About to close on a home we have overbid on - have cold feet

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shrug
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About to close on a home we have overbid on - have cold feet

Post by shrug »

Removed for privacy reasons. I'm sorry about that and thank you so much for all the tips.
Last edited by shrug on Fri Sep 04, 2015 11:12 pm, edited 1 time in total.
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Abe
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Re: About to close on a home we have overbid on - have cold feet

Post by Abe »

Don't know the answer. Have you talked to the sellers? They may let you out of the contract if you ask. Here are a couple of sites with some information.

http://www.bankrate.com/finance/real-es ... k-out.aspx

http://www.nolo.com/legal-encyclopedia/ ... house.html
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Jeff P
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Re: About to close on a home we have overbid on - have cold feet

Post by Jeff P »

I would never pay $2.3+ million for a house with power lines in the back. That is a lifetime of wages for most people and should pretty much get you perfection.

That's why you have the escrow/inspection period, so you can find out about things on the property. You can probably get out without losing your deposit based on the terms of the easement, which is something you find out in a title search and not from an open house.

I assume we are talking about a substantial deposit here, so consult our real estate agent and probably an attorney.
nelson1015
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Re: About to close on a home we have overbid on - have cold feet

Post by nelson1015 »

This sounds like a horrible decision to me. I'd run away from this house and from buying anything at all given your current situation. I feel like we're at the top of a housing price peak and you don't have your green cards. Given the fact that you could be forced to move at any time I'd rent.
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ResearchMed
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Re: About to close on a home we have overbid on - have cold feet

Post by ResearchMed »

The 3% is a large chunk of money, but compared to what *could* happen...

You are planning to put almost all of your current wealth into a house, and you don't have a green card, and could need to leave the country - and risk not getting your money back from a sale later?

NOT a good idea.

You should probably not be thinking of buying your "dream home" under those circumstances, unless it is something you can VERY easily afford... and afford to lose.

Sorry... it doesn't seem like a good idea under the circumstances.

I have no idea if you have any recourse at this late stage. Talk with a real estate attorney.

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FrogPrince
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Re: About to close on a home we have overbid on - have cold feet

Post by FrogPrince »

My sympathies on the situation, and again a lesson on why to never bid with zero contingencies.

Run to a real estate attorney and see what your options are. The RE agent will be incentivized to close the deal and so would be working against you in this situation.
skepticalobserver
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Re: About to close on a home we have overbid on - have cold feet

Post by skepticalobserver »

For this a little time with an attorney. Could it be that under CA law high voltage power lines, or similar problems, need to be disclosed by the seller? Fail to disclose might be an out.
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Re: About to close on a home we have overbid on - have cold feet

Post by poker27 »

Contact an attorney ASAP. $60k+ is obviously not chump change, see if they can help you get out. We bought our first place a few years ago (1/5 as pricey as yours but still) and I remember getting cold feet towards closing. Is it too expensive, not enough, do I want a condo instead of a townhouse, is my job safe, yada, yada, yada.

Not saying you shouldn't look for an out, however talk with someone that actually knows you and is unbiased.
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David Jay
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Re: About to close on a home we have overbid on - have cold feet

Post by David Jay »

I am not a Real Estate Attorney, but if the easement was not disclosed on any of the listing documents then I believe you may well be able to cancel your offer. The seller has a number of other offers so I think they may release you without a lot of grief.

If it was disclosed in the listing documents then you do not have a strong position and you are depending on the grace of the seller. The listing agent has a potential for a larger sale with another bidder, so they may not be as concerned (about losing the sale) as they might be under other conditions.
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puma
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Re: About to close on a home we have overbid on - have cold feet

Post by puma »

I don't have anything to help OP other than say "read the disclosures and walk around the property before overbidding a property without contingencies next time", but this for some reason summarizes the craziness of bay area real estate for me. A first time buyer with no permanent way yet to stay in the US (i.e., residence tied to current job) overbids $100k on a $2.2m property with no contingencies, and is convinced with the mention of another bidder who may or may not exist to further overbid by $80k. And the property has high-tension wires going through the backyard, which makes the property tough to sell during a hot market and much harder in a down market. And the buyer now has cold feet. Wow!
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mmmodem
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Re: About to close on a home we have overbid on - have cold feet

Post by mmmodem »

I live in the Bay Area. I completely disagree with your outlook for the area. It sounds like you are being blinded by last week. If it was 2 weeks ago, your entire outlook will be different.

