The Coronavirus has changed how we all do business and live our lives. Some industries, like healthcare and education, are impacted dramatically. The business of real estate has also had its share of changes. Conducting a transaction today looks nothing like what it did before the pandemic. Luckily, many agents are resilient and have adapted.
It would be hard to ignore the overall shift in real estate markets. Prices have increased dramatically over the last couple of years and the inventory of available properties in most markets is pretty thin. Both commercial and residential real estate have seen shifting markets.
There’s no doubt the overall business of real estate has changed dramatically in recent years - here are the top 20 ways that COVID has affected the industry:
The Commercial Market
1. Office and retail spaces are out, warehouses and medical offices are in:
Commercial transactions have seen a decrease in the demand for office and retail space, while interest in warehouse and medical office space has soared.
2. Communal spaces are out, safety is in:
Across all commercial property, the demand for communal spaces (i.e. lounges and fitness rooms) has evaporated, while interest in safety has been at the forefront. Things like improved ventilation, air filtration, touchless technology, set ups for virtual meetings, and more walls are highly valued.
The Residential Market
3. More investors than ever:
Investors have seen the rapidly changing markets and taken advantage of the opportunities. Unlike the investors of yesterday, who valued long-term tenants, or put in the work to renovate property, investments today are much different. Investors bought up property for short-term vacation rentals. With such low inventory, there was no need to renovate. Some property investors even relisted property before they even closed on it!
4. Lack of affordable housing:
First-time buyers were possibly hit the hardest by the changes in the housing market. Freddie Mac estimates us to be about 3.8 million units short of what we need for the current population in the U.S. As a result, prices have gone up dramatically. To add insult to injury, now mortgage rates have more than doubled and prices have not come down significantly.
5. Increased demand for multi-generational housing:
With the lack of housing, affordable and otherwise, there has been an increase in homes with accessory apartments, in-law suites, and generally the space for multiple generations of families to live together.
The Offers
6. Rampant multiple offers:
Over the last few years, we settled into the fact that a well-priced property in reasonable condition would get multiple offers. How many did the average property get? That depends on how long the seller could stand the pressure. Some sellers saw the opportunity and allowed many multiple offers to come in. A quick survey of our agents shows that getting 20+, 30+, or even 40+ offers on a single listing is common. While that may sound like a seller’s dream come true, it can be quite stressful to handle all those competing buyers.
7. Changes to how offers are crafted:
We invented new vocabulary terms, like “escalation clauses”, and “appraisal margins”. We also saw more non-refundable deposits than ever before. For those who haven’t heard these terms before, an escalation clause may state that the buyer is willing to pay some amount above any bona fide offer that is higher than their initial offer. This usually has a limit - for example, a buyer offers $400,000 for a home, but is willing to pay $1,000 more than any other bona fide offer up to $423,000. If another offer came in at $415,000, the escalation clause would allow the price to go up to $416,000.
In the case of an appraisal margin, property prices increased so rapidly that appraisers sometimes had a difficult time finding comps that were recent enough. Most properties take 45-60 days from accepted offer to closing, so a property that closed today was probably negotiated 2 months ago. Appraisals often came back with values below the contract price. Ordinarily, a transaction would likely fall apart at this point, but the buyer may have cash in reserve to cover the amount that a lender would not finance because of a lower appraisal value.
Interpreting some of these new clauses became a challenge when multiple offers contained some variation of an escalation clause, coupled with an appraisal margin limit. How do they work together? Can one escalation clause be used as a bona fide offer for another? What if the appraisal margin limits were different? An experienced real estate professional can help navigate the complications.
8. Parties walking away from transactions, frequently resulting in EMD disputes:
In the heat of negotiations, bidding on properties became intense. Properties saw so many competing offers, and buyers were willing to increase the purchase prices at a record pace. Emotions ran high and competition fed into many buyers realizing they were in a contract where the price was more than what they were comfortable (or able) to pay. Sometimes sellers were offered prices significantly higher than what they had in an accepted contract. Both buyers and sellers broke their contracts more frequently than I have seen in my 18 years of experience.
With broken contracts comes issues with the earnest money deposits (EMD). Lots of sleepless nights, negotiations, and consultations with attorneys.
