While buying homes sight-unseen has always been popular among investors and foreign buyers, the coronavirus pandemic is making it more of a reality for all types of luxury clients — with the help of contingency clauses.
Colleen Holmes, the broker and owner of Engel & Völkers Lake Placid, has seen increased interest in the luxury resort town’s real estate as the outbreak continues to ravage nearby cities like New York and Boston. Her brokerage has stopped offering rentals in the area to not overwhelm the 3,000-person mountain town’s infrastructure but a few with deep pockets have made offers on luxury vacation homes without visiting them.
“The challenge is that they can’t see it right now and yet they are still some people pulling the trigger,” Holmes told Inman, adding that they are currently in contract for a multi-million-dollar camp home on the lake that the family has not been able to visit due to travel restrictions. They put in a contingency clause saying that the buyer needs to have a satisfactory visit on the property before buying — the family will do so as soon as the statewide stay-at-home order is lifted in New York.
“It’s sight-unseen in that they’ve not literally been at the property but boy, do they know a lot about it,” Holmes said, adding that the family has seen lots of photographs, gone through multiple fly-over tours and paid for a local home inspection. “But if for some reason it’s not what they expected, they can leave the contract.”
As the pandemic continues to make travel and physical visits to see real estate difficult, the number of sight-unseen offers is growing. A National Association of Realtors survey conducted in April found that 25 percent of Realtors reported getting contracts on homes without physically visiting the property.
In general, the clause allows almost everything that needs to happen before closing — contract writing, home inspection, title — to go forward when the buyer isn’t able to visit the property for whatever reason. Jo Ann Bauer, a Realtor at the Ozer Group at Coldwell Banker Realty in Arizona, told Inman that it gives the seller confidence that an offer is serious while also protecting the buyer from a purchase that for some reason doesn’t live up to a virtual tour.
“You have to be willing to negotiate with the seller for some sort of security that you’re serious about purchasing the property,” Bauer said, adding that it’s typical to put down around $25,000 deposit on a luxury property when you use a contingency clause. “[…] There’s a lot of risk to the seller that, after the final walk-through, the buyer will walk.”
Bauer advises buyers who are not able to visit the property to negotiate the longest contingency clause that that they can, minimum 10 days. The goal should still be to visit to physically visit the property as soon as possible but to, in the event of something like the current pandemic, have the sale moving forward anyway.
“One of the ways in which you can word a contingency clause that’s based on a purchase sight-unseen is that, during the inspection phase, the buyer can make a choice to step back for whatever reason,” Bauer said.
Sally Forster Jones, Executive Director, Luxury Estates at Compass in Los Angeles, has seen a dramatic rise in the number of sight-unseen luxury rentals during the coronavirus pandemic. While buying that way is more of a commitment and therefore much more rare, Jones also confirmed the traditional ideas of sight-unseen are rapidly changing since technology enable clients to see much of the property without visiting it physically.
“Some of the energy can’t be transmitted exactly the same way as it can when you walk into a property but we’re trying to do it as best we can and really relay what the property feels like,” she said. She believes that the industry is already moving that way for investors and foreign buyers, who are more interested in stats and returns rather than the emotional aspect of a home.
Ruth Krishnan, who leads the Krishnan Team for Compass in San Francisco, wrote an offer on a property that was sight-unseen at the start of April. The contingency clause allowed the seller to go through multiple offers and then have a backup if the first deal doesn’t work out.
“Everybody can look virtually and then offers are due […],” Krishnan said in a video she posted on YouTube. “Whoever gets into contract has a 48-hour contingency to go and see the property and then potentially withdraw their offer or renegotiate based on what they see.”
But while contingency clauses and 3D tours have allowed sales to go through amid travel bans, many agents believe that the rise in sight-unseen purchases is still a response to a pandemic or other exceptional circumstances rather than the future of the industry overall, particularly when it comes to the home that the buyer will be living in.
“I don’t think anything compares to people actually getting a feel for a house,” Holmes said.”I can’t imagine that it would be a preferred way to do business but we make things work when we have to.”