Is it a good idea, or even possible, to buy a new home, site unseen, during the COVID-19 shelter-in-place lockdown?
The adage, “where there is a will, there is a way,” certainly holds true – both buyers and sellers can successfully transact and protect themselves from the uncertainty of this volatile marketplace. However, you should also know some of the risks inherent with moving forward now as opposed to waiting.
Typically, a homebuyer visits prospective properties multiple times over various times of day, scouts out the surrounding areas and neighborhood, and thoroughly looks over the community before making an offer. Obviously, none of this can be done while in quarantine.
Nonetheless, for those who have an immediate need to move or are looking to scoop up a potential deal in a troubled marketplace, here are the details you should consider as you decide if you should buy or sell a home during the global pandemic:
- Personal financial situation.
- Whether you can identify the right property from a distance.
- Contingencies needed for a contract.
- Mortgage approval timeline.
- Changes to closings.
Personal Financial Situation
A buyer with the financial ability to move quickly in any market has the upper hand, but never more so than in this housing market where an eager seller is looking for the quickest possible transaction. If you have cash to make a purchase, it remains a fairly simple process regardless of the current state of the market.
For the buyer who plans to finance his or her purchase, mortgage preapproval is critical.
Regardless, before jumping into this arena, a buyer should evaluate the following:
- Do fluctuations in the stock market impact my ability to make a purchase?
- Is my job secure?
- Do I have the wherewithal, both financially and psychologically, to weather the potential twists and turns of this uncertain time?
Whether You Can Identify the Right Property From a Distance
Real estate may or may not be considered an essential business during the pandemic, and in-person home showings are not allowed in many places, though this varies from state to state and shifts over time as governors take different stances on how to best fight the virus.
For the buyer who has not viewed the property in advance of stay-at-home orders, engaging the services of a buyer’s agent is more critical than ever. Video tours, online photos and videos, floorplans and online street-views help paint a general picture of the property, but they do not reveal it all.
A seller’s agent will present the property in its best light on behalf of the seller, whereas a buyer’s agent will provide guidance in understanding the pros and cons of a home and will also have current market insight.
Some of the nuanced areas to consider are:
- What are the light and views really like?
- Do you have a strong enough sense of the room proportions and layout to buy the property site unseen?
- Are there any unpleasant smells or noises from neighbors in the building or neighborhood?
Contracts and seller disclosures can address and protect some of these issues, but other aspects can be more of a gamble.
Contingencies Needed for a Contract
Selecting an experienced attorney to help protect the buyer and seller if the real estate transaction falls through is also critical. The buyer needs protection from losing the down payment, and the seller needs protection from a scenario where the buyer can walk away for an unforeseen cause.
“There is not one contract going forward without a COVID-19 addendum to protect buyers and sellers from issues that might arise during this pandemic,” says Steven Matz, an attorney and founding partner of Katz & Matz P.C. in New York City.
Both sides need protection from unforeseen delays or issues caused by, but not limited to, third parties involved such as appraisers, managing agents and the lender, or even medical complications caused by the coronavirus itself.
There are increased risks for the buyer such as job loss, loss of mortgage eligibility, financial losses from the stock market and more. Today’s sellers need to accept more provisions in the contract as more is demanded.
“One of the biggest issues is the inability in some markets to physically move in or out of the property,” Matz says. Even with all the protection in place from unforeseen forces, there has to be a point where one side can walk away. In addition, lawyers insert a post-closing survival agreement which allows the buyers to do an inspection at a future time when they are allowed in the property.
Mortgage Approval Timeline
Yes, interest rates are at an all-time low, but this has not impacted mortgage rates as much as one might assume. Nonetheless, financing may be appealing to you right now.
In a time when very little is done in-person to avoid spread of COVID-19, banks have had to adapt to this new dynamic – and some are moving forward a bit more smoothly than others. Many bank appraisals are being done remotely, via Facebook video or through photos sent by the owner, to keep the appraiser from entering the home where the seller's family may be social distancing. This may make some appraisals seem a bit more lenient or more strict, depending on the lender and the appraiser.