9. Cash sales:
Cash sales are not new - but the sheer volume of cash transactions we have seen in the last few years is a dramatic shift. Along with the pandemic came more work-from-home opportunities (or mandates in some cases). Some employers saw productivity go up when their workers had fewer workplace distractions. Many employees were allowed to continue working from home, at least most days. This led to many leaving their high-priced city homes for less expensive country living. Many buyers had enough equity in the homes they left to pay cash for their new, suburban homes. Cash buyers moving away from urban centers had the ability to skip the confusion of escalation clauses and appraisal margins to simply pay cash – and pay well above list price.
10. Ready, willing, and able buyers and renters are stuck:
In 2019, the average home price in the state where I live (New Hampshire) was about $440,000. That is a challenge for many buyers, but even those who were approved to purchase that home in 2019 would only be approved to purchase $288,000 toward the end of 2022. Rents for housing also went up during this time, leaving many buyers who were ready, willing, and able, now ready, willing, but unable.
Doing Business
11. Virtual offices and Zoom meetings:
Zoom was the Oxford Dictionary word of the year for 2020. It is no surprise the amount of time many people, including many real estate agents, are now spending on the platform.
12. Virtual marketing:
You’ll now find more virtual resources (360 tours, drone videos, 3D space rendering, etc.) in the listing, and even virtual showings are now commonplace.
13. Sight-unseen purchase agreements:
With so many virtual resources, many buyers entered into a purchase contract having never actually seen the property in person.
14. New construction delays:
The pandemic brought supply chain issues and shortages of skilled labor. Builders want to build more to meet the demand for real estate. They are constrained because they can’t always get the materials or the people they need to build.
15. More sales from open houses than traditional showings:
Let’s be honest - for years we held open houses, knowing they rarely sold homes. We did this because the seller asked, because we do everything we can to create buzz around the property, and because we like handing out cookies. We talked to the neighbors, and the buyers who were just beginning their searches, knowing full well that motivated buyers don’t wait for an open house this weekend - they want to see the property tonight.
All that changed in the last few years. Today, sellers want to channel showings into one day. Then they can sanitize their home and relax before next weekend (if the property doesn’t receive multiple offers by then). Today, open houses sell the properties.
16. Drive-by or desktop appraisals:
Appraiser’s lives were changed dramatically too. Normally, appraisers go into each home to assess their value. They take measurements and photos, note the features and depreciation, and so much more. With certain types of government loan programs, they even performed inspections. During COVID, appraisers were permitted to perform appraisals by viewing only the outside of the property. In some cases, they could do an appraisal from their office.
17. Waived inspections:
With such a shortage of inventory, buyers faced stiff competition from other buyers. They thought of ways to make their offers more attractive to sellers. In many cases, buyers waived the inspections. While this did work for many buyers, it also exposed them to risks. It is very common that homes and commercial spaces have defects. Issues like a leaking roof, moisture in the basement, heating systems that don’t work, septic systems in failure, etc. Luckily, most agents know better than to discourage such an important step in purchasing property, but some buyers still took the risk.
18. More lawsuits for undisclosed defects that would have been found in an inspection:
Given #17, it comes as no surprise that many buyers moved into the property and discovered all sorts of undisclosed defects. Lawsuits increased as buyers faced the costs of these unexpected repairs.
19. Remote closings – parking lot or virtual notarization:
All aspects of the real estate transaction process changed. Conducting closings has been no different. Title companies, who customarily conduct closings in my area, adapted with grace. They overnight mailed documents, they held closings in parking lots, some even offered virtual notarization where permitted.
20. Dramatic technology shift:
Let’s face it - old ways of practicing real estate are no longer competitive. Agents need to adopt the latest technology or they will struggle to maintain their business. Online lead generation, beautiful websites, and virtual EVERYTHING are no longer a luxury in our business - they are a necessity. Buyers and sellers need to find agents who use the latest technology. Agents need to either pay for these systems themselves or find a brokerage that provides them. Luckily, Bean Group has both amazing agents AND the technology to lead the industry.
Are you looking to buy or sell property? Bean Group equips our agents with the latest technology and prepares them for today’s market demands.
Want to work for a brokerage that sets you up for success in a changing industry? Bean Group offers comprehensive training from Pre-Licensing to Continuing Education. We also have incredible compensation plans, including a 100% commission plan.
