As of May 25, 2020, total confirmed worldwide cases of COVID-19 has exceeded 5,400,000 (Johns Hopkins Corona Virus Center 5-25-2020), with more than 1.6 million cases confirmed in the United States.
U.S. deaths from COVID-19 near 100,000 – as of Memorial Day 2020 – a day traditionally set aside to deservedly honor and mourn the American lives of the United States military armed forces personnel. COVID-19 was so named by the World Health Organization (WHO) as follows:
- CO – coronavirus (crown virus)
- VI – virus
- D – disease
- 19 – the year first identified.
Memorial Day, moving forward after 2020, may now include an additional warranted honor – a dedication to the many lives lost to the deadly novel coronavirus COVID-19 over only a few months.
The chart to the right, published by Time Magazine, details how the COVID-19 pandemic, at this date, compared to recent pandemics and wars concerning the tragic number of deaths.
Beyond the vital honor and remembrance of Memorial Day, most Americans also choose to kick off summer during the long weekend in late spring by enjoying the beautiful weather at the beach or lakefront bungalow.
Spring is also typically prime time for home buyers. Still, it becomes a bit tricky to buy a new home when the homebuyer has been ordered/recommended or voluntarily stays at home as a measure of caution in the face of the COVID-19.
Understanding COVID-19 is remarkably challenging because the virus and its symptoms change with great fluidity and often.
Historical/Seasonal Context
COVID-19 was first identified in China in December 2019, but it took hold of the U.S. and its economy during what traditionally is the busiest time of the year for the real estate market.
History has taught that home sale demand/home sales reach their peak levels – and then accelerate – as March ends. From an online perspective, the months of March and April rank consistently as the most active home search activity – based on data from the past three years.
- The spring selling season is generally the most competitive with accelerating home buyer interest.
- The most significant increase in real estate transactions happens – from February to March. Monthly jumps in sales numbers from February to March (based on data from the past three years) was 30 – 50% -.
- About 28% of annual real estate sales happen during the second quarter of the calendar year.
Results from a Recent Nation Association of REALTORS (March 2020)
Almost half of the real estate professionals/realtors responding to NAR’s survey indicated that they had personally recognized a noticeable drop in home buying interest as a result of the COVID-19 crisis.
Some of the reasons for this decreased home buyer activity is likely attributed to –
- Social distancing mandates.
- Valid concerns about one’s health.
- Economic fears regarding the loss of a job or a mandatory furlough.
This minimizes in-person transactions in order to facilitate the execution and recording of closing documents.
Overall, COVID-19 has dampened what is traditionally a robust spring selling season. According to realtor.com’s 5/16/2020 weekly housing trend, the number of new listings was down about 28%, and inventory levels fell by 20%. Realtor.com even notes that the May 16’s 28% decrease in active listings was an improvement to the worse active listing reduction levels that had reached a drop of 40% several weeks earlier.
COVID – 19’s impact on American life – in almost every way – unfortunately includes real estate. The consequences to the real estate industry still remain unknown because COVID-19 is a befuddling virus that is difficult to understand.
The real estate industry is an important economic component to keep moving forward because so many other industries – the infamous real estate economic ripple effect – run off a robust real estate industry.
4 Ways in Which COVID-19 Has Impacted Real Estate
# 1 – The Virtual Tour is Now More Important than Ever
Since the coronavirus pandemic began, state officials have enacted social gathering restrictions and social distancing requirements to keep as many individuals as COVID-19-free as possible. In response, real estate professionals have begun to step up their use of technological gadgets and gizmos to maintain an ongoing conversation (and enduring home buying interest) with potential or current clients.
The reality is that even before the coronavirus pandemic, real estate professionals had been increasingly using virtual tours (and other remarkable technological advances) to enhance and promote the home sale process. However, before the coronavirus, technological tools were more for convenience (and perhaps even show. They have now become essential tools of the real estate trade.
One of the best ways to use a virtual tour is to employ it as a way to determine which potential buyers are serious. The COVID-19 has forced the real estate profession to request that ‘serial home lookers’ make a decision – become serious buyers or temporarily take a break from the hobby of home-looking.
An appropriately crafted virtual tour can help answer many buyers’ questions before they ever have to ask.
Other Tech Tools for Real Estate Professions
- Virtual listings.
- Virtual open houses.
- Video chatting with Facetime, Zoom, or Skype.
- Electronic documents and digital signatures – these are discussed below.
# 2 – Disrupting Banking As-Usual
Anyone who has participated in a home closing would recognize that the many people sitting in one small room (around one table) signing paperwork furiously, would not have the slightest chance of complying comply with mandatory social distancing requirements.
Banking branches have, when mandated, kept their lobbies closed, but, for most bank managers, the coronavirus has placed the bank smack in the middle of unchartered territory. Despite the ‘stay at home order,’ the business of banking continues – with renewed efforts and creativity.
Because COVID-19 hit when electronic infrastructures had been in place (and tested) for years, lenders had the opportunity to develop digital home closing strategies. As the need grew, attorneys (and title companies where applicable) developed innovative methods to complete real estate transactions and closings – while complying with social distancing and stay at home orders.