I just moved into a new home build 2 months ago. My neighbor a few doors down has a For Sale sign in the yard. It was there the day we all moved in as a block. The description says their job moved somewhere else so they had to sell. I guess they didn't want to lose their deposit either. They priced the home higher than base price of homes still being built in our community. Yeah, the home is still for sale. So you could do that but be more realistic in price.

Honestly, you have to live somewhere. I'd just move in. If something comes up and you have to move, you'll lose some money. But figure the amount is what you'd pay as rent anyway. You already said you can afford the home. Stop thinking of it as an investment and start thinking of it as a place to live. Ignore what the market is doing. You could be kicking yourself if next year the home is worth $2.5 million. You'd be kicking yourself if you lose your job next year. Think about the alternative. You continue renting and pay a landlord the money. What is the difference? Do that calculation. Oh and the power lines? It should already be priced into your bid as long as you had a competent real estate agent. Meaning the home would be with even greater than what you bid if there were no power lines.
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shrug
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Re: About to close on a home we have overbid on - have cold feet

Post by shrug »

Removed for privacy reasons
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MilleniumBuc
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Re: About to close on a home we have overbid on - have cold feet

Post by MilleniumBuc »

Check with an attorney. If it does say "visible power lines" that is very ambiguous. There is a big difference between a power distribution line, which is what is normally throughout all streets along the side or buried, vs. Power Transmission line, which carries high voltages electricity from generating power plants to electrical substations.

There are no scientific studies proving any hazard, but there are high statistical correlations between some diseases and living near a high voltage transmission line.

I would ask nicely, and if they deny and require the 3%, I would fight it because that is a big difference. Also, did they list the voltage that is transmitted through the line? Just based on safety by OSHA, the low voltage transmission lines require you to be 20 ft away from them while working, while it requires up to 50 feet for the high voltage ones. Compared to a distribution line where it is only 10 feet.
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Re: About to close on a home we have overbid on - have cold feet

Post by protagonist »

Another consideration is what a pain in the neck a $2.3M home is to maintain. even if you hire people to do it for you. Not to mention the cost. How many rooms, and how much acreage, will go nearly unused?

Factor the headaches into the amount of increased pleasure you anticipate you will get out of the home, compared with something more modest and easier to deal with. Decide if that is what you really want.
WhyNotUs
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Re: About to close on a home we have overbid on - have cold feet

Post by WhyNotUs »

A $2m+ house offer with no contingencies sounds like a $60k lesson in real estate. That was a very serious commitment that you made, to me it was foolish but your life experiences are likely different than mine (lots of experience in RE).
It does not seem that the seller has done anything other than what they said they would do.
A lawyer might find you a loophole in the contract and it could be worth a few hundred dollars for you to find out.

Your rationalization about selling before the recent decline seems like a good way to absorb the $60k hit and take your lumps. If you want to play hard ball, you might refuse to release the escrow to see if the seller would accept an offer to split the difference. If the market remains crazy they might get a chance to sell it again this fall. If not, they will have been harmed and deserve compensation.

The Bay area market is crazy and I am imagine the pressure that you are under as a buyer, I live in a crazy market as well. Plus it sounds like you have work responsibilities to keep you busy, at the same time I hope that you and your wife have a chance to catch your breath and reflect on the situation and lessons to learn before you plunge back into making another offer in the future. You are tying up someone else's property and they have hopes, dreams, and other investments to consider as well.
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Hikes_With_Dogs
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Re: About to close on a home we have overbid on - have cold feet

Post by Hikes_With_Dogs »

shrug wrote:
Right now I have sold all my assets in preparation for the down payment (everything is in cash).

This is the only thing that sounds like a mistake to me. What does your retirement/after-tax/emergency fund look like? You shouldn't be putting all your eggs in the real estate basket, which is what it sounds like you have done to me. Why would you put down 1.2M on a 2M house?

