Dear Why 6 Percent:

We have a very unique situation and need some advise.  We entered into a Lease with the Option to Purchase agreement on a home last year.  We agreed to purchase the home we are presently renting for $350,000, by September 1st, 2009.  As a part of the purchase agreement, we gave the seller a check for $10,000 to lock in the price and terms.   Ever since we signed the agreement, house prices have continued to fall.   Now the exact same house/floorplan we live in is on the market for $319,000, and they would probably take a lot less. 

We don’t know what to do.  Should we exercise our option and buy this house for $350,000 or should we walk away and lose $10,000?

Between a Rock and Hard Place, Tampa, FL

Dear Tampa,

Unfortunately, your situation is not unique.   Home prices have continued to decline over the past year, which means You situation is pretty straight forward to me.  Would you rather lose $10,000, $30,000 or possibly more than $50,000?   I thought so.

As painful as it is to admit you jumped in and tried to catch a falling knife, the truth is you did and you got cut.  Give the seller his house back and be thankful you were cautious enough that you didn’t put all your money on the line last year. 

Thank you for emailing Why 6 Percent.  Take a look at the song titles on the Dionne Warwicks ”Walk on By Album”.  Pretty funny given the topic today.