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In 2005 I purchased a guarantee price contract for a real estate luxury apartment. This apartment is due to be finished in 2012 (7 years after). The price estimated price of a similar apartment in the same area is the same or less than the guarantee priced of the apartment not yet constructed. This due to the lower real estate value and other economic phenomenons.

Should I keep the price guarantee for another 2 years, or should I give the contract up. I only loose 50 dollars of the contract if I let it go. Since it was done so many years ago, they don't penalize people for breaking the contract.


Note 1: MBHunter, you are right. I wrote the statement incorrectly. I fixed it now. The main idea is that a similar apartment is at the same price that I fixed with this contract 5 years ago an apartment that is still not constructed.

  • "The price in the contract is the same or less than the guarantee priced, purchased 7 years ago." I don't understand the difference between the "price in the contract" and the "guarantee price." – mbhunter Nov 6 '10 at 18:22
  • No problem, but after re-reading I'm still confused. Sorry. :) My confusion: Did you actually buy an apartment, to be constructed? Or did you buy an option to buy an apartment at a fixed price, to be constructed? Or did you buy an option to rent this apartment at a fixed rate? – mbhunter Nov 8 '10 at 18:05
  • @mbhunter. I bought the option to buy an apartment at a fixed price to be constructed at a later date. Thanks for clarification. – Geo Nov 8 '10 at 22:28
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I appreciate the clarifications.

You bought the option. You transferred the upside price risk to the builder for a price. Also, you are not obligated to buy.

The market didn't rise enough to have your option go "in the money," so to speak. That's the other side of the risk. The builder assumed the future risk of losing money back in 2005 when you bought the option. He hasn't yet had to sell you the apartment at a below market price, but he could have. So, he came out ahead in the deal.

It would be silly for you to exercise your option to buy if the market price of a comparable apartment is lower than the contract price.

This depends on where you live, of course, but I don't see things rebounding much within two years. That's my opinion (and you should get others).

I'd get out.

  • Thanks. I was thinking of getting out myself. I have an uncle that told me that is not going to hurt to keep it for an extra two years, but I keep thinking that my option price is not gaining any type of interests and is being consumed by inflation as we speak. – Geo Nov 8 '10 at 23:24
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I would demand a significant price concession, including no additional payments to hold the guarantee. Otherwise, I would walk.

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