Obviously the power lines were not a worry for the other bidders.
gator15
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Re: About to close on a home we have overbid on - have cold feet

Post by gator15 »

If I were that dissatisfied with a property and I had to eat the 3%, I probably would based on the info you gave us. I'm not sure what your savings rate is but if you are saving a significant amount of your income each month I would equate it to a few months of lost savings and move on. As someone else mentioned, I would treat it as a $60,000 lesson. Sure, that's a lot of money, but if you are going to live in regret each day you are in the house as you look at a backyard you can't upgrade and power lines that bother you, why buy the house?
JFKtoSFO
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Re: About to close on a home we have overbid on - have cold feet

Post by JFKtoSFO »

protagonist wrote: Another consideration is what a pain in the neck a $2.3M home is to maintain. even if you hire people to do it for you. Not to mention the cost. How many rooms, and how much acreage, will go nearly unused?

Factor the headaches into the amount of increased pleasure you anticipate you will get out of the home, compared with something more modest and easier to deal with. Decide if that is what you really want.
Acreage? Rooms? In the OP's area (mine as well) a 2.3m home is maybe a 3/2 with a boxy little yard in an area 30min from work. I've seen 1100sq ft 2/1 bungalows with maybe 10 feet of "lawn" in the back go for 1.75m cash, no contingencies. (In this area, if you don't agree to no contingencies, your application goes in the garbage.)

OP - I too overbid on my place. It was only by 40k or so, but I was miserable about it. Then it appraised at 50k over what I paid, THEN when I opened my HELOC it appraised for 50k over that. The recent sales in my building confirmed these new values, so I wouldn't worry about it losing value...yet. HOWEVER - if you don't feel like you can be happy there due to the lack of deck and other yard limitations, walk away.
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Re: About to close on a home we have overbid on - have cold feet

Post by protagonist »

JFKtoSFO wrote:
protagonist wrote: Another consideration is what a pain in the neck a $2.3M home is to maintain. even if you hire people to do it for you. Not to mention the cost. How many rooms, and how much acreage, will go nearly unused?

Factor the headaches into the amount of increased pleasure you anticipate you will get out of the home, compared with something more modest and easier to deal with. Decide if that is what you really want.
Acreage? Rooms? In the OP's area (mine as well) a 2.3m home is maybe a 3/2 with a boxy little yard in an area 30min from work. I've seen 1100sq ft 2/1 bungalows with maybe 10 feet of "lawn" in the back go for 1.75m cash, no contingencies. (In this area, if you don't agree to no contingencies, your application goes in the garbage.)

OP - I too overbid on my place. It was only by 40k or so, but I was miserable about it. Then it appraised at 50k over what I paid, THEN when I opened my HELOC it appraised for 50k over that. The recent sales in my building confirmed these new values, so I wouldn't worry about it losing value...yet. HOWEVER - if you don't feel like you can be happy there due to the lack of deck and other yard limitations, walk away.

*laughing*
Oops. My bad. I didn't read SFO.

Never mind....
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Re: About to close on a home we have overbid on - have cold feet

Post by JonnyDVM »

All financial logic of this purchase aside- If you're having strong second thoughts you need to back out now or at the very least stall for more time. As mentioned earlier, if the seller had several offers they shouldn't be too hard on you for backing out. Happens all the time. The fact that you took the time to post your concerns and are not strongly convinced the purchase is the right thing to do says it all.
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Artsdoctor
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Re: About to close on a home we have overbid on - have cold feet

Post by Artsdoctor »

No one can tell you what to do.

SF is extremely competitive and overbidding without contingencies has become common, so you're not alone.

Power lines aren't a favorite of mine but if they're at the end of the property line, you might be able to do some creative landscaping. Certainly there are houses down here in the $5-6M range with power lines at the property edge.

First homes are rarely dream homes but sometimes reconstruction can make them pretty close. If you can't renovate, that's a drawback.

Your immigration status is a bit tenuous. Buying CA real estate can be very expensive and I usually tell people that if they can reasonably expect to stay put for 7-10 years, they should be OK. Your argument might argue otherwise.

In this market, there are many buyers who get caught up in the moment so don't be embarrassed. First time home ownership is unique. The arguments you presented give me pause but they're not insurmountable.
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Re: About to close on a home we have overbid on - have cold feet

Post by TravelGeek »

shrug wrote: We earn about $450K annually, and are early in our career (in our early thirties). We are both engineers and work in a very competitive tech company. We still don't have a green card though, and could potentially need to leave if I lose my job for whatever reason. We will make roughly half of what we make here if we move back to my home country.
Do you both work for the same company? How far along are you in the Permanant Residency process?

