My $23,750 Mistake at Olive 8

May 2, 2009

hmmm

A couple years back in 2006, I made the decision to put down a deposit pre-sale for one of the new condo projects in Seattle. In retrospect, it turned out to be a big mistake. Although I haven’t yet walked away from the deal yet since the closing date is still a few weeks away, it is almost certain that I will walk and lose my earnest money in the deal which totals $23,750. Although I’ve read about folks who are trying to get some of their earnest money back, in my mind, a deal is a deal, and I lost so I won’t be pursuing any of the earnest money. It’s a bummer, but I’m here to share my lessons learned. This post is not meant to criticize the developer of Olive 8, in fact I’ve got tremendous respect for him and all entrepreneurs that have a vision and put their money where their mouth is, I think it is a great project and I wish him the best. My purpose for this post is to walk you through my rationale for walking away and hopefully give you some insight as you are thinking about any large transactions - buying or selling.


The Hairdresser

I love my hairstylist, she’s an entrepreneur for many years, always done an excellent job, and provided great service. She is an immigrant and works hard and a truly inspirational person. Back in 2006, we’d converse about the real estate market and she’d get very giddy about the real estate market as did everyone back then, but what I should have realized is that when my hairdresser is giving me real estate investment advice, we are in the final stages of a bubble. Instead of using my head and going contrarian, I decided to follow the wisdom of the crowds and buy pre-sale at the absolute top of the market. Lesson learned.

Investment or Consumption

For me, I have to define my decision as whether or not the buying decision is based on financial factors or consumption factors. If it’s financial, then I need to make sure that I am buying below market because everyone knows you can never sell above market. If it’s a consumption decision (for example, buying a slice of pizza or going to a baseball game), it’s not about the return on investment, it’s about deriving enjoyment from the purchase.

I bought at Olive 8 because I felt it was a good investment and consumption decision. Turns out, it still is a pretty good consumption decision, it’s a nice building, but it’s absolutely awful as an investment decision. Because I want to buy below market, I want to know how the market is reacting to the building today. Turns out, several of the presales are already on Craigslist to be assigned at the 2006 price (a bubble price). To my knowledge only 1 has successfully assigned out of at least 8+ that I saw. The rest have failed even at 2006 prices, no surprise because 2006 was still very close to the height of the bubble. I’ve also watched closings on floors below me as closely as possible and my guess is approximately 12 units out of the potential 59 have closed. None that I know of in the “stack” that I bought has closed either. It’s terribly obvious that the units are overpriced despite positive press to the contrary.

Depending on who you are, if you view this opportunity or any other opportunity as a consumptive opportunity, buy it, enjoy it, and don’t look back. If you want to make it an investment decision, do your research and make sure you buy below market. Olive 8’s prices are more than 20% overvalued in this market.

Frozen Credit Markets

Financing is almost always required in large transactions as most people don’t have the ability to pay cash for a large transaction. So, determining how difficult it is to obtain financing for a project is always an important factor in valuation. For condos in Seattle, most banks require 25% down in cash (I have heard that some can go as low as 3.5% down (FHA) to 20%). That is one big nut for most middle-income Americans, especially with a negative (now, slightly positive) savings rate. It would be interesting to find out how many Americans can come up with at least 6-figures in cash. I suspect a very small percentage. Thus, the real market for the property is significantly less than what most of the sellers and the listing agents want it to be. Know your demand and use it to guide your decisions.

Bearish Timing

I don’t think that we are out of the woods yet in the economy and I remain even more bearish on the real estate side. We may have a small bear rally, but the fundamentals are still very weak, more companies are laying off workers, credit is tight, savings and investment is still too small. I just heard auto traffic has relaxed over 29% locally most of it due to layoffs. Being more patient and just waiting will prove to be very wise in the next 12-18 months. Have a thesis or belief about the market with regards to your transaction and stick with it. The developer is bullish that the market is coming back now so he’s sticking to his guns, if you think the market is still sinking like me, be patient.

Game Theory

In game theory, you need to anticipate what the other side is going to do and make your decisions based on that outcome. I have no insight into the developer’s equity and debt position including his ability to maintain debt payments with cash. I suspect, however, that should the units remain empty that prices must come down - it’s simply supply and demand. If I were to close on my unit and the developer lowers prices, I’m stuck and will inevitably have negative equity in my property which is something we’ve all learned through the past 18 months is a terrible position to be in (you can’t refinance, you can’t sell, etc). It would make no sense to purchase at 2006 prices if no one is purchasing them now and there are tons of empty units in 60 days. Play it out, be patient - no need to rush these days.

Raising Prices into a Down Market

I have to give it to the developer for being creative. I’ve always thought wouldn’t it be interesting to see if by raising prices, you can raise demand? Well, the developer has raised prices several times on its units since 2006. In fact, I know of a couple of units that have not closed go back to the developer only to see the prices go up. I’ll be watching with curiosity to see if it works out. But, the lesson learned here is to make sure you understand pricing history for the unit, it tells a story that is hard to argue with. If no one is willing to pay $435,000 for a place, will someone buy it for $495,000? I guess anything’s possible, but I would bet against it. Don’t get caught up with the marketing ploy of price increases and if you don’t buy it now, the price is only going to go up. Buy it because you want to consume it and/or you are buying below market value.

Amplifying the Mistake

Part of human nature (or, it might just be me) is to justify mistakes by amplifying it hoping for a different outcome - it’s insane. For example, if you bought Washington Mutual stock a few years ago at $37/share and suddenly it looked really cheap a few months ago at $3/share so you bought a lot more shares at $3 without really thinking about it instead of just selling at $3 to get out. Part of me just wants to go ahead with the purchase because I had already committed $23,750 to it, but it makes no logical sense. I’m only amplifying the mistake and hoping to hit a homerun to recover that mistake. Instead of amplifying the mistake, I need to let it go. Once you’ve realized you made a mistake, learn from it and move on, there are plenty of opportunities tomorrow.

