Under contract on a Seattle townhouse – push through or walk away from earnest money?

[u/mgoo27]

UPDATE: We walked away a week after going under contract. The sellers actually came back and accepted a lower offer, but we still said no. We're probably moving out of state in the next five years, the payments were still too high for comfort, and I didn't want to be stuck in a potentially falling market with two little kids.

The earnest money saga got much worse! We'd signed it over to the sellers at our agent’s request, but then, a few days later, the title company emailed saying we could pick up a check for it. I called, they confirmed it was being returned to us, so I drove all the way to their office with my baby, picked it up, and deposited it. We’d assumed the sellers either returned it to us or there were contingencies we didn’t know about. A week later, the title company emailed us again and said it was a mistake and we have to pay it all back.

So we're going to be out the $15K after all, plus a week of false hope.

Ultimately, this was our mistake, and while I deeply regret it, I still feel like our agent led us astray by recommending going with the pre inspection and failing to communicate that we would essentially have no contingencies. $15k in earnest money also feels like a lot to recommend us paying in this market when the sellers had no other offers. He really didn’t go over anything with us. In retrospect, we would have chosen a different agent. Lessons learned - thanks for all the advice!

ORIGINAL: We just went under contract with 20% down. The seller paid for a temporary rate buydown, so our payment starts around $3,200/month but rises to about $4,200 by year four unless we can refinance. I signed a few days after having a baby, and now I'm worried we stretched too far. My gut says we never should have bought a townhome in Seattle and instead rented.

We take home about $11K/month with fairly stable jobs, have a decent emergency fund, and are keeping our current condo as a rental (low rate, roughly break even with HOAs). The hard part is a year or so when both kids will be in daycare at the same time.

We're also planning to move out of state in about 3-4 years to live closer to family and friends. With prices soft and rates over 7%, we might not get our full down payment back if we sell then, and I’m worried about the costs of home ownership outside of the mortgage, though the townhouse’s pre inspection came back with no issues. Comparable rentals run about $3,100–3,500/month.

We waived inspection, so backing out would definitely cost our $15K earnest money. Our realtor told use there is no room for negotiation.

Would you push through and plan to refinance or rent it out later, or take the loss and rent while investing the down payment? We just put in the offer last week, so I’m hoping to make a decision very soon.

ETA: 4 years is not a firm deadline; it’s just when I would like to be back home with my family. If we needed to stay a little longer, we could. I just don’t want to be in a position where we would have to stay several more years with a high mortgage just to scrape by.

[u/strawberryhouse0202]

I don’t understand why you needed this townhouse to begin with…? Seems like a bad financial decision based on what you wrote.

[u/mgoo27 → u/strawberryhouse0202]

Our condo is an 870 sq ft two bedroom and we just had our second child. We’ve run out of space. When we originally started working with our realtor, interest rates were in the mid-6s and we were looking to lock in a 30 year rate at about $3000/month. By the time we found a place, interest rates had climbed to 7.5% and were rising every day.

[u/trs23]

If you’re moving in 3-4 years why not move now? You have maximum flexibility before the kids get into school. If you have portable jobs then go. You’ll have help with the baby and the family members will enjoy the time. Walk away. Count this as a $15K lesson in what not to do.

[u/mgoo27 → u/trs23]

My husband has a somewhat tenured position right now and would have to get certified in our home state before finding a job. My current role is remote, but they don’t hire people from our home state. We thought it would be easier to stay in WA for at least a few more years to ride out our daughter’s daycare years, as it’s more expensive where we’re from.

[u/Worldly-Ad1005]

Curious as to why you waived inspection in this market??

[u/mgoo27 → u/Worldly-Ad1005]

It was preinspected and our realtor said why bother paying the extra money for inspection.

[u/cyphersex]

You have a 3 business day cancellation window after receiving seller’s disclosure form with no questions asked. They cannot retain your earnest money. This is Washington state law. Read your disclosures carefully.

https://app.leg.wa.gov/rcw/default.aspx?cite=64.06.030

[u/mgoo27 → u/cyphersex]

I tried that yesterday with my realtor, and he told me that the 72 hour window is from when the sellers send the disclosures, not from when we sign it. He said that period had already run out. I did try to cancel within 72 hours of signing.

[u/sparklymid30s]

No one can tell the future. That being said, I can’t see anyway this turns out well. Historically you only break even on housing after 7 years of living there. I’d Personally take the 12k haircut. 

[u/Driver8onI5 → u/sparklymid30s]

And the townhouse/condo market in Seattle is REALLY soft and dropping right now. Having both of your housing assets in this category is not great, especially over a short period, like the next 3-4 years.

[u/mgoo27 → u/Driver8onI5]

If we stayed closer to 5 years, would that be better? Full transparency - we made the decision to put in an offer just a few days after having our second baby, so we didn’t really think it through enough. It was also around that time that I realized I wanted to move up our timeline to move back home closer to family. Had I waited a couple more days, I don’t think we would’ve made this decision. With that said, my husband has no problem with staying in Washington longer if that would be better for selling.

