Julie, Both Buyer and Seller in 60610

How much do you expect the new Fannie Mae 70% sold rule to impact the sale in new condo developments?

Asked by Julie, 60610 Wed Apr 1, 2009

I've been looking at buying a condo in a new development, but I'm concerned that I won't be able to get a loan because I'm not certain that 70% of the units in the building are sold or under contract. I'm wondering if other developers have had to drop their prices just to increase move the unsold units in new developments, and whether or not the impacts will be across the board, for small new condo conversions as well as high rises

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Dp2’s answer
"If you're concerned about that circumstance, then you might want to have your attorney amend any contract that you enter into to allow the pricing of the eventual sale and closing to be contingent upon re-appraisal at the time of the close."

Christopher, that's an excellent suggestion. :) I'll have to remember that one. :)
1 vote Thank Flag Link Wed Apr 1, 2009
Although I didn't know about the Fannie Mae 70% sold rule, a business partner and I spoke with a commercial hard money lender on Friday about a scenario similar to the one you're asking about (a condo in a new development [a high rise]). That lender wanted the building to be at least 80% sold and 80% owner-occupied--even though my partner intends to rent the condo.

Yes, some developers have had to slash their prices in order to move some of their inventory.

Let's face, right now, some lenders--although many of them won't admit it openly--treat condos like Superman treats kryptonite: they avoid them.
1 vote Thank Flag Link Wed Apr 1, 2009
Dear Dp2,

Thanks for the kind words, and I do think that type of contingency is a prudent measure in a market that is as volatile as this current one.

Sincerely,
Christopher Thomas
Broker Associate, Sudler Sotheby's International Realty
773-418-0640 (cell)
christopher.thomas@sothebysrealty.com
http://www.myagentchris.com
0 votes Thank Flag Link Thu Apr 2, 2009
Dear Julie,

Like many other tightening lending standards, this one will have the effect of slowing overall market activity with respect to condo sales.

Based on the absorption rate of new condominiums even relatively successful condo marketing and sales efforts may not result in actual closed units for many weeks and months from the time of contracts being offered and accepted.

If you have your heart set on a condo building that is not yet at the 70% or higher closed/sold threshold, then you should just be prepared to submit and offer and wait to close on it (for in some cases years). If you've found the building of your dreams and are willing to wait for it, then you may in get yourself into a building before prices begin to recover and rise again. So today's contract might look like a really great deal if prices begin to climb again at their historically sustainable levels (anywhere from 4-7% per year depending on your market area).

At the same time you might find yourself "locked into" a purchase years out, and prices may continue to decline which is an entirely possible scenario given today's market conditions. If you're concerned about that circumstance, then you might want to have your attorney amend any contract that you enter into to allow the pricing of the eventual sale and closing to be contingent upon re-appraisal at the time of the close. If prices have continued to slide, then with such contract language you might be in a position to close on the unit for even less than it is valued today.

If you are getting a loan for your purchase rather than purchasing with cash, then your lender's underwriting process should likewise require an appraisal. And any appraisal under the contract price of the unit should trigger a renegotiation of terms anyway given that it is virtually impossible that your lender would close on a unit that is at a higher price than the bank's appraisal amount.

Good luck to you in any case, and let me know if you need any additional assistance.

Sincerely,
Christopher Thomas
Broker Associate, Sudler Sotheby's International Realty
773-418-0640 (cell)
christopher.thomas@sothebysrealty.com
http://www.myagentchris.com
0 votes Thank Flag Link Wed Apr 1, 2009
This does cause a large impact through all new construction and conversion. Impossible for 3 units!
As to price adjustments, there have been many, some even went to the auction block. Since so many units have been on the market for extended periods of time some new construction and conversion units will be eligible. Please note when the units where completed and the warranty dates for any appliances that have been installed.
0 votes Thank Flag Link Wed Apr 1, 2009
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