Real Estate: “Menage’ a trois” of interlocked-gridlocked deals

Real Estate: “Menage’ a trois” of interlocked-gridlocked deals

Spot The Speculators #90 – And So Ad Infinitum – “Three transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominoes fall.”

“Here’s an interesting game of chicken that illustrates what’s happening in the market right now:
I was talking with a colleague who just sold their home. They had an offer made on it a couple months ago which was subject to the sale of the buyer’s townhouse. The owners of the townhouse received an offer, you guessed it, subject to the sale of the potential buyers condo. These 3 transactions were all stuck in limbo because no one was willing to budge on their price in order to sell their place and let the dominos fall.
In the end what ended up happening was the couple at the bottom (owners of the condo) decided to take on two mortgages. They used that as leverage on the person who owned the townhouse to lower their price (use the difference to carry the second mortgage for a few more months). The person with the townhouse agreed and used that as leverage on the homeowners. So everyone dropped their price to move their properties and the condo owners are now left with two mortgages… hope their strata allows for rentals.”

Anonymous at VCI, November 16th, 2012 at 8:12 am.

And the speculators here are… 1. the guys who end up with two properties, and 2. the move-uppers from the townhome to the (I presume) SFH.
The buyers create apparent wealth from nowhere by borrowing and promising pay-back over 25 years, the only seller who is actually cashing out runs with the money.
If home prices go up, those who have increased their RE exposure do well to okay… if prices drop, they are BBQed.
Anybody who doesn’t see how this is all directly related to musical chairs and Ponzi schemes really isn’t paying attention.
– vreaa

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COMMENT :

Most deals tend to be linear ie One- on -One..A single buyer and a single seller with perhaps a few “subject -to’s”.

However scenarios like those above will probably become more frequent. It is probably the most desperate when people can only sell their home by accepting offers whereby the buyer seeks Vendor financing.

Good explanation by “vreaa”, the only true winner is the one that has Ca$h and not interlocked  with both cash and mortgages.  Too complicated ,too much downside….especially the parties moving up from condo to SFH.

I would simply wait things out..too  volatile right now and will probably get worse.

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