Keep in mind that the typical transaction timeline will likely be a bit longer than previously. If, before the pandemic, you expected a transaction timeline of 60 days, expect something closer to 90 days, as each party involved needs more time than ever before.
Changes to Closings
In New York and many other states, closings traditionally consist of all relevant parties sitting around the closing table together. Instead, expect remote notarization of signed documents, electronic signatures and finalized details noting that they are pending the recording of documents and disbursement of funds, which will be wired. This may be a drastic change in some places, but may be one of the best advancements to come from this pandemic.
Clearly, the real estate marketplace is in a holding pattern as people try to figure out what's ahead for the economy and health of the U.S. For a homebuyer not worried about his or her income, this could be a great time to get a deal. The buyer pool has shrunk, which gives the ready and able buyer a real advantage.
Many sellers are fatigued financially and psychologically, and as a result, those who can identify the right home, have the financial ability to buy and can protect themselves legally might snag the deal they have been waiting for. In a few months, when this pandemic subsides, buyers will trickle back to the market. But today, those who have the guts and wherewithal may reap the highest rewards.
The generation that's taken over homebuying
The Great Recession delayed many millennials from being able to buy a home, but the generation isn’t locked out of property ownership the way it was a few years ago. The National Association of Realtors defines the millennial generation as people born between 1980 and 1998, and according to the 2019 NAR Home Buyer and Seller Generational Trends report, they make up 37% of all homebuyers in the U.S., the largest share of any generation. Over the past five years as millennials have become a significant portion of U.S. homebuyers, they’ve also helped shape trends in location and home type preference, helped usher in technological advances and embraced new platforms that make a home purchase feel more user-friendly. Here are 10 ways millennials are changing the homebuying process.
Updated on Feb. 26, 2020: This story was published at an earlier date and has been updated with new information.Text communication is key.
Text communication is key.
The telephone was once the primary form of communication between real estate agents and their clients, but the younger generation that has grown up with internet and cellphones will likely prefer more text-based modes that make it easy to multitask. “A lot of my clients already work in tech, so their expectation is they’re going to work with an agent that can at least keep up with them in terms of communication,” says Dana Bull, a Realtor with Harborside Sotheby’s International Realty in Marblehead, Massachusetts, who specializes in working with homebuyers. She says millennial homebuyers prefer to text and email their agent more often than older generations, and it’s reasonable to expect they’ll be comfortable using real estate-related apps.Research is a natural part of the process.
Research is a natural part of the process.
When it comes to researching neighborhoods, checking out listings online and doing a deep dive into the fine print of a pending deal, millennial homebuyers are known for doing their homework. Jill Levin, a Realtor with Coldwell Banker Legacy in Albuquerque, New Mexico, says she recently represented some buyers in a deal that went particularly smoothly because the buyers read every disclosure and document sent to them and asked questions beforehand – something she doesn’t see from older buyers who feel experienced enough that they don’t need to read into the details. “There’s way more information today now, and (homebuyers) really, really should be paying attention,” Levin says.The hub for advice is online.
The hub for advice is online.
While apps and online search tools are an integral part of the homebuying process for all consumers these days, millennials are the first generation to grow up using technology broadly in everyday life. The familiarity with smartphones, social media and the internet make communication, finding out information and contacting professionals easier. Millennials are also inclined to shop around for everything from real estate agents to mortgages to contractors. In HomeAdvisor’s State of Home Spending report released in June 2019, the majority of millennials, Generation X and baby boomers research home remodel project costs on the internet, but millennials do so by the largest margin (77%).Homeownership is focused on building wealth.
Homeownership is focused on building wealth.
While purchasing a home involves plenty of hurdles for younger buyers, many of them are choosing to become homeowners because it helps them build wealth in the long term. “There is still interest in buying a house because I’ve got a job, I need a place to live, rent is expensive and I should put my money somewhere,” Bull says of the millennial homebuyer mindset. As they build equity in their home, they’re in a better place to purchase a larger house in the future or use the profit of a sale for other investments.Kid-friendly housing makes a comeback.
Kid-friendly housing makes a comeback.