In retrospect, it turns out the $23,750 was a call option to buy at Olive 8 that just didn’t work out. It bothers me with 20/20 hindsight, but I’ve learned a ton from the process and believe I won’t make a bigger mistake in the future because of it. Cutting your losses today can be counted as a win in the long run. What do you think? Do you think I’m making the right call here? Any other stories of how you are cutting your losses or seeing opportunities? Let your comments rip.

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88 Comments »

Comment by Allen Taylor
2009-05-02 19:00:06

Nice writing. You are on my RSS reader now so I can read more from you down the road.

Allen Taylor

Comment by Andy
2009-05-03 21:15:27

Thanks Allen.

 
 
Comment by me
2009-05-02 19:30:23

Absolutely do I think you’re making the correct call. I’m in the same position as you and will not be closing at Olive 8. The developer has already gone on record (Seattle Times) stating that he will lower prices coming this summer if things don’t improve. Things are going to be bad.

If I were you I’d call Steve Crane up and join the legion (20+ so far) of us suing the developer to return earnest money. There’s really little risk, only a $250 retainer, but the possibility of getting some of that earnest money back. The more of us that join together the better chance we have of coming out with a win.

http://www.cranedunham.com

Comment by Andy
2009-05-03 21:23:53

Appreciate the comment. I’m going to forfeit the earnest money not because I don’t think there isn’t a case, but I knew what I got myself into when I signed the contract. However, I’m interested in hearing about the outcome, so please do keep me posted.

 
Comment by Seattle Observer
2009-05-05 15:09:38

I have to agree with Andy on this one. A non refundable deposit should be just that. If the developer did something to cause the market to crash then maybe a lawsuit is warranted, but absent such situation I think a lawsuit is frivolous. In my opinion, frivolous lawsuits are a part of the problem - not a solution.

Comment by dte23 Subscribed to comments via email
2009-07-27 15:54:48

Before you state that these lawsuits are frivolous you should check your facts or just not comment at all. My situation had to due with obvious forgery on my contract and have been attempting to cancel my contract for several months now so my only recourse is to go after the Williams Marketing with in attorney in tow. You may have the disposable income to walk away from $20K but to others $20k can be a lot of money. Did you buy or walk awya from this deal?

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Comment by John Subscribed to comments via email
2013-01-15 15:28:30

I wonder if the person who makes a stupid comment like “sue for your earnest money back” was willing to share his profits with the developer if the values went up? Andy showed class and maturity as a person when he said, “a deal is a deal”. Suing because your investment didn’t work out is complete immaturity and one of the biggest problems in America today (unless of course the builder didn’t deliver). His comments show a victim mentality and no personal responsibility. That’s the society crippling attitude that plagues us today.

 
 
Comment by Tom Fakes Subscribed to comments via email
2009-05-02 21:23:12

Andy, I like your stance of not getting into the legal stuff. You paid a non-refundable deposit on a property, the situation changed (but the developer is delivering thier part of the deal), so you choose to walk away.

In 2006, my wife and I ‘paid too much’ for our current home. But this is a consuption decision, and we are still thrilled bu the choice we made!

Of course, you’re most expensive mistake was to base BuddyTV in lower Queen Anne, so I could not join you and kick-ass building a great business….

Comment by Andy
2009-05-03 21:27:37

Tom - thanks for your comment. We’re always open to talking more about opportunities maybe even outside of Queen Anne! Love the moves by the ‘hawks during the offseason, you still holding onto your tix?

 
 
Comment by Joe Ludwig
2009-05-02 22:24:51

Ignoring the sunk cost of your earnest money and making the right purchasing decision for today makes a lot of sense to me. I wonder why the developer would prop up the prices instead of dropping them in an effort to get all those people to actually buy a condo. There’s no way that $23k is worth a condo sitting empty for a year.

Comment by Andy
2009-05-03 21:30:03

Joe - I think the developer thinks that prices are going to come back quickly in a “V” shape. I’ve tried negotiating a bit, but it seems the strategy is to get the inventory back and try putting it back on the market at a higher price. Like I said before, good luck! I would agree with your assessment if I were in the selling scenario, cash is king.

 
 
Comment by JJ
2009-05-03 00:18:32

Yeah, it’s amazing just watching how the market is reacting. Whether Olive 8, Madison Tower, or any other previous “hot” property, these properties are experiencing significant reductions on the market (massive spec purchasing happened), and now owners are struggling just to find folks to rent these units at pre-bubble rental prices/sq. ft.

Thanks for sharing your experience so far. Let us know how it goes.

Comment by Andy
2009-05-03 21:31:48

JJ - the rental market is something that I’ve been watching closely as well. It seems that prices are softening quite a bit and it’s beneficial for potential buyers to rent for a bit and save the cash for a down payment when prices come down even further.

 
 
Comment by Eric Nakagawa Subscribed to comments via email
2009-05-03 00:22:01

Andy… I had a similar conversation with the girl who cut my hair back in 2006. She told me she had bought a place in a new building (06 mid-300s 1BR). I later found out that the owner of the salon had bought a place there. Even a close friend bought a place a year later. I moved in to the building, too. It was a cool place to live. Everyone else was buying — bubble! I couldn’t understand it — just like you my barber was telling me to buy!

The Realtor reasoning for pricing in Hawaii has always been the same “they’re not building any more land”, “Hawaii is ‘different’” and “It’s always a good time to buy”. Unemployment had been low for a time. Lots of excess from easy credit fueled growth in non-essential vanity services. For my old hair stylist her clientele were spending lots of liberated money (credit or elevated salaries). And during this time her prices and costs continually rose (commercial property owners tried to cash in too driving up rent).

As for your option on the new condo:

Can you afford to get out, let the market correct over time, then buy back in?

