be a part of every purchase and sale contract.)
Complete story: Buyers Ask for Money Back, Or Walk Away from Deposits – By Ruth Simon, The Wall Street Journal