Seems quite risky to put - as you describe it - all your assets into this one property.
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Re: About to close on a home we have overbid on - have cold feet

Post by EnjoyIt »

I honestly do not understand the real estate market in your area. But for the life of me I would never spend $2.3 million on a house where the back yard has high voltage power lines. In fact, I would not spend $50K to live near high voltage lines. I would not want to raise a family near that.
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Artsdoctor
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Re: About to close on a home we have overbid on - have cold feet

Post by Artsdoctor »

Unfortunately, the OP's original description of the RE market in SF is not inaccurate.

Having lived through major earthquakes, I prefer my lines buried, or at least at the very end of the property line. Transformers can blow. But I can't see the property so can't really comment.
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Watty
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Re: About to close on a home we have overbid on - have cold feet

Post by Watty »

ResearchMed wrote:The 3% is a large chunk of money,
To put it into perspective how many months interest and property taxes is that?

You will need to get an attorney right way but one thing the seller does not want is for the house to be tied up in the courts for six months or more with you trying to back out of the deal.

3% is likely the worst case but after you talk to a lawyer they might jump at taking less than that, like 1% or less, since they can sell it right away.
chocolatemuffin
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Re: About to close on a home we have overbid on - have cold feet

Post by chocolatemuffin »

A large, brand new house in a great school district, built on a quarter acre lot, and only goes for $2.3m? That's actually a bargain in the Bay Area. I think the price has already factored in the power line issue. Even older houses in a reasonable school district with 5,000 sq ft lot can go for over $1.5m nowadays.
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celia
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Re: About to close on a home we have overbid on - have cold feet

Post by celia »

shrug wrote:We are both engineers and work in a very competitive tech company. We still don't have a green card though, and could potentially need to leave if I lose my job for whatever reason. We will make roughly half of what we make here if we move back to my home country.
This sounds like BOTH of you are here on work visas. If either of you lose your job, you would go back home, as I understand it. Then you wouldn't be able to enjoy the house and may have problems paying for it. So there are really 2 chances of a job loss, here.

If your wife loses her job, will she have to go back home and will you go with her?
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Re: About to close on a home we have overbid on - have cold feet

Post by Nebster »

What did the seller put in their disclosure document? This sounds like something they should have mentioned there, in plain English and with a box checked. Have you talked to them about it? Where is your agent in this process, advocating for you and helping to get things done?
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Re: About to close on a home we have overbid on - have cold feet

Post by Call_Me_Op »

I can't speak to whether the house is really worth $2.38 million, but the power lines would get me nervous (in addition to the yard restrictions)- if only due to the fact that buyers in the future may be concerned, so it impacts resale.
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Re: About to close on a home we have overbid on - have cold feet

Post by mnnice »

*laughing*
Oops. My bad. I didn't read SFO.

Never mind....[/quote]

I read the post twice. First as written and then with the last zero dropped off. It really helped my lcol midwestern brain comprehend.

I think the no green card is a way bigger deal than any issues with this deal. While the powerlines are unfortunate at least you know they are there. There are no dream houses imo just places to live.
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Re: About to close on a home we have overbid on - have cold feet

Post by WhyNotUs »

With your investable assets and Green Card issue, building a home in the closest nearby rural or non-thriving county might be a twofer. Creating 10 jobs, even construction jobs equals a green card.

http://www.uscis.gov/green-card/green-c ... investment
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Re: About to close on a home we have overbid on - have cold feet

Post by Grt2bOutdoors »

This is why "bubbles" are dangerous, you don't realize you are in one until you've been swept away by the euphoria, by then it is much too late to get out of it. The use of an attorney in reading contracts would be useful before you make the offer, and never ever, ever, make an offer with zero contingencies - EVER!!! That is like handing some stranger the keys to your fortune - for free!!! :shock: :oops:
This is the second poster from CA who has made a real estate offer/purchase and then got cold feet. The errors were the same, failure to carefully think through offer and purchase terms, failure to give themselves an "out", falling for the "not making more land" or "if I don't buy this one, I'll never be able to buy again".
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Re: About to close on a home we have overbid on - have cold feet

Post by TravelGeek »