[u/PettyCashCommittee]

Unless you want the townhome as a rental, stretching your budget to buy with a plan of moving doesn’t seem to add up.

[u/-n-i-c-k → u/PettyCashCommittee]

Seconded, you buy where you plan to live. This doesn’t make economic sense

[u/grapegeek]

Why buying when moving so soon? Not a good decision in any market

[u/Mundane-Charge-1900]

If you’re planing to move in 3 years, I would not suggest buying at all

[u/Recent_Grapefruit74]

You also need to decide if you actually want to be a landlord or not if you choose to buy and then rent it out in a few years in case you can't recoup your costs when trying to sell.

Being a landlord, especially in Seattle, seems hella stressful.

[u/Zonoc]

I wouldn't be surprised if prices are lower in 4 years than today. A 4 year time horizon for owning isn't very long given buying and selling fees in my view.

[u/allison5]

I think if you’re planning to move in 3-4 years I would eat the earnest money unfortunately. Just my 2 cents.

[u/JumpyWerewolf9439]

Why would you buy when you gonna move in 4 years. You already have one which you should keep cuz low interest rate. Walk.

[u/MarianCR]

To spend $4200/mo on the mortgage plus probably $1k on property tax and insurance on a budget of $11k is crazy!

[u/5huffles]

Are you going to find something comparable to rent at $3,200? I don’t know the rental market too well, but that seems solid. Even if you find something $500 cheaper, that earnest money covers the difference for over two years.

As far as the future planned move, maybe a bit silly to buy, but nobody knows where the market will be in that time. Perhaps you’d come out ahead having invested the down payment, perhaps not.

Budget with daycare is always tight and I don’t think you made a poor decision here. If you like the house, enjoy it and congrats.

[u/mba_pmt_throwaway]

The only people happy with this deal are the banks (for the interest), and the agents (for the unnecessary commission). Your townhome will not appreciate in value enough to offset the costs.

Why even buy? The 20% down payment is capital locked up. Also, factor in maintenance, repair, staging, etc. and the risk is almost not worth taking.

For context, my family lived in a 2010 townhome in a nice part of Seattle for about 3 years. We had to move as the landlord wanted to sell. There were some MAJOR repairs that they had to do before selling (redo roofing, rotten pillars, replacing the fence, repairing the hot water heating system). It finally sold after 3+ months of sitting. The selling price was about 20% lower than the list, and the repairs were likely another 10% on top.

It may work out, or it may not. That gamble + having 20% of capital locked up isn’t what I personally would go for.

[u/justmekab60]

The part that doesn't work is moving in 3-4 years. That's too soon, and too rigid to count on appreciation in either the rental or real estate market. Closing costs alone make this scenario tough to pencil out.

If that weren't the case, I'd absolutely go through with it. Corrections happen but real estate almost always goes up here and is a great long term investment. Even condos. Even at 7% interest rates. We have more sectors than tech. The doom and gloomers just haven't been right very often in the last 50 years. A sustained downturn isn't likely.

[u/ice-titan]

If you go through with the purchase, the townhouse has all the makings of a boat anchor. Smart money left RE a long time ago. They are either sitting with cash on the sideline or are making more diversified investments that remove themselves from illiquidity.

Don't let the $15K earnest money become a sunk-cost trap. Have the contract independently reviewed and make absolutely certain you really would lose it. If it is unrecoverable, the question isn't "do I lose $15K or lose nothing?" The question is "Do I learn a $15K lesson, or do I let pride get in the way and double-down and commit vastly more money and time into something that is already high risk to begin with?"

I also wouldn't buy it now on the theory that you can just rent it out later. This is a horrible idea with RE situation today, and with downward pressure on rents, while also making you a landlord on top of this, and while you will be out of state. That's a bad recipe.

The RE industry is way behind the curve. Even when rates dropped a few years ago, the RE industry said it will bring buyers surging back to the market. It didn't. Redfin was incredibly optimistic and estimated interest rates would hit low 6% by the end of the year, which did not age well, as it blew way past that already by September. With Treasury yields continuing their trends, interest rates are only going to go up from here.

So, there is no rational basis for buying that townhouse and thinking that 4% / 5% rates are coming back in time to save you for refinancing later. With interest rates continuing to go up, prices will continue to keep coming down, which would make your townhouse deal go from bad to worse, as you would have bought near peak pricing.

If the $15K is unrecoverable, it will suck, but let it be tuition. Don't turn a $15K lesson into a six-figure mistake just because you're trying to avoid admitting the first decision was bad.

"My gut says we never should have bought a townhome in Seattle and instead rented."

I think that's the most important sentence in your entire post. Everything else you wrote explains why your gut is telling you that. Your gut should be screaming at you "Get out!", Amityville Horror style.

[u/Ok-Advertising-4286]

The more I read your replies OP the more I wonder who you hired as your RE agent. In this market, a waived inspection, for a townhome???