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How COVID-19 is Impacting Real Estate Part 1
In the spring of 2020, the traditional indicators for real estate trends hit radical levels, with interest rates for mortgages reaching an all-time low, while simultaneously the unemployment rate soared to over 14%. These traditional markers of real estate trends have been upended by new policy resulting in thirty-four US states and territories having some variation of a stay at home order in place by the end of March 2020 in an effort to halt the spread of COVID 19.
These unprecedented measures create both short and long-term impacts to the real estate industry, yet exactly what that impact is, is still widely unknown. This is the first half of a two-part series focusing on the current state of the residential real estate market, how agents and consumers are adapting using technology, and how COVID-19 may permanently reshaped the client-agent relationship.
Agents from across the US sat down during an online meeting with Realty Sage’s Founder Kari Klaus to discuss how their business has changed since the onset of COVID-19. Rob Carter of the Rob Carter Group at Compass Real Estate in Washington, DC, Jan Green of HomeSmart in Scottsdale, Arizona and Char Klisares of ReMax Hilltop near Des Moines, Iowa share the impacts they are experiencing in their local markets.
Mixed Picture Pre-COVID-19
“We were going into spring market, guns blazing, everything was selling in record time… all the things positive associated with an economy. Then all of a sudden, out of the blue...the market paused. Buyers pulled back and sellers pulled back,” says Rob Carter, Compass in Washington DC.
That roar of the 2020 spring market was reflected in many Q1 reports showing an increase in revenue and transactions over 2019. According to Inman News, Keller Williams had $70.2 billion in sales volume, up 10.6 percent year-over-year with a 4.8 percent (224,759 closed transactions) increase from 2019.
Q1 reports typically only extend to the end of March. Yet, the pandemic has only increased in infection rates in the months after March and stay-at-home orders have been extended through April, May and even June in some states. Q2 reports may show a more accurate picture of the COVID-19’s impact and the policies on home prices, days on market and transactions.
Real Estate and “Proptech” Companies See Immediate Impact
For years leading up to spring of 2020, real estate tech start-up “proptech” companies were moving the industry into an era of the “iBuyer,” agent-less transactions. Opendoor, describes “iBuyer as a company that uses technology to make an offer on your home instantly. iBuyers represent a dramatic shift in the way people are buying and selling homes, offering in many cases, a simpler, more convenient alternative to a traditional home sale.”
But even proptech companies are bracing for downturn and are making strategic moves to trim their overhead, “In mid-April, Opendoor announced it was laying off 35 percent of its workforce, or around 600 people.”
Even a partnership with Amazon didn’t go unaffected. The Amazon - Realogy Turnkey partnership was paused in early May. According to Inman News, Realogy’s CEO Schneider stated that, “helping people with smart home products and home services that require people to be in someone’s home, just doesn’t work in a COVID-19 social distancing world.”
For other tech companies, when problems arise, opportunities to provide solutions appear. Klaus’ RealtySagePros service that matches customers with personalized agents, quickly pivoted to include a virtual experience option. That new feature is allowing buyers and sellers to connect to agents with the experience and knowledge to conduct virtual transactions such as electronic signatures, virtual open houses, and 360 tours.
The spring pause brings a fall boom?
In 2008 when the real estate market faltered, the housing prices did too. During COVID-19 people may also be thinking, ‘Oh the market is going to come down because everyone is pulling back,’ Carter describes. “But markets are made of buyers and sellers and if the buyers and sellers pull back in equal measure then there is no buyer, seller supply imbalance. Where you see prices rise or fall too much, is when there is market is out of whack.”
At the height of the spring 2020 stay-at-home orders, Carter estimates that as much as 75% of his buyer and sellers were “pausing” their activity. And Klisares believes that the buyer and seller pause will just result in a strong fall market with the pent-up spring demand and supply being released later on in the year.
Realtor Rob Carter of the Rob Carter Group at Compass Real Estate in Washington, DC
Single family and row homes in the DC market, Carter explains, have not seen a big change in price from the pre COVID-19 period. Rather, there has been a decrease in the number of offers placed on a property.