Grt2bOutdoors wrote:and never ever, ever, make an offer with zero contingencies - EVER!!! That is like handing some stranger the keys to your fortune - for free!!! :shock: :oops:
Looking at it from the seller's perspective - we recently received multiple all-cash zero contingency offers for our property in the Bay Area. It may be difficult to compete in that market otherwise. Not that I disagree with your concerns...
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Re: About to close on a home we have overbid on - have cold feet

Post by Grt2bOutdoors »

TravelGeek wrote:
Grt2bOutdoors wrote:and never ever, ever, make an offer with zero contingencies - EVER!!! That is like handing some stranger the keys to your fortune - for free!!! :shock: :oops:
Looking at it from the seller's perspective - we recently received multiple all-cash zero contingency offers for our property in the Bay Area. It may be difficult to compete in that market otherwise. Not that I disagree with your concerns...
If you have to "compete" for a house, walk away, there are plenty of others available even if you have to sink some money into it to make it "yours".
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Re: About to close on a home we have overbid on - have cold feet

Post by Pizzasteve510 »

I hope it works out either way. When I moved back to the SF area in the late 90s and paid 500k I was freaking out (having sold a paid for beautiful house in a central state for 50% less). Houses were lasting days on the market. Now I wish I had stretched for the 800k home I liked better.

If you can afford it, move in, be happy. If you can't, try to have an attorney get you out. Try not to obsess about the power lines.
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Re: About to close on a home we have overbid on - have cold feet

Post by chocolatemuffin »

Grt2bOutdoors wrote:
TravelGeek wrote:
Grt2bOutdoors wrote:and never ever, ever, make an offer with zero contingencies - EVER!!! That is like handing some stranger the keys to your fortune - for free!!! :shock: :oops:
Looking at it from the seller's perspective - we recently received multiple all-cash zero contingency offers for our property in the Bay Area. It may be difficult to compete in that market otherwise. Not that I disagree with your concerns...
If you have to "compete" for a house, walk away, there are plenty of others available even if you have to sink some money into it to make it "yours".
Unfortunately, in the current market situation, the OP has to either "compete" for a house, move to another region, or wait a few years and hope that the price comes back down.
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mmmodem
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Re: About to close on a home we have overbid on - have cold feet

Post by mmmodem »

shrug wrote:Regarding bay area trend (@mmmodem) - I'm well aware of the risk of prices going even higher (and I wouldn't even be surprised if it happens). The main reason I think this will change in the medium term (a few years away), is that the main growth engine for the tech industry has been the growth of internet usage and above all mobile phones growth. If you look at the growth curves, it's very clear we are approaching major slowdowns in growth (the growth rate is negative), and that could potentially affect the housing prices. I wouldn't be so worried if that was our 'dream home', and we are not considering it as an asset. But the moment I felt it no longer got the label, I felt like I need to consider what would happen if I need to sell it in a downturn.
Respectfully, that is speculating. You can't time the market. Have you seen the aerial footage of the massive "ring" Apple is building in Cupertino for their new campus? Have you heard of Tesla and their Model 3 to be built in the Fremont plant in 2018 that people can actually afford? The Silicon Valley is not a one trick pony.

I'm saying this again. Stop thinking of your home as an asset even if it isn't your dream home. Think of it as a place to live.

Let's assume you are right and Bay Area real estate tanks as it did in 2008 with the rest of the world. We left that bubble a long time ago. By 2011, my Milpitas home was worth the same as it did pre-bubble. Now it is worth double what I paid in 2004 and the Bart extension has 2 more years before it completes construction down to San Jose. I don't know how much longer this second bubble can be sustained and I don't really care. It never factored in when I purchased the home. I purchased a home I can live in comfortably in a good area that I wanted to live in. Even if prices falls, the chance of me losing money beyond what I would have paid for rent during that time is low because I can wait it out.
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Re: About to close on a home we have overbid on - have cold feet

Post by jaj2276 »

I signed a new construction contract back in summer of 2008 (before Lehman). I had to put down 5% in escrow which amounted to $20k. I got cold feet a few days later (not sure why) and forfeited the $20k.

Losing the $20k sucked but I don't even think about that $20k now unless I read a story like yours. The way I see it, either everything remains near perfection and your income/assets will make the $60k insignificant -OR- things don't remain perfect and the $60k cost was worth it. If the house is not what you want, chalk up the $60k as a hard lesson learned.