Assuming you wanted to still move in and if you walked away from your deposit how much percent down would the real estate prices need to drop %-wise before you were back at a neutral position. -5%? Would you buy back in at -10%? Can you stomach another 10-20% drop over the next 5 years after you’ve moved in?

Do you need to move? I’m in the “things will get worse camp” and would look for other options at better prices/locations/amenities? Is this very-high-end? Do you have the luxury of patience?

Is vacancy high? How much vacancy-% before it starts impacting and raising condo fees?

Is the developer open for renegotiation at new terms?

Comment by Andy
2009-05-03 21:34:08

Eric - your analysis is spot on. I’m going to be forfeiting the earnest money and potentially buying in later if prices drop as predicted. I’d agree with you that having patience is critical. I’ll keep you posted. Thanks for your post!

 
 
Comment by Ron Hekier
2009-05-03 07:10:14

It is quite difficult to walk away and not recoup one’s losses. (Ask gamblers.) In addition to game theory you probably know about prospect theory, which won Daniel Kahneman the Nobel Prize in Economics. People are risk averse when it comes to gains, and risk seeking when it comes to losses. So by being willing to walk away from your losses, and not potentially compound them, you are showing strength against our human instincts.

Comment by Andy
2009-05-03 21:35:30

Great comment, it’s definitely hard to walk away from losses and cut early.

 
 
Comment by Mark
2009-05-03 08:43:20

It think you might want to have 3 definitions for buying decisions:
* financial factors - the good deal decison.
* consumption factors - immediate consumption, such as a ballgame, beer and hotdogs.
* emotional factors - there are things in life you will ‘overpay’ for because the thing, or the situation will add value to you or to someone important in your life. You might buy a particular engagement ring because it has a shape, a style, or something about it that evokes a memory, or something, and you pay more for that ring because it is “it”. A different ring someplace else may well be the bargain of the century, but if it isn’t “right”, it won’t be.

A different example, someone close to you needs emergency help, and you can pay for it, but they cannot. This isn’t a consumption or a financial decision, this is an emotional decision, and part of living your life right. There are many emotional decision points where spending money that you didn’t intend to spend is the right thing to do. If you have the money that is.

I agree with your statement that holding up your part of the bargain is correct.

Suing to get money back, and out of a deal you committed to is morally wrong. The earnest money was supposed to be your penalty for not closing. The market being down is no more any developers fault than your own. Take the penalty hit, move on if you must, or even better, try to renegotiate for a deal that might make both of you reasonably happy. Pain on both sides.

The sum of the whole is greater than the parts, and that means we shouldn’t always be looking at ourselves.

Comment by Andy
2009-05-03 21:41:02

Mark - thanks for your thoughtful reply. The emotional buy decision is something I think we can all relate to, I like it personally because it takes into account “giving” that just doesn’t fall naturally into a financial or consumptive decision. Re: renegotiation - I think it is a great idea, but it seems that it is not an option at this point since the developer wants to test the market a bit longer - he’s already turned down my offers. I think it might have more to do with how comps would play out if he started dealing now.

 
 
Comment by Hsin Feng Subscribed to comments via email
2009-05-03 09:09:24

Hi Andy,
I’m a realtor down in the bay area, CA. I have had clients deal with this situation also. I advised them that they should talk to the builder before backing out. The builder is in a position where they will be stuck with vacant unit, and will lose a lot more than 23k on their part if they don’t sell it. They may be willing to negotiate down to a price that you both are willing to agree on. I’ve had many clients able to come to that agreement. Especially if you are using the unit for yourself as you said a consumption decision. You will have to go somewhere else to buy something anyways, and if you are willing to spend a certain amount, see if you can get that unit for the same amount. If the location is great… in 7-10 years, you won’t even care what you paid for it. Real Estate is not like the stock market, many people thought you could get rich quick, but prices typically move slowly. Buy because you like a great location, and that it works for you, because you have to live somewhere. Good luck!

Comment by Andy
2009-05-03 21:48:15

Hsin - thanks for your comment. I definitely agree with your approach and have pursued it with the developer with no success thus far. I do think real estate tends to move very slowly over the long-term and I don’t think you can assume you can sell above market value in any market, but the ability to get a deal on the buy-side is always there.

 
Comment by Groundhogday
2009-05-04 18:11:33

Yes real estate does move more slowly than the stock market. And in this case, real estate is moving slowly DOWN. Whether the location is great or not, I imagine that Andy would care what he paid for it in 7-10 years if he pays $450k now and the market value is $300k 10 years from now.

 
 
Comment by Mario
2009-05-03 09:56:45

Andy, nice post and thank you for the insight into your real estate conundrum. Owning a condo property in the NW as well, I do not feel positive at all about the market making any big gains in the near future. It ultimately all leads back to financing, and to your point, most Americans won’t be able to afford six figure down payments on a condo for quite some time. The ones that do usually end up buying in a different price category.

Since I do not want to join your hairdresser in giving you real estate advice, I won’t. I couldn’t. But I do think you’re looking at this from the right perspective. I don’t think it would take a home run to justify upping your investment. Seems like you’d be looking at a couple of grand slams rather than a home run.

Comment by Andy
2009-05-03 21:49:34

Thanks for your comment Mario. I’m in your camp that in the NW, we’re in for a long recovery - unfortunately, we won’t see that “V” shaped return.

 
 
Comment by Ace
2009-05-03 11:39:32

I think you are doing the right thing, Andy. The downtown condo market is struggling right now, and there is no point compounding your losses by closing.

If you look at sales data from 2006 era condo’s over the last six months, the only units that are selling are those that are underwater. Any inventory at boom pricing is just sitting there.

The trend is likely to get worse in the next year because of the glut of inventory with places like Olive 8, Gallery and 1521 opening in the last few months, and Escala and a couple of Vulcan’s SLU condos coming online this summer.

