Condo Crunch

For Boom-Time Buyers, the Stakes Are High as Values Drop

Even after the repeated construction delays and all the talk about a housing slump and falling home values, Barrett Thornhill was excited about moving into his new two-bedroom condominium this summer.

He had picked the unit two years earlier, based on nothing more than building plans. But Thornhill was looking forward to the swimming pool, the extra space and the luxury kitchen that he had put down more than $30,000 to secure. The condo's location along H Street NE in the District would make him an urban pioneer, he thought.

But there was trouble. The first sign was when a friend forwarded Thornhill, 28, a posting on a local blog reporting that his building, Senate Square, was converting condos to apartment rentals. The Web site for the project confirmed the news with a new advertising pitch for "luxury apartments."

Now, after three months, more than two dozen phone calls and an expensive consultation with a lawyer, Thornhill is waiting for the return of his deposit. "The least they could do was notify us. . . . It was more of a slap in the face," said Thornhill, a health-policy lobbyist. "It's outrageous."

Charles Herzka, a spokesman for New York's Broadway Group, which developed the project, said in an e-mail that the marketing firm should have alerted buyers about the conversion to rentals and that many deposits have already been returned.

Just two years ago, condo hunters around the region were lining up for hours to gawk at computer renderings of homes that wouldn't be ready for months or years. They put down thousands of dollars in deposits to secure their prizes and hoped the housing boom would keep pushing values higher. Instead, prices have dropped since then, and sales have slowed. Thousands of units have been repositioned as rentals as developers abandon the for-sale market.

In some cases, buyers are grappling with the declining value of homes they have yet to occupy. One of the most common problems facing these buyers is when their condos are worth less than what they committed to pay for them. That can make it more difficult to find a lender. It also has some cringing at the prospect that they are overpaying and that it may take years for them to recover the difference.

To keep buyers from walking away from their deals, some developers have negotiated price drops or offered free parking spaces or upgrades such as granite countertops. But others have refused to budge. "It wasn't costing them less to build the building," said Robert M. Diamond, a real estate lawyer with Reed Smith who represents developers.

Caught Without the Cash

Danah Leeson, a registered nurse, agreed to pay $615,000 for a two-bedroom condo at the Phoenix in Arlington in July 2005. She put down a deposit of about $31,000. But this summer, when she tried to secure a loan to complete the purchase, the lender told her she would have to come up with an extra $100,000 to make up the difference between the purchase price and the current value of the unit. "The lender won't give us more than the appraised value," she said.

Her choice? Find $100,000 or lose her $31,000 deposit.

Leeson attempted to move forward but soon realized she wouldn't make enough profit on the sale of her Loudoun County home to cover the difference. Her neighbors had been lowering prices and taking losses to sell their homes. A $100,000 profit "wasn't going to happen in this market," she said. Leeson did not complete the purchase and is still trying to get her deposit back.

Surviving the tumultuous market for new condominiums takes preparation, real estate lawyers and others said. Some buyers, like Leeson, can try to enter mediation with the developer in the hope of having their deposits returned. (Many contracts require both sides to attempt mediation before the buyer can file a lawsuit.) Others can see whether there are provisions in their contract that call for the return of the deposit if they cannot find proper financing.