I tell you this story because I think it's important for people to realize that there are others out there who have made the same mistake (bought a house on emotion) and/or come to the same conclusion (forfeit a good sum of money just for being stupid).
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Re: About to close on a home we have overbid on - have cold feet

Post by ponyboy »

Cant imagine what OP is going through at the moment. Probably losing sleep at night, fighting with spouse, lose of appetite due to nerves. $60k seems like a lot (and is a lot) but considering what you two make its not that bad. This will serve as a good life lesson.

I would contact an attorney asap. Best case scenario you can get the fee down to 1% or 1.5%. Like others said...the seller isnt going to want to tie this up in court...they want to sell the house. Depending on your lawyer you may be able to get out of the fee completely...minus the fact you're going to drop a couple grand on a lawyer.
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Re: About to close on a home we have overbid on - have cold feet

Post by FrogPrince »

I'm not sure that you understand what speculation means. Speculation is betting that Silicon Valley will forever be rising onward and upward BECAUSE it has in the past followed that trajectory. Apple may have a few product missteps and be rendered irrelevant (as has happened in the past) and Tesla could disappear because battery technology is just too expensive to allow them to make a cheap entry model in the era of low gas prices.

In any case, while I do agree that the valley will most likely continue to do well, keep in mind that the reason why real estate is so expensive is that so many people have money that eventually tracks back to the tech stock market (ISOs or RSUs directly, or high salaries in companies like Google) to trade in for real estate. Should that dynamic ever change, we can enter a period of stagnant or declining real estate prices, even with a robust job market.

Now will that happen? Who knows. Twitter is well below its IPO price, so does that augur ill for the likes of Uber and Pintrest? Maybe - maybe not. But recognize that downside risk exists.

If it were to happen, the real downside is that you have likely given up the gains that you could have otherwise received by investing some of the money in a diversified boglehead portfolio.
mmmodem wrote: Respectfully, that is speculating. You can't time the market. Have you seen the aerial footage of the massive "ring" Apple is building in Cupertino for their new campus? Have you heard of Tesla and their Model 3 to be built in the Fremont plant in 2018 that people can actually afford? The Silicon Valley is not a one trick pony.

I'm saying this again. Stop thinking of your home as an asset even if it isn't your dream home. Think of it as a place to live.

Let's assume you are right and Bay Area real estate tanks as it did in 2008 with the rest of the world. We left that bubble a long time ago. By 2011, my Milpitas home was worth the same as it did pre-bubble. Now it is worth double what I paid in 2004 and the Bart extension has 2 more years before it completes construction down to San Jose. I don't know how much longer this second bubble can be sustained and I don't really care. It never factored in when I purchased the home. I purchased a home I can live in comfortably in a good area that I wanted to live in. Even if prices falls, the chance of me losing money beyond what I would have paid for rent during that time is low because I can wait it out.
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shrug
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Re: About to close on a home we have overbid on - have cold feet

Post by shrug »

Thanks for all the comments, and for rationlizing my decision both way. This really helps dealing with the situation. Eventually it's all about emotions. I was raised thinking $60K is a huge amount of money. But the reality is that it probably won't affect our lives that much. It's also weird that the prospects of losing $60K are a lot more painful than the happiness of gaining $60K passively from a balanced portfolio.

I checked the contract again, there are two sections they mention the power lines. In one it says 'visible power lines' and in the other it says 'pg&e easement'. I'll talk to a lawyer regardless and see what they recommend. Regardless I've notified the sellers that I want out.

I also agree that my comments on the real estate trends in the bay area are speculation. It's just my way of rationalizing why the decision makes sense. The reality is that once I move away from the deal, I'll have to deal with how to invest a lot of cash in an uncertain market, and will need to rent without any of the tax benefits of owning a home. Which is why I originally decided to buy.
Rodc
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Re: About to close on a home we have overbid on - have cold feet

Post by Rodc »

Getting cold feet is very common before buying a first house. A house is a big commitment and a lot of money. It carries a certain amount of risk.

I got cold feet when I bought my house, in part because a competing real estate agent spun me up when I told them I was going to buy house A and not B which meant they did not get a commission. Fortunately agent A talked me down. The house over the last 22 years has proven to have been a very good deal.

Best of luck
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
bloom2708
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Re: About to close on a home we have overbid on - have cold feet

Post by bloom2708 »

I hope you can get out of the deal.