Regardless of their spin, developers are beholden to their financiers, and at some point they will need to cut their pricing just to recoup their losses. Even Vulcan’s deep pockets weren’t enough to save Rollins from going apartment. Olive 8 is going to be in the same situation at some point, and you don’t want to be caught in the crossfire when that happens.

Comment by Andy
2009-05-03 21:51:35

Thanks for the comment and the analysis - I think you’re absolutely right.

 
 
Comment by John
2009-05-03 16:21:12

Nice blog and comments. I think the market is so overpriced that it would take years to get back on solid grounds. There is a study by Robert Shiller (of the Case Shiller Home Price Index fame) about the historic real estate prices that goes back to the 1890s. The study shows that prices have essentially doubled between 1990 to 2008. Furthermore, the new prices are out of whack with income. This is especially troubling given that unemployement has gone through the roof.

What I don’t understand is why builders who make a lot of money are very poor business decision makers. They can’t seem able to know when to cut their losses–a decision that an average village business man in Africa routinely makes. Also, it seems like the average multi-million dollar bonus earning Wall Street banker have the same short-comings and can’t seem to know when to cut their losses. Why not support crampdown to get the real estate market back on a solid footing? Why try to prop up real estate prices to something not supported by the average income and by demand?

Comment by Andy
2009-05-03 21:54:08

John - you’re absolutely right, it’s back to the basics of supply and demand. Propping up prices unnecessarily hurts everyone - sellers who can’t sell their properties and buyers who can’t afford those prices.

 
Comment by Groundhogday
2009-05-04 18:14:27

Businesses and banks are not cutting prices to market value because to do so would require that they realize enormous losses–driving them into bankruptcy (or bank failure). Many simply have no choice but to pretend as long as possible hoping that some miracle (thanks Geithner) saves them from the abyss.

 
 
Comment by Mike D.
2009-05-03 19:30:09

I agree with the commenters who mentioned joined the lawsuit and talking with the developer before throwing in the towel. It’s nice that you’re already at peace with throwing in the towel, but better outcomes are still possible.

1. The lawsuit: I wouldn’t join it unless I actually felt there was merit to it. I don’t know what this particular lawsuit is about, but I can tell you that in many cases, developers break all sorts of rules and generally do shady things to maximize their profits (again, not saying Olive 8 is guilty at all… I have no idea). The first condo I bought, back in 2000, was also brand new, but what the developer didn’t tell anyone was that they were planning to build a second one right next to it which completely blocked the view of the first one. That’s the sort of thing that I have no problem joining a suit over. Other things include overpromising quality or timing, unfair contracts, etc.

2. Talking to the developer: As the commenter mentioned above, that developer just wants to get out of this nightmare as quickly as possible. That involves selling units. Keeping everyone’s earnest money and having all sales fall through is the *worst* possible thing that could happen. Getting rid of all of the units and breaking even is the best possible thing. See if you can help make that happen.

Comment by Andy
2009-05-03 22:03:17

I totally agree, better outcomes are possible. It seems the developer is content playing this out a bit - don’t blame him at all, but it may take some time before he moves.

 
Comment by David
2009-05-05 18:55:45

Oh, someone built a building next to yours and blocked the view? Cry me a river. That’s your fault, not the developer. It is totally predictable. Did you check the zoning on the adjacent lot? Did your contract include air rights to the adjacent lot? No? Too bad. To sue over it would make you be the one in the wrong.

Meanwhile, Andy: Kudos to you for a) choosing to be guided by reason rather than emotion for this purchase, and b) correctly avoiding the moral wrong of trying to weasel out of a valid contract, voluntarily entered into.

Comment by Mike D.
2009-05-06 10:22:50

“Oh, someone built a building next to yours and blocked the view? Cry me a river. That’s your fault, not the developer.”

David: No. “Someone” did not. The developer of the existing condo did… after telling all residents that the space would remain a parking lot. Is it predictable for developers to mislead their customers? Sure, I guess so. Doesn’t make it right though.

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Comment by David
2009-05-06 13:58:12

Mike D -

If the developer had told you that in writing you’d have a case. Since he didn’t, it was just hot air.

Real estate transactions are governed entirely by the written agreements between people. When you closed on your unit you had a stack of documents to sign, perhaps several dozen pages, where every last bit of the transaction was nailed down: who had what responsibility to whom, and exactly what property was being conveyed. Yet the neighboring parking lot wasn’t mentioned. That should have been a clue.

 
 
Comment by David
2009-05-06 14:01:16

Mike D.:

If your developer had told you that in writing, you’d have cause for action. But he didn’t, therefore it was just hot air.

Real estate transactions are governed entirely by contract. When you sat down at your closing you had to sign a bunch of documents, perhaps several dozen pages worth. Every bit of the transaction was nailed down on paper: Who had what responsibility to whom, and exactly what property and/or rights were being conveyed. Yet the parking lot next door wasn’t mentioned. This should have been a clue.

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Comment by Mike D.
2009-05-07 10:30:10

Thanks for the legal lesson David. There are also instances in which a) things which aren’t expressed in writing *are* litigable, and b) things which *are* expressed in writing aren’t litigable. And even in cases where something is deemed not litigable, that doesn’t make a developer’s actions moral. What I’m saying is that if I have reason to believe a developer’s actions are illegal and/or immoral, I’d have no problem whatsoever suing. Having the case actually get to trial is not the only way to get the outcome you desire.

 
 
 
 
Comment by Former Active Commenter
2009-05-03 19:38:33

Just for the records, I stopped reading your blog nor commenting because you use the Nofollow tag. Even the top commenters on your blog get no link love. That’s just not fair. Why should lots of people read your blog and leave valuable comments when they get no sort of love from their efforts? It’s just not worth the trouble. Until you implement the Dofollow, it just won’t make sense to post valuable comments on your blog. Seriously, Andy.

