As we enter the first days of an unprecedented national emergency, real estate consumers — sellers and buyers — will need the guidance and services of real estate professionals more than ever.
Having been in real estate’s informational sphere through 9/11 and the Great Recession, I’d like to share some of my thoughts and tips to help you weather the COVID-19 crisis. Agents and brokers who understand the critical role they can play will survive and even thrive during this time of crisis.
Are we entering a time of unexpected buyer’s markets?
As we move forward, selling a home will never have been more challenging. Open houses are out. Showings, inspections and appraisals will be harder to schedule. Sellers facing weeks or months of uncertainty might start cutting prices.
The Federal Reserve’s decision to lower interest rates — to as low as zero percent — creates an unprecedented opportunity for buyers to lock in mortgages at phenomenally low rates now. Low rates and seller uncertainty will favor buyers.
Or are we entering a time when sellers will do better than ever?
It’s spring sales season; inventories that are already low will shrink even more. Sellers who can afford to wait until the crisis is over will do so rather than list their homes. Those who are ready to list their homes will wait until things settle down. Short inventories will keep upward pressure on prices. The super-low rates will motivate a flood of buyers to buy now. More buyers and shorter inventories will help sellers.
Representing either side of the transaction will be challenging. Whether you’re buying or selling, determining the value of a home will become more difficult with each passing day.
Initially, comps will reflect pre-crisis sales conditions, not the market adjustments the crisis will require. As time passes, pre-crisis values will become increasingly irrelevant. Appraisers and automated valuation models, or AVMs, will use more and more “crisis comps,” and pre-crisis values will no longer be relevant.
However, sellers will expect their home to return to its pre-crisis value, just as they will count on the securities in IRAs to regain value as soon as possible. Here are a few of tips for getting through the struggle.
Stay on top of local market movements and sales trends
Successful agents today do an excellent job of following MLS data. Increase your market intelligence by keeping close tabs on trends in local list prices, price reductions and closings.
Up your game during the crisis. If there is one, consider subscribing to a service that reports local and hyperlocal data more frequently than the MLS. Work your network for info on local sales.
Include both crisis and pre-crisis comps in your BPOs
Calculate two valuations: one using pre-crisis comps, one using just crisis comps and one with both. Analyze results to look for trends. Include trends in list prices. Use your broker price opinions to educate your clients to expect post-crisis values to be different than pre-crisis values if the crisis continues.
Prepare for a low appraisal
When prices are fluctuating quickly, as they may during the crisis, the appraised value of the home may come in under the offer price. If you’re representing the seller, you could ask the seller to lower the price or make a concession (like, for example, not asking the seller to make certain repairs). If you’re the seller, you might consider reducing the price if the buyer would make a similar concession.
Prepare for post-contract market fluctuations
In this environment, it’s possible that a seller might refuse to lower the selling price below the pre-crisis value. Buyers could offer to increase their down payment by the difference between the sale price and the appraised value because the appraised represents the fair value at the time of the closing. If the appraised value is lower than the offer, then the seller would be responsible for lowering the price to the appraised value.
Develop a post-crisis strategy
Since we don’t know how the events of the crisis will unfold, at this time, consider leaning into virtual showings. That way, you can maintain business while keeping distance. Be prepared to ramp up showings for buyers for when things go back to normal. Identify and market homeowners living in ZIP codes where values improved when the crisis ended.
Consumers will need to buy and sell houses during the crisis just as they do in normal times, and the coronavirus crisis has created an opportunity for agents and brokers to demonstrate the essential role they play in the nation’s housing economy.
Steve Cook is editor of the Down Payment Report and co-founder of Real Estate Economy Watch. He was VP for Public Affairs at the National Association of Realtors from 1999 to 2007. Visit him on LinkedIn and Facebook.