I have a deal for you: You give me $100 today and I will give you $28 next April 15th. Hmmm. No deal?

Every time I read someone buying a house to have a tax deduction I realize how ingrained that myth is. You pay thousands and thousands in interest on your mortgage to hopefully get 28% or so back at tax time. It is better than not getting 28% or 33% back, but not better than not spending the interest. Toss in the insurance and real estate taxes and assessments.

Buy a house to live in, sleep, raise a family, rest, relax. If you are lucky and it goes up in value, that is a bonus.
saurabh
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Re: About to close on a home we have overbid on - have cold feet

Post by saurabh »

shrug wrote: A little bit about us - I believe we can afford the house regardless of where the market move. We have ~$1.2M liquid which we will put most of into the down payment. We earn about $450K annually, and are early in our career (in our early thirties).
My wife and I make a similar income to what you make and we live a pretty expensive real estate market on the East coast but I would never consider buying a house for more than $1.25M at the upper end. I think once a mortgage gets to beyond $800k, even at your income level it is just to much to pay for housing. Neither would I ever put all of my savings and investments into a home. I realize that the Bay Area is a very tough market and in top public school districts like Palo Alto it is almost impossible to find anything below $2M. I think you should just consider renting, nothing wrong with it, especially since you don't have kids. If people making half a million a year will find themselves priced out of the housing market in San Francisco down the line I would be very surprised. If it indeed happens you could always relocate to a new job in a new location. Maintain your independence of thought and do not succumb to peer pressure or a feeling of "this is my last chance to get on the gravy train", there is no shame in renting and it is not money wasted especially if the price of a home is exorbitant compared to your rent.

You don't seem to have children and you are both in buys jobs so I am not sure what the rush is to buy in any case. Even once you have children you will have to pay for private school anyway till they turn 5 years old. Just wait for your Green Card and keep renting. Once you truly have the need to buy a house then you might have to be willing to compromise on the school system slightly (maybe you can't afford to buy a home in an area where the high school SAT score is > 1900 but maybe you can in a suburb where they are > 1800 for example), your commute or buy in an OK upper middle class area in $1M range and send your kid to a good private school.
puma
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Re: About to close on a home we have overbid on - have cold feet

Post by puma »

shrug wrote:... I was raised thinking $60K is a huge amount of money. But the reality is that it probably won't affect our lives that much. It's also weird that the prospects of losing $60K are a lot more painful than the happiness of gaining $60K passively from a balanced portfolio. ...
shrug, assuming backing out of the contract is what you want to do, don't assume you are out of $60k. And don't give up your full deposit without a fight. Especially if the seller can just go back to one of the other bidders and can get a similar sale price. Actual damages will likely be lot less than 3% if that happens. And they will need you to release them from the contract before they can move to another buyer.

See http://www.notarolaw.com/Articles/Dry_F ... amages.pdf :
How large can the Seller make the liquidated damages clause and still have it be enforceable? In residential sales, the legislature has capped liquidated damages at 3% (Civil Code 3307). Civil Code Section 1671 creates a more ambiguous standard: a liquidated damages provision is valid unless “unreasonable under the circumstances existing at the time the contract was made.”

What is unreasonable? The courts will employ a multifaceted test to ascertain reasonableness including actual damages, length of time off the market, sophistication of the parties, whether parties are represented by counsel, difficulty of proving causation etc.
HornedToad
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Re: About to close on a home we have overbid on - have cold feet

Post by HornedToad »

shrug wrote:Thanks for all the comments, and for rationlizing my decision both way. This really helps dealing with the situation. Eventually it's all about emotions. I was raised thinking $60K is a huge amount of money. But the reality is that it probably won't affect our lives that much. It's also weird that the prospects of losing $60K are a lot more painful than the happiness of gaining $60K passively from a balanced portfolio.

I checked the contract again, there are two sections they mention the power lines. In one it says 'visible power lines' and in the other it says 'pg&e easement'. I'll talk to a lawyer regardless and see what they recommend. Regardless I've notified the sellers that I want out.