Comment by Andy
2009-05-03 22:07:24

Unfortunately, I couldn’t keep up with the amount of comment spam on the site even using spam traps. Using no-follow is a way to keep the trolls off my site. Sucks, but I don’t run this blog for profit and I don’t have much time to manage it so it’s more for me to get my thoughts together and post. Hope you do visit in the future and if it’s worthwhile to comment, I hope you join the conversation.

 
Comment by Eric Nakagawa Subscribed to comments via email
2009-05-04 18:04:24

Dear anonymous commenter, I despise your actions.

Demanding to get link love via a blogs built-in commenter url function is surreptitious and dishonest. You are merely siphoning off relevance and acting like a parasite. The case is even worse when people link to their OWN blogs/sites at the end of a comment.

Bloggers deserve to manage any amount of meager value their web properties provide.

Gain a REAL audience by writing about relevant topics in a consistent fashion that generate valuable conversations. (like the one we’re on)

If you’re running a blog and still worried about SEO don’t forget the MAIN RULE: http://bit.ly/GzCo

 
Comment by David
2009-05-05 18:56:53

Jeez, if your comment is so valuable, maybe you should try to sell it. You could even ask for 2006 prices!

 
 
Comment by Mike D.
2009-05-03 19:47:39

Former Active Commenter: Wow, what an interesting window into your self-serving soul. You’re familiar with the concept of PageRank, right? It basically goes as follows: If *other people* are linking to you, Google takes this as a sign that your stuff is interesting/relevant, and you thus get treated as more interesting/relevant by Google.

If *YOU* link to yourself from another person’s site — as you do when you comment on Andy’s blog and type in your URL — then “other people” aren’t linking to you. You are. Thus, putting a nofollow attribute on those sorts of links is not only proper, but it’s more accurate than not doing so. If you’re only reading or commenting on someone’s blog to try and impress Google, you should probably leave.

Comment by Andy
2009-05-03 22:13:59

Well put, it’s interesting how SEO plays into a community. If pagerank and SEO wasn’t a motivating factor for people, I wonder how much better conversations and communities around blogs would improve. I, for one, would love seeing less trolls and spammers and more insightful comments from folks that really do care. At the same time, I do recognize the importance of SEO to many businesses including my own, so I understand it’s hard to have it both ways. Appreciate your comment!

Comment by Mike D.
2009-05-03 22:22:03

SEO to me is two things: 1) Making your content good enough for other people to link to, and 2) Making sure Google evaluates your site as efficiently and productively as possible.

Anything beyond that — like littering other people’s blogs with links to your own, for the sole purpose of promoting your endeavors — is scum. :)

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Comment by Hsin Feng Subscribed to comments via email
2009-05-03 21:57:19

You’re right, you always can get a deal on the buy side. This is why when it’s an investment property, it should be always bought if the numbers make sense. When buying your own property and you are planning on living in it, you buy because of different reasons. If you have somewhere else to live, it’s better to do that. I have a client right now that wants to buy a 500k place, put down 20% because he wants to own a place. He pays rent of $400 right now. I advise him not to, and to buy a investment property, but he wants a bigger place than what he’s renting right now, and believes that it’s time to buy. Who am I to argue?

 
Comment by Alan
2009-05-04 10:19:58

You abosultely should try to get your deposit back and should use game theory to do it.

The developer knows it will be cheaper to give part of the deposit back than fight you in court. The developer expects people to do this and bakes that cost into the call option on the condo.

 
Comment by nitsuj Subscribed to comments via email
2009-05-04 12:13:01

Great article! I wish more people would take responsibility for their decisions, as you have. I’m tired of hearing about people suing developers to recover their deposit as their ‘always escalating’ asset has proven otherwise.

 
Comment by jim
2009-05-04 13:35:57

I like your approach of actively deciding whether it’s an investing or a consumption decision. I think many of us use the same approach, we just don’t know we do it and how to do it intelligently.

As for the sunk cost, it’s difficult to know when to get out, especially when emotion is involved. Think of all the shareholders of Citi, Bank of America, Wells Fargo… all of those banks were down big a few months ago but have since recovered. How do you know if you have a Lehman or a Citi? It’s an analysis made even harder if you are emotionally invested too.

 
Comment by thelee
2009-05-04 14:10:10

You’re comment on not amplifying mistakes is spot on. It’s the absolute best fundamental rule - don’t follow sunk costs. Yet people keep doing it. Being self aware of it and telling other people about not trying to “score a homerun” is really great.

 
Comment by voight-kampff
2009-05-04 14:15:02

I sincerely thank you andy for sharing your experience.
I too walked from my earnest money ( my closing date has come and gone) I knew the risks, and I agree and am inspired by your ethics in accepting the losses, and part of me wants to let this go too, but another part of me has trouble with this:
I was prequalified to purchase using their preferred lender with a 5% down payment(my earnest money), I am not an investor, I wanted to live there. Then several months ago I was told I would now need 10% down to close, then just 3 weeks before my closing date I was told I would need now 15% down. I dont have it and now I loose my deposit.
This is where I my uncertainty lies. Should I feel entitled to to recieve at least a partial return of the money? the fact is, I dont know. Technically I probably have no claim to the money, but imagine if you put something on lay-away, you put a $10 deposit down on a $100 dollar item, you come back later with the remaining 90$ to claim your item and they say ” sorry bub, things have changed, we now want $125″
Its like something right out of the Sopranos.
Am I way out of line in my thinking…. I am open to criticism on this.

 
Comment by nitsuj Subscribed to comments via email
2009-05-04 14:18:15

^ I may be reading it wrong, but I don’t think your analogy isn’t entirely accurate as you’re not coming back with the additional $90. They didn’t raise the cost of your place, and if you came back with the entire remaining balance (as in the layaway example) they’d sell it to you.