Financial services employees are recognized as essential employees by most standards. Here are some of the innovative ways closing have been taking place –
- Seller and buyers sit in separate rooms sanitized (including writing utensils) before (and after) the closing finishes.
- Some closings, when parties are agreeable, are happening by overnight mail. This is not all that new.
- Some closings have even been moved outdoors to public spaces where it is less likely to be infected by COVID-19.
Some states have enacted emergency measures to allow for digital signatories and remote notarizations/witnesses – however, these emergency privileges come with rigid and stringent rules and mandates.
Some real estate transactions are using a new contract that offers provisions or addendums for buyers to walk away from a successful bid if they do not like the house when they see it in real-time.
# 3 – New Legal Risks During the COVID-19 Pandemic
The coronavirus pandemic has created new legal risks for sellers and real estate professionals.
The risks for home sellers will depend on whether the real property for sale has an executed sales agreement.
Signed Purchase Agreement Risks
Even with an executed purchase agreement, the COVID-19 crisis may abruptly halt an anticipated closing, and of course, the generation of the real estate’s anticipated commission.
A seller with a signed sales agreement takes on an added risk because the buyer – who might have been qualified for financing before the coronavirus – may find themselves in the following situations –
- The buyer has run out of time and has not complied with all the bank’s underwriting requirements in the allotted time. However, in light of the challenging times, COVID-19 Contract extensions are being requested and granted.
- The buyer may lose their job as a result of the pandemic.
- The buyer may have lost assets (that were needed to close) because of the recent stock market decline and economic uncertainty.
- Underwriting guidelines may be revised, which may lead to a mortgage denial.
- The subject property might not appraise for agreed-upon sales price – if the market crisis deepens during the ongoing pandemic.
The COVID-19 crisis has dramatically increased the use of electronic transactions, mostly because most states consider appropriate electronic signatures to be acceptable. However, as of May 2020, according to the National Notary Association (NNA), many states have enacted emergency legislation regarding remote notarization. The NNA even offers notaries insight into what to avoid during the coronavirus outbreak.
Conversely, home sellers may also cause a real estate transaction to end up in the ditch because they refuse to allow an inspector or an appraiser to enter the premises to perform professional duties. Other addendums include the COVID-19 In-Person Access Acknowledgment
Listed Homes, Not Under Contract
The social distancing restrictions will impact the pool of potential buyers for home sellers without a purchase agreement. But what about those sellers who are unwilling to take the risk of opening their homes during the coronavirus crisis. It is easy to understand how a seller may decide to avoid allowing anyone to meander throughout various rooms, closets, and who knows where else.
Open houses have now entered the age of The Jetsons, where virtual open houses have become the norm. Sales professionals compete for business by forever creating easy access to information, pictures, videos, and a host of services.
The coronavirus has once again proven the resiliency of human nature and our need – and duty – to help one another when times require cooperation.
One of the best ways to use a virtual tour is to employ it as a way to determine which potential buyers are serious. COVID-19 has forced ‘serial home lookers’ to make a decision – become serious buyers or temporarily take a break from the hobby of home-looking.
Additional protection can be added by requiring buyers to appropriately wash their hands and cover their shoes during the showing. Buyers would also have to promise not to touch anything during the in-person home tour.
# 4 – Tenants Unable To Pay Rent
Mortgagors are not the only obligators that are facing financial difficulties in response to the economic challenges created by the onset of the COVID-19 virus.
Tenants, like homeowners, have been laid off, ordered to stay at home, and furloughed in record numbers. In fact, as of May 23, 2020, more than 40 states have set records for the highest employment rates since the federal government began tracking data 80+ years ago, in 1939.
Nevada holds the distinction of having the highest unemployment rate in the country – at 28%, which jumped from 3.5% from February 2020. And the longer COVID-19 disrupts life across the country and the world, the more likely it will become that a tenant will be unable to meet their monthly debts.
Non-rental payments impact a homeowner’s/investor’s ability to meet their own mortgage or real estate tax obligations on the property. The following list offers landlord ways to reduce the financial impact felt if renters are unable to meet their rental payments each month.
Terminations and Evictions
Typically, when a tenant doesn’t pay their rent, a landlord can begin the process of terminating the lease agreement by filing an eviction lawsuit – which eventually has the tenants physically removed from the rental property through a court of law. However, the coronavirus epidemic has caused local, state, and county officials to temporarily suspend evictions during the COVID-19 crisis in response to safety and health concerns.
Try to Work Out a Temporary Tenant Payment Solution
Here are a few options to help tenants struggling with rental payments, assuming the landlord has the financial means –
- Reduce rent temporarily if possible. A reduction in rent allows for some monthly payment (albeit less than the lease notes) and helps the landlord meet their monthly obligations.
- Forgive a portion a rent if possible. This is a good option if a tenant needs only a month to regain their financial stability.
- Set up an incremental payment schedule to help the tenants meet obligations and remove late fees.
- Postpone rental payments for a predetermined amount of time – perhaps when the tenant receives their stimulus check.
Note – lease changes should be in writing to protect all parties to the lease.