Condos and coops, Carter says, have experienced noticeable changes to prices, “condos that should have sold for X are now selling for X minus 3% or 4% today.” He questions whether that decline will remain after people get back work, or if that is a ‘recalibration’ of what people are valuing condos now.
Real estate has a 30-45 day lag in reported activity. So it is only in 2020’s second quarter that we are likely to begin seeing the real effects of COVID-19 on the real estate market. Unlike the 2008 housing crash where there was an imbalance of supply and demand, COVID-19 has created an equal diminished activity by both buyers and sellers. This equal retraction retains the pricing; low inventory and committed buyers keeps pricing steady but at the same time sellers are not in such a power position that they are able to command unusually special terms.
These unique market conditions have set the stage for the agent to once again become the trusted adviser in an iBuyer era, while creating new paths in technology which aid agents, buyers and sellers in the short and long term.
Agents – the trusted adviser
Despite buyers and sellers “pausing” during the stay at home orders, experienced agents are seeing an increase in activity with their clients looking to them for real estate information, trusted market advice during uncertain times and their industry skills to find a home, any home, as supply has diminished greatly during the spring market.
Realtor Char Klisares of Remax Hilltop near Des Moines, Iowa
Realtor Char Klisares of Remax near Des Moines, Iowa is using her real estate experience and creativity to find homes for her buyer clients. Klisares says that about half of her transactions now are from listings outside of the MLS. By researching and speaking with sellers of inactive listings and engaging with For Sale By Owners, she’s been able to locate listing opportunities for her buyer clients. She emphasizes that life events don’t stop even in a pandemic, people still get married, have children, get a divorce, and change jobs. One of her clients who is still eager to look for a home during COVID-19 is a 21 year old who wants to move out of his parent’s home and another client recently went through a divorce.
Jan Green, Realtor, of HomeSmart in Scottsdale, Arizona has a background in finance and often reports on market trends in her newsletters continue to have a very high open rate even as real estate transactions decline. Buyers and sellers are very interested in knowing how the real estate industry is being affected.
For Agents and Clients: A Different Kind of Home Buying Process
Some buyers and sellers will start to see some differences in their transactions. In parts of the country, COVID-19 addenda are being used by agents to protect their buyer and seller clients in the transactions by allowing the parties to extend closing dates or terminate the contracts, if necessary.
For the still active buyers and sellers during COVID-19, there’s also a new home buying and selling experience. Listings have moved from having booties outside the front door to protect the new floors to now having gloves, masks and handsanitzier to protect buyers. Green’s Arizona listings also require that buyers fill out a form confirming that they are not sick or have been around others who are positive with COVID-19 before entering one of her listings.
Realtor Jan Green of HomeSmart in Scottsdale, Arizona
According to Klisares, sellers in Iowa are trying to make the listing as touch-free as possible by opening up cabinet and closet doors before buyers enter the home.
The agent-client interaction has also changed for some professionals. Carter has moved all his previous in-person meetings to phone calls and currently doesn’t sign listings agreements in person. But Carter does still make a trip to a potential listing so that he can properly advise the seller after viewing it in person.
Another change in the agent-client relationship is a litmus test of sorts for buyers. If agents do meet with buyers to show a home, they’ve gone the extra mile to thoroughly qualify their clients as to their seriousness of their interest in the property by making sure that they’ve seen all possible information and visuals before making an in-person visit. And the feeling is mutual. Buyer and sellers are evaluating if it’s worth it right now to engage in real estate or whether they wait.
According to Carter, buyers are saying, “I’m not really willing to risk my life to go look at a house. Or if I go out, I’ll see maybe one property that I was really interested in because my agent showed it to me on virtual tour, Google street view and all the things I didn’t do before but I’m doing now because I don’t want to risk my life looking at a house.”