Comment by voight-kampff
2009-05-04 20:23:01

your probably reading it right nistuj, the analogy may be somewhat flawed, but the essence is this: I agreed too buy the unit under such and such terms, and I would still buy the unit under those terms, but I cant, because the terms have completely changed.
I also understand the financing contingency deals with this, but I dont think it was written with the intent of holding people to thier contracts in the case of an economic calamity causing down payments to sky rocket.
The Bottom line is I would have NEVER have agreed to purchase the place if I knew I would have to put 15% down.
Maybe that means I should have never been involved in the first place… but I was planning on staying in it for at least 7 years most likely 10 to 15 years.
so is getting half of it back still out of line or unethical? Maybe Im just jaded?
comments?

Comment by v
2009-05-05 23:05:56

I would look into a lawyer for some advice. If you were sold with such and such terms, and they changed your terms, I would say that you have the rights to walk away and get your money back.

(Comments wont nest below this level)
 
 
 
Comment by Jeff
2009-05-04 18:58:33

Very nice post. Walking away from that earnest money is as if you bought the place in 2006 and sold it for the same price in 2009, but only paid 3% agent fee because you’re a real estate agent yourself. A lot of people who bought a house in 2006 would love to get the same deal.
I think it was a smart choice, Andy. Anyways, do you want to play golf this Sunday at 6pm?

 
Comment by BrianSD1 Subscribed to comments via email
2009-05-04 18:59:39

Home buyers in San Diego are experiencing the same situation. But they want to sue for their money back, if it comes to that.

Time will tell how things turn out.


Vantage Pointe in San Diego

 
Comment by sally
2009-05-05 09:15:17

As a below-the-radar (I cherish privacy) accountant, can’t help but comment upon the out of control ego that makes horrible investment decisions. Suckerdom is something that the developer did market to… and this thread still smacks of it.

 
Comment by Jackson
2009-05-05 16:52:06

I’m sorry but I disagree with your decision to walk away. Not everyone is in the financial position to throw away any hope of a refund, even a partial one. Those who think we are lowly commoners for seeking the help of attorneys must have a great view from their condos in the Ivory Tower on 1st and Pretentious.

 
Comment by eric
2009-05-05 17:19:53

One of the first things i learned from investing in the stock market was never let a small loss become a larger one. Your right in that “cutting your losses today counts as a win.” Your a winner in my book.

 
Comment by v
2009-05-05 23:01:25

I think what you are doing by walking away is the right decision. With the uncertainty of the market, you are walking away losing only $23,750. By closing your unit, you risk losing more in hopes of getting it back in years to come.

 
Comment by Jackson
2009-05-06 09:16:37

There are more than just two options. It is possible to not close and not walk away by paying a minimal retainer ( I believe one only requires $250) and getting an attorney. Paying one hundredth of your deposit to stall the closing and work for a refund with minimal effort from the buyer seems like a good third option. If you don’t get a refund, then walk away. You shouldn’t feel shamed to want your money like the developer is insinuating. This is not the stock market so people need to stop comparing it as such.

 
Comment by CHESSNOID
2009-05-07 00:07:58

Hi Andy,

Excellent post! I appreciate your explanation of how you arrived at your decision and how you draw the difference between investment and consumption.
I live in California and have always wanted to move to Seattle but the prices are still too high for me. I think your strategy for waiting it out is smart and cutting your losses is even smarter. Most people would throw good money after bad, especially when it is a substantial amount like $24K.
I enjoyed your post and have also subscribed to your blog.
Cheers!
CHESSNOID

 
Comment by Eric
2009-05-08 16:14:30

Andy,

I am so glad I found this. My wife and I are seriously considering the same. We have 25K down on a Unit at the ENSO. As nice as it will be I just can’t justify closing a deal on a condo that now is worth at least 75K less. I think I will have to try and and negotiate a much lower price or just walk away…Thanks for sharing!!

 
Comment by Kevin Way
2009-05-08 21:48:50

While what you said about property is likely true (I’m not familiar with the exact property or market), I don’t like the stock analogy at all.

I bought GE at 20, because I liked it at that price. Then it went to 6. And I bought a lot more, because I liked it even more at that price. I had similar experiences with X, JPM, GS, F and a few others, where I bought, watched it drop, then bought a lot more.

And you know what, I stand by all those decisions. And not just because they’ve proven themselves winners, but because if I believed something is worth $x, I’m going to stand by that for quite some time, even if the market price goes to a much lower value, unless it’s obvious that my initial valuation was flawed.

 
Comment by John
2009-05-09 06:57:01

I think it was a good decision to walk away from the deal. The real question is, why buy in the first place?

Olive8 abuts other tall office buildings. There is no real spacing between the building and others nearby. The view potential is questionable, and only gets worse over time. I think the building was built in a lousy location. The value proposition is directed to those who will live at the place at night, work during the weekdays, and get out of Downtown conveniently to the airport on weekends using the transit tunnel nearby. Sort of like a short stay place. As such, I think the units are way overpriced. As a regular place to call home, it’s undesirable for the money they’re asking.

The same line of thinking can apply to a lot of the new high rise developments being built in Downtown Seattle now. Gotta wonder what those developers in Belltown were thinking, not fully capitalizing on their prime location by putting up OSB quality housing!

 
Comment by techlegaleagle Subscribed to comments via email
2009-05-11 00:28:17

You are making a good move. I’m not one of those “don’t catch a falling sword!” people, but I would much rather be the person paying a tad bit extra when things are trending up as opposed to the person attempting to buy at a perceived bottom on the way down. From an investment perspective, a home is one of those things where appreciation is a nice-to-have. No matter what, most people have a monthly cash flow situation when putting a roof over you head.

Also - other question more in line with your blog: Trying to make a choice - A) fixed resources (people) developing good product, great traction, and many opportunities if staying partner-neutral provided it is marketed/BD’d well vs. B) shifting most of your better resources on delivering for a single partner company, probably ensuring large revenue early, but the risk is making the whole thing a delivery team for this partner with room for little else. Thoughts on best way to go?