I also agree that my comments on the real estate trends in the bay area are speculation. It's just my way of rationalizing why the decision makes sense. The reality is that once I move away from the deal, I'll have to deal with how to invest a lot of cash in an uncertain market, and will need to rent without any of the tax benefits of owning a home. Which is why I originally decided to buy.
FYI, generally you won't lose the entire 3% deposit. Most often you can settle and lose half of the deposit or so. Especially if the sellers really want to sell and don't want to be tied up in a lawsuit over the deposit in which case they need to wait until it is over.

So it might only cost $30k to get out.
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FrogPrince
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Re: About to close on a home we have overbid on - have cold feet

Post by FrogPrince »

My sense is that agents are using the fear of a fed rate hike to get people to pull the trigger now. In reality, mortgage rates either have the rate hike priced in already or are probably pretty close to it. Given you have the cash, I would just stay put for 3 months or so. Once the dust clears and going into December/January, you might see better negotiating strength as a buyer, especially on homes that got left behind or on homes where people have to sell quickly.

shrug wrote:Thanks for all the comments, and for rationlizing my decision both way. This really helps dealing with the situation. Eventually it's all about emotions. I was raised thinking $60K is a huge amount of money. But the reality is that it probably won't affect our lives that much. It's also weird that the prospects of losing $60K are a lot more painful than the happiness of gaining $60K passively from a balanced portfolio.

I checked the contract again, there are two sections they mention the power lines. In one it says 'visible power lines' and in the other it says 'pg&e easement'. I'll talk to a lawyer regardless and see what they recommend. Regardless I've notified the sellers that I want out.

I also agree that my comments on the real estate trends in the bay area are speculation. It's just my way of rationalizing why the decision makes sense. The reality is that once I move away from the deal, I'll have to deal with how to invest a lot of cash in an uncertain market, and will need to rent without any of the tax benefits of owning a home. Which is why I originally decided to buy.
Carefreeap
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Re: About to close on a home we have overbid on - have cold feet

Post by Carefreeap »

FWIW almost every buyer gets cold feet. If not this house then it will happen with your next. As someone else said it's a big commitment.

That said, when did you learn that PG&E's easement prevents ANY development in the backyard? Was that with the title report?

If so, then I would go to a real estate attorney to get a strongly worded letter protesting the language in the disclosure statement. Simply stating "visible powerlines" and "PG&E easement" doesn't reasonably address not being able to put any structures in the backyard. Nearly every house has some kind of minor PG& E easement such a guy wire anchor. A reasonable person would assume that PG&E would have an overhead easement-not also a surface easement. Shame on the listing agent for not disclosing it as a "material" fact.

A good agent would have been upfront and stated "listing price reflects discount for backyard PG&E surface easement which limits development in the back XX feet of the property. Please investigate before offering" or some such language.

I hate these kind of markets. People get greedy, buyers are unable to do due diligence and the result is a bunch of lawsuits. :(
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TravelGeek
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Re: About to close on a home we have overbid on - have cold feet

Post by TravelGeek »

shrug wrote: I'll talk to a lawyer regardless and see what they recommend. Regardless I've notified the sellers that I want out.
Are you working with a buyer's agent?
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arcticpineapplecorp.
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Re: About to close on a home we have overbid on - have cold feet

Post by arcticpineapplecorp. »

shrug wrote:Hi Bogleheads forum,
During the tour, we saw a house we really liked. It's a large, brand new house in a great school district, built on a quarter acre lot. We immediately fell in love with it and rationalized why we can afford to have our first home be our dream home...
I'll only add one thing, especially if you can get out of this based on your concerns. It's something I heard from Clark Howard (he has a radio show). He said "When you go house shopping, never fall in love with a particular house." Which is exactly what you've done.

The reason is that if you fall in love with a house, you are most likely going to overpay for it. You might get caught in a bidding war with another potential buyer, etc. You may do whatever you have to not to "lose" the home (I put lose in quotes because you can't lose something you don't have. You only have it after you've bought it). You will lose sight of the fact that it's a place to live (and you will probably have more than one in your life) and like other things you buy, you should get a fair price and not ever overpay.

The more you look around, you'll probably fall in love with lots of houses (and will learn to not get too emotional over any one in particular). That will enable you to get the best price because if it doesn't work, you just move on to another. This works for investments the same as it does homeownership, which is a type of investment (even though it's really a consumption item).

Try to buy the cheapest house on an expensive block, rather than buy the most expensive house. Let others' more expensive homes raise your property value rather than you being the one to raise the property values of your neighbors.
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