And sellers are also saying, “I don’t want strangers in my house. I don’t want to potentially get sick and die because I’m selling my house. I think I’m just not going to put my house on the market.” Carter reports that, “buyers and sellers, by and large, about 75% of them, are out.”
Technology to the Rescue
“Real estate agents are on the forefront of technology on a daily basis,” Realtor Jan Green of HomeSmart in Scottsdale, Arizona says. “Clients don’t know how much technology exists. I can do everything remotely. And a lot of businesses can’t do that right now.”
Photo credit: Matterport.com Dollhouse view
The consensus among the agents interviewed is that technology has been an industry lifesaver, starting with virtual, 360 degree home tours and artificial intelligence “dollhouse” views such as the Matterport 3D technology. Agents are also utilizing online client meetings such as Zoom or Skype, live streaming open houses on Facebook and electronic signature platforms such as DocuSign for paperless transactions. While some agents are wary that this new technology will be used widely after COVID-19 has passed, the expectations from buyers and sellers may ultimately decide what technology will used be used in a larger capacity moving forward.
With safety in mind, buyers want to be confident that a property is worth the risk. “Showing homes is the most difficult” Jan Green of HomeSmart in Arizona describes of the current social distancing standards, “and virtual open houses and Matterport technology help to see if the floor plan works for [buyers]”
Carter agrees, “We can’t have people going into houses when we could have given them information that would have prevented that trip. Most responsible listing agents are moving into this, we have to give people a 3D walk through of the property so that they can decide whether it’s worth the trip.”
Photo credit: Matterport.com Dollhouse view
Near Des Moines, Iowa Realtor Char Klisares of ReMax says that she’s nearly her doubled her marketing budget to incorporate 360 tours, “Why would we expose the sellers to that when I can get them a 360 tour that’s almost as good, except that there is no smell. There’s no scratch and sniff. That’s the only thing missing.”
Photo credit: Matterport.com 360 tour
And during COVID-19, enhanced floor plans can save agents and potential buyers from an unnecessary, risky, trip to see a home in person, especially if it turns out that the layout was a poor fit for their needs. “I have had buyers on my listings who came out and wanted to see the floor plan.” Green says, “I didn’t have Matterport on that listing, and they came back and said that they didn’t like the floor plan. That was the one missing piece.”
Another version of virtual tours, using agents, is through FaceTime or Skype tours, called “iChat” tours. Agents can navigate through the home live and stop to answer questions that clients have. Used in combination with floor plans, iChats can be a highly effective way for buyers to experience the home without being in it.
For listing agents, virtual open houses have become more popular in the past few months. Agents typically use their Facebook accounts to live stream their listings for a pre-determined “open house” time. Couch surfers safely watch a walk-through of the house and ask questions during the tour. Some Multiple Listing Services (MLS) now include a virtual open house field where agents can publicize when they will live tour the property and take questions from online viewers.
Traditional real estate has been very cynical of the open house concept; suggesting that open houses rarely procure a buyer. But we are in a different era where even serious buyers are reluctant to visit homes in person and virtual open houses may be an alternative for even the most serious of buyers and their agents to virtually tour home listings from the safety of their living rooms and decide whether they would like to see the home in-person or not.
Leveraging video conferencing technologies like Zoom and GoogleMeets have proven effective for companies around the globe and for one-on-one business like real estate agents and their clients to review documents, listings and to go over their marketing strategies.
While technology is definitely helping to fill the gap in real estate for now, what stays and what goes away when COVID-19 is figured out is the big question. Will the buyers who purchased their home virtually feel that their expectations were met and would do it again? Would sellers who worked with a real estate agent over Zoom have enough of the same personal connection and bond to refer them to other people?
The abundance of virtual meetings, tours and activities in everyone’s daily life is creating screen fatigue and how much virtual reality can replace “reality” is still yet to be known.
Read the second half of this industry review "COVID's Lasting Impact on Real Estate" to learn more about new technologies and what agents think will stick around after COVID-19 passes.
Photo credit: Maggie Hartman
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