 
Comment by Online Colleges Subscribed to comments via email
2009-05-19 09:07:30

It is difficult to make that decision. I personally would try and hold out till the market leveled out, but not everyone can do such a thing!

 
Comment by Gene
2009-06-01 22:25:10

Yo, good post… found it with Bing. =) Thanks for sharing your life lessons. Always good to be reminded of consumption vs. investment. Some things you just have to enjoy no matter the cost, but hopefully not everything.

 
Comment by Marilyn Baaylor Subscribed to comments via email
2009-06-09 14:19:48

Appreciate your post and all the comments. Sorry for the earnest money loss.

I have the opposite situation. Yep, I’m a developer -small scale.

If you’re going to buy, buy quality.

I have a background in architecture so it made sense to me aesthetically and financial to develop a project that would deliver both great design and a good return.
In 2005 I started working with an Architect to design a small town home project. I assessed the options of doing condominiums or town homes and determined that condos would cost more and would add association dues. True you might get a rooftop deck [but that’s good in Seattle about 3 months out of 12 – not a great traded off for the added cost]. And I knew I wouldn’t want to pay home owner dues so I figured most other folks wouldn’t want to either. The result are town homes with modern design, custom plans and high quality systems and materials.

All of the design choices were intentional. These homes all have different floor plans. Four of the five homes have roof overhangs -in the Northwest it rains and wood structures with no overhang are more likely to develop water infiltration issues [somewhere in the distant future true, but my commitment to quality trumped the easier no-overhang approach]. Four of the five homes also have pitched roofs, this project is a transition from the commercial –Urban hub of Fremont to the residential [town home side of Fremont]. I think this project does an excellent job making a successful transition.

Homes have a cedar and cement board rain screen. Siding that dries out from both sides will last longer [the cedar will last for 40 years –or more]. The walls are high-grade plywood, not OSB. OSB is the particle type sheathing most commonly used. [When it gets wet, it starts to break down and when that happens the fasteners nails or screws don’t really help and the structural integrity of the building is compromised]. With these homes the walls are well insulated and every hole was caulked. Low maintenance, long life, great design and a comfortable home were part of every design and materials choice made. Built Green classes given through the city have used our project as a demonstration site.

Windows and Floor to Ceiling sliders were given the same thought. Windows were placed to maximize natural light and views to/from neighboring homes were considered. Whether windows should be clear or translucent was thought out as well. Whether the windows should open or not and the direction they open was considered. On a recent warm day I went through and opened doors and windows to check the cross ventilation, it was great! Nice when something works so well. There are two covered 4’x10’ [or 4‘x12’] balconies in each home –nice to be able to step outside without getting wet.

The architect and I both gave considerable thought to how people living in these homes would use them. How they would use each room, how their uses might change over time. To that end there is a separate radiant loop under each polished cement garage floor. These spaces also are painted, have the same trim details found in the rest of the
home and have custom doors. Converting this space to living or work space will be easy.

Floor plans vary, each home is customized to give people choices that reflect the lifestyle they want. Everything had to work, thought was given to traffic flow, furniture fit, arrangements and maintaining a sense of openness were all checked and rechecked.

There is not as much closet space in some of the homes, less can be more. There is more garage space –hopefully for bicycles maybe a kayak and an electric car [space is wired for a charging station].

There are bamboo hardwoods on floors two and three. Hardwood gives an owner more options for floor covering, better cleaning options, is aesthetically far better than carpet, in my view and is much healthier.

Built Green, I wish more people knew what to look for .. Recycling, materials choices, construction practices, energy consumption, systems and air quality are all areas that influence a projects rating and can represent considerable value in energy savings and healthier living. Built Green will hold it’s value much better than a non-green home when systems that provide energy savings and a healthier environment are already in place [retro-fitting –is expensive].

This project included: direct recycling, materials recycling, top soil recovery and drainage protection in the early construction phases. Materials choices were made based on quality that results in longevity and on locally sourced, renewable products that are environmentally friendlier. Energy consumption is something people often equate with energy star appliances. This project goes beyond that to include, radiant heat run off a high efficiency gas boiler. A gas boiler will out perform and out last any on-demand tankless unit used for radiant. Boilers are designed to run continuously. Tankless on-demand is not. The boiler efficiency is 92%, owners will have considerable savings on heating and electrical bills. My commitment to quality just doesn’t stop. There is also wiring and plumbing in place to connect solar panels for solar hot water [which is often 40% or more of most home heating bills].
There are Toto dual flush toilets throughout and energy star appliances as well.
Air quality is also key. These homes all have walk-off mats to reduce contaminants from outside. There are also carbon sensors and exhaust fans in each garage. Homes each have a Heat Recovery Ventilator that pulls in cleaner, fresher air from outside, then uses heat from the old inside air that is being exhausted to heat new the incoming air. And of course low VOC paint.

These are custom homes for people who may not have the time or inclination to work through the design and construction process but, who nevertheless appreciate quality and want to be in a high-quality urban home. These homes each come with a Home Owner’s manual.

If you’re going to buy, buy quality. This is one of the largest purchases most people will make and many people in the industry do not have extensive knowledge of homes being sold. It is up to the buyer to know the product.

If you’re still looking for a well designed, energy efficient home, near downtown –check us out in-fremont.com

Marilyn Baylor

Comment by John Hamilton
2009-06-23 20:53:49

Ahhhh - Don’t you just love when people use other’s web space to promote and sell their own products? Nice commercial on your townhomes. Not sure it was appropriate in this setting.