Homeownership isn’t the only thing that millennials are doing later in life for financial reasons. Millennials are also marrying and having children later than previous generations. But as millennials get older, more are getting to the point where they’re starting families. While a condo in the heart of downtown worked for many first-time millennial homeowners when they were single, home preferences change as soon as kids come into the picture, Bull says: “People are starting to step up into that next level of a single-family home and maybe out in the suburbs.”Walkability is a must.
Walkability is a must.
Even with many millennials leaving urban centers, one feature they won’t compromise on is walkability. “They want more activities in the area, they want walkability, they want the convenience of shopping without having to use their cars a lot,” Levin says. Even in more suburban settings, many millennials are showing a preference for areas that offer residential and commercial spaces within walking distance. Bull says the areas catering to these homebuyer preferences have been dubbed “hipsturbia,” where suburban towns offer an active downtown or main street area with the live-work-play atmosphere many people don’t want to lose when they move out of a major city center.Eyes are on garages and kitchens.
Eyes are on garages and kitchens.
Luxurious features and finishes in a house are ideal, but millennial homebuyers are making their must-have lists a bit more realistic. In a survey of 1,000 Americans who plan to purchase a home in 2020 by real estate information company Clever, millennials' preferred home features focused on details that make life more convenient, especially as they start families. When asked which features are a requirement for their new home, millennial respondents placed a garage, large kitchen and space to grow into as their top three priorities. Details like hardwood flooring, a fireplace, pool and dedicated office space were among the lesser-desired details.High home prices don't deter eager buyers.
High home prices don't deter eager buyers.
Affordability is still an issue for many millennials, especially among the younger members of the generation. But that doesn’t mean millennials are uninterested or afraid of purchasing a home – it’s just a matter of the right timing, the right location and the right home. Between consistently rising home prices and a lack of inventory as homeowners choose to remain in their homes longer, the housing market remains extremely competitive, Bull says, especially in the Boston area where she works. But the millennials who are financially ready to purchase are willing to rise to the challenge. “They’re used to being aggressive to get into the college they want, and then get the job they want,” Bull says, which primes them to make a strong offer if they see a home they like.Low down payments solve savings issues.
Low down payments solve savings issues.
The Clever survey found 70% of millennial homebuyers plan to make a down payment of less than 20%. Low down payment programs have grown significantly in the past 10 years and are now a major part of home purchases – NAR’s 2019 Profile of Home Buyers and Sellers reports that the median down payment for a home in the U.S. is 12% of the purchase price. While low down payment programs help resolve the lack of savings, homebuyers putting less than 20% down should be sure to factor into their budget the added monthly cost of private mortgage insurance.Parents play an important role.
Parents play an important role.
For younger millennials and even Generation Z, which is made up of people born in 1999 and later, coming up with the cash for a down payment is one of the biggest obstacles to becoming a homeowner, even at less than 20% of the purchase price. For millennial first-time homebuyers and the rare Gen Zer getting into the market, financial help from a loved one is often what makes a home purchase possible. “Parents are getting involved a lot – I still see a lot of situations where parents are gifting money or helping in some other way,” Bull says. “I don’t see that changing at all.”Here are 10 ways millennials are changing homebuying:
Here are 10 ways millennials are changing homebuying:
- Text communication is key.
- Research is a natural part of the process.
- The hub for advice is online.
- Homeownership is focused on building wealth.
- Kid-friendly housing makes a comeback.
- Walkability is a must.
- Eyes are on garages and kitchens.
- High home prices don't deter eager buyers.
- Low down payments solve savings issues.
- Parents play an important role.
After earning a degree in Economics from the University of Pennsylvania, Arriz worked in wholesale sales for several top fashion designers in New York City. While her business sense, tireless work ethic and integrity fuel her success, most importantly, she believes wholeheartedly that one’s living space should be not only an investment but also a home and sanctuary.
Arriz has resided on the Upper East Side for over 30 years and currently lives in Carnegie Hill with her husband, three children and her miniature schnauzer, Lucy.
May 11, 2020
U.S. News analyzed the 150 most populous metro areas to rank places to live by category.