Condo Sales: How Firm are They?

While the mortgage lending crisis seems to be easing, jumbo mortgage rates remain significantly higher than they were just two months ago. During this period, many projects have announced stellar sales and reservations of new units brought on the market during this awkward period.

So what’s the deal? Is the Austin market so strong that people keep on buying as rates go up? Is everyone in town paying in cash? Is there really demand for another 136 buildings? The answer is no. In reality, some of the buildings have made the reservation process so painless that with $5,000 or $10,000 and a dream you can reserve a unit. If interest rates rise, contractual provisions may allow you out of the contract. If you can’t get financing, you get your money back. In fact, at some buildings, the deposit is fully refundable. Go ahead, reserve a unit and then decide if you want to live downtown. If not, just ask for your money back.

For example, the W Hotel and Residences has a $10,000 fully refundable deposit policy. While they report that they have “sold” 150 of their 196 units, this number will certainly drop when the hard earnest money is due at ground-breaking in October, or when some occupants find out that they will not qualify for a jumbo loan.

This isn’t true for every project: once a building commences construction the deposit requirements typically become much more strict with as much as 10% of purchase price due to the developer. It’s the buildings still in pre-construction sales whose “sales” are the hardest to gauge.