 
 
Comment by Brian Subscribed to comments via email
2009-06-26 17:21:21

Great post. I’ve been checking out the Olive 8 and really like it. I am, however, curious about the following comment:

“It would make no sense to purchase at 2006 prices if no one is purchasing them now and there are tons of empty units in 60 days. Play it out, be patient - no need to rush these days.”

Is there something specific that is happening in 60 days? Or, are you just making the point to wait a month or two to see the inventory?

Thanks!

 
Comment by prospective buyer Subscribed to comments via email
2009-07-12 23:55:46

I am one of those scarce buyers in the market with $150k downpayment and looking at a purchase price of about $600k as I’m ready to upgrade my current condo. I visited the Olive8 this week, and the new CBBain people told me that the condo units are 75% sold, which is pretty good for only a month after first closings happened. Buuuut, I did some research when I came home and stumbled upon many articles and blogs talking about the lack of real homebuyer closings. This has me concerned.

I also noticed that the open units were on the 27th floor, right in the middle of the residence floors (18-3x). If the units are really 75% sold, then shouldn’t lower units be sold out first? It seemed as if most of the units on the 27th floor had not been sold and were available for purchase. This didn’t jibe with a 75% pre-sale.

The units and amenities are nice, and definitely an upgrade to the condo hirise I’m currently in. But the listing price at close to $800/sqft is unbelievable! I am glad the real estate environment is such that it allows me time to think through things, as I’m doing now. My concern is primarily with the number of units that are closing, which I will just ask them point blank in the growing list of follow-up questions I am developing. If I end up making an offer, it will most definitely be at a 10-20% discount to what the current list prices are. I can see units in downtown Seattle going for $500-$650/sqft, but no way at $800/sqft.

 
Comment by Andy
2009-07-13 09:36:31

Yes, there is a huge difference between under contract and closings. As you’ll see on several blogs as well as the King County Property report, I’d venture that just under 20% of the building is actually closed and I think that is a generous number. For buyers, the difficulty is in the appraisal and financing, appraisals are coming in lower and financing is very difficult despite what you might read. You’re very smart for being patient and you’ll be rewarded for being patient. I don’t think the real estate market is going to bounce back so I’d advise to stay in the unit you buy for much longer than 5 years, otherwise you’re just speculating. Be sure to check out other comps in the area as I think Paul Allen’s project at Enso is lowering prices to where it almost seems reasonable.

 
Comment by Nuez
2009-08-14 21:17:13

Hi Andi. The information is very precise. Great work!
I’m going to get a book on the topic because it left me thinking. Thanks.

 
Comment by Chris
2009-08-16 13:32:03

Andy, this is a great article. I’ve been over to Olive 8 a few times and am increasingly interested in it. This article is an eye opener though. As a first time home buyer, I’m a bit clueless as to where to learn more about % homes closed in a given property etc. Where can I see reports for a given area? :)
Thanks!

Comment by Allan
2009-08-23 16:41:40

@Chris

Two places to check on what units have closed at O8:

http://www.olive8.blogspot.com/

or just search King Country Records yourself. Search for “Olive 8 LLC”

http://www.kingcounty.gov/business/Recorders/RecordsSearch.aspx

 
 
2009-10-04 12:49:53

I always had trouble dealing with the gov’t in King County.

 
Comment by anthony k. gongora
2009-10-30 18:53:23

Hi just thought i would let you know that i had a problem with this blog coming up frozen also. Might be monkeys in the system.

 
Comment by clevey
2009-11-23 11:48:09

Of course there is no formula for success except perhaps an unconditional acceptance of life and what it brings.

 
Comment by Leah Drew
2010-10-30 14:46:28

Andy
Let’s consider both factors of your decision to buy, financial and consumption. On the financial side, the deposit is gone. If you bought at 500,000, and decide to keep the unit, you owe about 475,000. Considering prices on real estate are down a nice third, you are negative by about 160,000 off the bat (to reference your love of sports). Better down 25,000 then 185,000. Let the deposit go, as you said, lesson learned. However, there is a way to satisfy the consumption end. If you love the unit and building, take 25,000 loss, watch other units, and when the developer is forced to sell at market value (which he will be considering the market and simple inventory versus qualified buyers) put down another deposit with a brand new purchase price of roughly 340,000. Taking into account the lost original deposit and the new one, 50,000, plus 320,000, you still get the unit at 370,000 instead of 500,000. The only question is, are you comfortable paying 370,000 for that unit. If so congratulations, the market worked in your favor even though you fell into the real estate frenzy just like so many others. Have fun. I too am watching this fantastic building.

 
Comment by Mario Subscribed to comments via email
2011-09-03 15:42:25

Hi, i am looking to buy at olive 8 this week, do you think thath is a good price to buy,
385000 for one bed unit.
Or isnt a good price now. I am a little bit concern

Hope you can help me

 
2011-12-28 11:09:28

Awesome things here. I’m very happy to peer your article. Thanks a lot and I’m looking forward to touch you. Will you kindly drop me a mail?

 
Comment by ship
2013-01-08 16:03:57

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waiting for your further write ups thanks once again.

 
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Comment by omega vert
2013-10-23 13:00:01

Heya i am for the first time here. I came across
this board and I find It truly useful & it helped me out much.
I hope to give something back and help others like you helped me.

 
Comment by vido x gratuite
2013-11-12 18:44:04

I think what you wrote was actually very logical.

But, what about this? suppose you were to write a killer headline?
I am not suggesting your content isn’t good., however suppose
you added something to maybe get a person’s attention?
I mean My $23,750 Mistake at Olive 8 is a little boring.
You could glance at Yahoo’s home page and see how they create article headlines
to get viewers to open the links. You might add a video or a related picture or two
to get people interested about everything’ve written.
In my opinion, it would make your posts a little bit more interesting.

 
Comment by whiplash injury
2013-11-20 05:49:52

Good post however , I was wondering if you could write
a litte more on this topic? I’d be very grateful if
you could elaborate a little bit more. Thank you!

 
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