One word describes the prevailing mood: uncertainty.
At times like these, it can be difficult to make a major life decision. And make no mistake, buying or selling real estate is a major life decision.
Note: This post is specific to real estate transactions. It's based on actual questions we've received from our buyers and sellers in Boulder, Colorado. If you found your way to this post looking for general Coronavirus information, you're in the wrong place.
Should I Break-Up the Deal?
Will I Lose my Earnest Money?
When we represent buyers, part of our job is to help with due diligence and protect our client's earnest money. If a buyer decides to terminate the contract, the risk to your earnest money depends on where you are in the contract process, how the acquisition is being financed, and the legitimacy of the termination. There are defined off-ramps in the contract for buyers who change their mind. A buyer default usually results in lost earnest money, unless of course you selected the Specific Performance option in the contract. Then, you could be on the hook for much more than your earnest money.
Even if you utilize a late-stage contingency that is at the buyer's subjective discretion to kill the deal, expect the seller to fight you on returning your earnest money. You'll probably end up with a negotiated settlement. Or if you chose an incompetent agent who fumbles the termination process, you might lose it all. Choose wisely.
Should I List My House?
Will there be Deals?
Probably, but it could be many months away or, not at all.
Right now, some buyers are nervously forging ahead. Others are hitting the pause button. Some are asking their Realtors to terminate the contract, legitimately or not, earnest money be damned.
Meanwhile, some sellers are also hitting the pause button. See above.
Price is a function of supply and demand, but it takes time for the real estate market to adjust. It may take many months before sellers finally capitulate to the new reality.
If we see an economic recession (likely), there is a potential for price declines but real estate is not the stock market. It's sticky on the downside. The market for entry level houses is very well supported by buyer demand. The further up in price, or weaker the location, the higher the potential for price declines. Layer on the converse factor that affluent owners will be reluctant to sell in a down market and have the financial resources to wait it out. Plus, mortgage rates are likely to drop further which could add some stimulus to market activity.
How will it play out?
As a general rule of thumb, primary home markets like Boulder and Denver track local employment and the regional economy. During the last serious downturn (the global financial crisis), the real estate market was down for about three years. During that downturn, the high end saw substantial price declines - well into the double digits. Boulder was the slowest to react, the stickiest of our local markets. I expect the same thing this time around, but with a shorter duration. We are entering this recession on far better footing than we did during the Global Financial Crisis.
Just remember one thing: Mr. Market always wins in the end.
What's Next: The New Normal
It's going to take a little bit of time until everyone adjusts to a radically different work experience and lifestyle, but it will probably happen sooner than you think. A reasonable assumption is that a new normal will be established in weeks, not months. We will get past this and life will go on, but until the new normal is established, it's best to not rush into anything.
For now, it's important to flatten the curve to protect those most at risk and keep our emergency departments from being overwhelmed. Public health should always come before economics.
With respect to real estate, I recommend:
1. Showings only allowed for buyers who demonstrate pre-approval or financial capability and submit a signed statement of intent. Agents who want to preview or have non-serious buyers should stay home. Who is a real buyer? They're ready, willing, and able to submit an offer and close within 60 days.
2. Buyers, sellers, and agents should disclose whether they or anyone they know have been exposed to Covid 19 during the past 14 days or are exhibiting signs of illness. Hey Real Estate Commission, if you're reading this, Colorado real estate agents could use a standardized disclosure.
3. During the showing, Buyers should refrain from opening doors and touching anything. Their Realtor should do the door opening, light switching, and wear latex gloves.
4. Sellers should be advised to sanitize surfaces after showings. Covid 19 has been shown to be stable on surfaces and as an aerosol. Sellers who are most at risk, should consider showing windows that allow for several hours of fresh air to be exchanged before reoccupying the house.
5. Separate closings for buyers and sellers. There is no reason to be in the same room together at the finish line.
6. More video by buyer's agents. We already do this routinely for our clients, showing them what is missing from the listing agent's marketing photos, when they can't attend in person. We intentionally try to point out faults because our goal isn't to sell the house. Our goal is to help the client make a smarter decision. Up until now, this has been mostly a relocation service, but it may be time to expand it as an option for all of our clients.
Osman Parvez is the Founder and Employing Broker of House Einstein, a real estate brokerage in Boulder, Colorado. Originally from the Finger Lakes region of New York, he lives in South Boulder with his wife and their Labrador Retriever. He has been a Realtor since 2005.Osman is the primary author of the House Einstein blog. His work has also appeared in mainstream newspapers, including the Wall Street Journal and Daily Camera. For more information, click HERE.
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Thinking about buying or selling and want professional advice? Call us at 303.746.6896. Your referrals are deeply appreciated.
The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties. House Einstein strongly recommends conducting rigorous due diligence and obtaining professional advice before buying or selling real estate.
