As I mentioned last week, in the wake of COVID-19 the real estate industry, like many industries, is in the process of completely rethinking its service delivery model. People can’t very well meet in-person and then go through one another’s homes, touching things as they go and breathing in virus-laden droplets. We need to move to virtual tours and online communication.
If you are moving forward with a real estate transaction during this uncertain time, here are some things to consider.
I recommend adding an addendum to your sales agreement that deals with what-if scenarios related to the coronavirus, so both buyers and sellers are protected. What if the buyer was planning to liquidate stock to come up with cash for the down payment and the market drops to the point where the buyer no longer qualifies for the loan? What if the seller was moving to another community for a new job, but the opportunity is postponed or canceled, and he needs to remain in place for a few more months or indefinitely? If both sides agree to reasonable contingencies, real estate transactions are more likely to move forward.
Even with legal agreements like addendums, it’s anybody’s guess how courts will see all this a year from now. Judges may say, “A deal’s a deal” or they may say, “There were mitigating circumstances.” I have served as an expert witness a number of times and have been surprised at some judges’ willingness to disregard written contracts.
I recommend locking in interest rates now. When the Federal Reserve cut the discount rate in March, I thought interest rates would drop, but two weeks later they had risen by about a point and a half up to 5 percent. While this is still historically low, the increase in rates reduced people’s purchasing power by about 20 percent. Then rates dropped again. The point is, things are volatile right now. You can always refinance in the future if rates drop but locking in a low rate now can provide peace of mind and may save you significant money.
OPENING A NEW ESCROW OR CLOSING AN OPEN ESCROW
If you’re a buyer willing to view a property virtually and then make an offer, you could open an escrow and complete many of the requirements associated with purchasing a home without ever setting foot in the property and being exposed to any viruses: ordering a preliminary title report and a natural hazards report, applying for a loan, reviewing disclosures, etc.
If you’re already in escrow, you’ll probably be able to close. There may be challenges depending on whether there are outstanding inspections and appraisals, but I expect that as long as both parties still want to move forward and the buyer can still afford the property, you’ll be fine. Although, rather than having an escrow officer walk you through signing the papers, you’ll probably be left in a room with stacks of papers and told to call the officer with questions.
It will be interesting to see how this pandemic affects our economy. Those who do not care to deal with the volatility of the stock market any more may choose to sell their stocks and invest in real estate. I expect a downturn, but I also expect a quick rebound.
If you have questions about property management or real estate, please contact me at email@example.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 40 years.