As the coronavirus turns the real estate market upside down, buyers are eagerly awaiting the end of a seller-led market with skyrocketing home values and asking prices. Although some of the industry’s top economists are backing buyers’ sentiments that the market is turning in their favor, real estate agents in three of the country’s largest metros told Inman that sellers’ reign isn’t up just yet.
“I’m not sure where you got that information,” Saint Louis-based real estate agent Mark Gellman said of reports classifying the city as a buyer’s market. “It’s unequivocally a seller’s market. There are less than three months of inventory at every price point.”
According to Gellman, who co-leads The Gellman Team with his brother, Neil, the coronavirus has exacerbated the city’s inventory shortage as sellers’ are wary about placing their homes on the market in the midst of economic upheaval.
“Part of the coronavirus’ [impact on St. Louis] is a weakness in inventory, but keep in mind we’re in the early spring market when there’s always limited new listings coming on the spring market,” Gellman said. “The reason it’s a seller’s market right now is because there are no new listings coming on the market.”
“Things are down 30 to 40 percent year-over-year, so the big issue isn’t more buyers, it’s less new listings,” he added. “So coronavirus essentially caused the spring new listing market to not occur.”
In Dallas, Monument Realty owner Eddie Burns echoed Gellman’s sentiments, saying inventory levels in the city have plummeted as sellers decide to stay on the sidelines until the economic activity in the state ramps up.
“We’ve seen a surge in new buyer activity and homes starting to sell fast again; however, there’s not enough inventory in the market right now,” Burns told Inman. “There are a lot of buyers coming back, but not enough people are selling, and it’s keeping the prices up.”
Both Gellman and Burns said the shortage is hitting first-time buyers the hardest, as sellers of entry-level homes often have upwards of five or six offers to consider.
“In all of our price points, there’s not enough inventory,” Burns said of Dallas, which has been classified as a buyers’ haven in several market analyses. “Homes under $400,000, those entry-level homes, if it’s a good looking home and its updated, there’s a lot of scenarios where it’s four, five or six offers.”
“[For] the mid-level to upper-level homes, there’s not a lot of inventory there either, but they’re not moving as quickly,” he added. “That buyer is taking more time due to COVID, and they’re a little more cautious with making purchases $400,000 and up. Additionally, we’re having some people facing challenges with getting qualified [for loans] at upper price points.”
Meanwhile in Illinois, Chicago Properties broker-owner Sam Shaffer said the competition at the entry-level is opening the door for sellers to enter the mid-and-upper levels of the market — a move that is bolstering sales in the city’s suburbs.
“With unemployment rising and the stock market being volatile, people are bullish with real estate and feel it’s a good place to invest in,” Shaffer explained. “It provides shelter, it provides a utilitarian purpose and the inventory is on the low side, and it’s creating demand for buyers.”
“Prices have not gone down, they’re staying very consistent, and believe it or not, we’ve run into multiple offers on many listings,” he said. “So sellers are able to sell the lower price point entry-level condos ranging from $400,000 to $500,000, which is creating more of a market for mid-price and upper-price points.”
He added, “It’s really a beautiful domino effect.”
Although sellers still have the upper hand, Gellman, Burns and Shaffer say sharp negotiating skills, expert use of clauses and buyer letters, and perfectly written offers can help buyers snag their dream home without busting their budgets.
Gellman said the first step in preparing buyers for a competition is taking a deep dive into the price and inventory trends for the areas they’re considering.
“We’re overeducating our buyers. We’re explaining to them what the market looks like, and we’re supplying them detailed data,” Gellman said. “If you think it’s a buyers’ market and it’s a sellers’ market, and you may be lowballing and doing other things that reflect a buyers’ market.”
“If you take that approach, you’re going to miss out on opportunities, so we’re always giving them an overview of the market and educating them in their specific market price point area,” he added. “Everywhere in Saint Louis is different and it’s dependent on the area, the price point, and the actual home.”
From there, Gellman said he employs a number of tactics, which include providing buyer letters, escalation clauses and appraisal contingencies for sellers who are on a tight deadline.
“We’re using escalation clauses, we’re using a best and final [offer], in some cases we’re removing the appraisal rider if a client feels comfortable, and some are buying as-is,” he said. “For the first-time homebuyer and those who are not savvy, we’re not encouraging them to buy as-is or waive appraisals. Those are only for our more sophisticated buyers who understand the risks of that.”
Although Shaffer also uses escalation clauses and as-is offers to give his buyers the upper hand, he said the promise and delivery of a seamless transaction amid COVID-19 is the true x-factor sellers are looking for.
“[My offers] are very well written, and I dot every ‘i’ and cross every ‘t,'” he said. “Most of my clients are working with my preferred attorney, inspector and lender to ensure a smooth transaction on the seller side.”
“We’re shortening up our mortgage contingencies, so we’re trying to make everything as attractive as possible for the seller side,” he added. “Without sounding cheesy, it’s almost like the Jedi mind trick where we’re like, ‘You will accept our offer because everything is so buttoned-up and tight and articulate.'”
“We make it so seamless so there’s no reason why the seller wouldn’t want to work with us,” he continued. “We’re extremely passionate and competitive, and we want the best for our clients. We’re relentless without being off-putting.”
In addition to crafting irresistible offers, Burns and his wife, Tiffany, who is the lead broker for Monument, say their reputation has helped clients win listings with six bids.
“The feedback we got from one of our agents just yesterday was that he was in a multiple offer situation up against two cash buyers, and his [buyer] was a financing offer, which usually isn’t as strong,” Tiffany said. “But the realtor on the other side knew our reputation and the agents’ reputation. So I think our reputation has helped.”
Even with those things in place, Gellman, Shaffer and Burns all realize the deal may come down to one thing: offering more money. In those cases, each agent said they rely on market trends and appreciation data to help their buyers decide if the extra cash will pay off in the long run.
“One thing we train our agents to do is to run the history of the neighborhood, the city or county to see what the appreciation is,” Tiffany explained. “If the buyer is going to be in the home for five or more years, and you can show them the numbers and if they have to go a little bit above their budget, it’s still worth it.”
“If the [listing] is in an area that’s not appreciating very well, you may want to caution them against going above their budget,” she added. “We use data and we lean on the appraisal to go back and negotiate with the seller.”
“When it’s time to make an offer, we’ve already done all of our homework and all of our education to know what is the right price and what we feel comfortable bidding,” Shaffer said, echoing Burns. “There’s also the check and balance with an independent appraisal once we get further along and that’s another safeguard.”
Looking forward, all four agents expect more sellers to enter the market in late summer as states ramp up their reopening efforts. But even with a late-summer inventory boost, Gellman said buyers shouldn’t anticipate a full-blown buyers’ paradise.
“I’m not going to suggest that it’s going to switch to a buyer’s market, but it will become more of a balanced market,” he said.