Home buyers back out of deals in record numbers

WSJ Online Real Estate ^ | 11-13-06 | June Fletcher and Ruth Simon

[Wonder Warthog]

No sign of any downturn yet here in "Western Washington". Prices still going up.

[goldstategop]

Its a lousy time to be a seller. If I had known this was going to happen, I'd have sold a year ago.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[MeneMeneTekelUpharsin]

My wife sells real estate here on the west coast of Michigan, it's family home buyers backing out, not investors.

Hush. Don't tell anyone...they don't want to hear it.

[Caipirabob]

You would think with it being a buyer's market they would be beating a path to the door, falling all over themselves to snap up a good deal before its gone. This doesn't sound like what people do when prices are falling like a rock.

A couple of factors, I'm thinking. One is that perhaps they are buying in areas where depreciation is so heavy that they are already taking a loss prior to closing. So they back out entirely. They still lose escrow or deposits, but I have seen neighbors who had buyer back out and threatened litigation over the deposits. It was easier just to chuck the whole thing.

Taxes and insurance have skyrocketed in some areas. In Florida for example: When the final numbers come in and the buyer finds that their mortgage will be one half what they finance and then again the same amount in insurance and taxes, they are walking away.

[exnavy]

The statement I made holds true for West Michigan.

[kinoxi]

Buyers' remorse? We haven't see that in a long time. I have the opposite feeling: I'd like to buy before this market is gone forever.

There are good markets left. Smart people generally make out even in down turns. I've been advising against it (residential)until spring at least around here though. It is a big country and there are always deals.

[RGSpincich]

...sacrificing the earnest-money deposits they have made when they signed the original contract? It's hard to imagine doing that.

It's hard to imagine that they can't find an easy out in the contract. In California once the original sales agreement is signed there are still volumes of approvals the buyer must agree to or he can withdraw, deposit in hand.

[goldstategop]

That's right... if the taxes and insurance exceed the amount you pay on the mortgage - the house itself - its just easier to write off the loss and start over again.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[scottteng]

Here in Florida its the taxes and insurance that get them backing out. Five to six thousand in insurance. The pure payments are not too bad but when the people see the P.I.T.I. they bolt.

[Coldwater Creek]

I read last week where even though interest rates had dropped in recent times, no one was taking advantage.

[goldstategop]

For that they need to retain a good real estate attorney. Backing off a sales contract is breach of contract and it opens them up to a lawsuit from the seller. The time to decide the contract isn't for you is BEFORE you sign it. But if you elect to go through with the deal, keep your word.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[kinoxi]

Re your post 24. I was down there on the emerald coast looking for properties for a friend a few months ago and could not believe the insurance costs. Everything is for sale down there in certain towns because everyone wants out. Needless to say the property search was scrapped(after some beach time). I feel sorry the people that will definitely get screwed out of this market. They will be in the millions IMO.

[capitalist229]

Don't worry the MSM says we'll have a soft landing.

Yeah, they would have said that about the Hindenburg too...

BUMP

[RSmithOpt]

So, I'm curious. Has anyone see homeowner insurance premiums beginning to drop too, and for that matter, real estate taxes? It is an overwhelming curiosity, especially in areas that have seen home values triple in the last 5-8 years?

I'm just wondering. Wonder what local gov's are in line to do with home values dropping as such in the 'boom' areas?

[goldstategop]

Like people have never heard of refinancing their mortgage to take advantage of the lowered rates? They ought to do that before they conclude its too much trouble to hang onto their real estate acquisition.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[RGSpincich]

their mortgage will be one half what they finance and then again the same amount in insurance and taxes

And people call California liberal? Our prop 13 limited property taxes to 1% of the sale price, 2% assessment cap per year. We do have those pesky infrastructure and school bonds bonds though. Our property taxes are still way below most states.

[savedbygrace]

My house more than trippled (sic) in value since I bought.

Like anything else, you don't really know the 'value' of your house until you sell it and the sale is finalized. You can know the 'value' of other houses, after they sell, but until a thing sells, you just don't know.

Till then, it's illusory.

[EQAndyBuzz]

"If your deposit was, say $15k, but the price of the identical new house next door dropped $50k from your contract price, you'd "save" 35K by cancelling the contract."

You will save 35k. But what about interest rates? When housing prices drop, don't interest rates go up?

I guess I would prefer the lower price regardless for future equity. All things being equal, I can pay off my home quicker.

[palmer]

So does this mean these buyers are sacrificing the earnest-money deposits

Just bought an existing house and offered earnest money of about 1%. Buyer's agent said 1/2% was good enough. That's a buyer's market.

[RGSpincich]

A buyer may not approve of items noted in structural inspections, in title discrepancies, in loan rates, etc. Many times seller disclosure statements come in after the contract is signed, buyers can object to items there also. It is best to keep your word especially if you tell a buyer that he has an option to walk away if he objects to items subsequent to the original contract. The original contract almost always allows the buyer to do so.