Selling a House During Coronavirus: What to Expect
If you’re a homeowner thinking of selling your house, the spread of COVID-19 hasn’t killed your chances of getting a good outcome. Here’s how to handle it.
The coronavirus hit the American economy like a freight train. With expansive stay-at-home orders and social anxiety causing ripple effects across every industry, it’s a difficult moment to make a big real estate decision.
But not all signs point to a housing market meltdown. Even in the worst of times, people have to live somewhere. And many families still need to upgrade, downsize, or relocate. Though it’s made a profound impact, the coronavirus hasn’t killed real estate. In fact, the consequences on housing continue to evolve. If you’re thinking of selling your house, here’s what you need to know.
Yes, you can still sell your house
At the time of publishing this article, the coronavirus is still spreading throughout the country. Regardless of what happens with the number of cases and mortality rates, the long-term effects have not yet been felt. Treatments are still emerging, a vaccine will take many months, and social and psychological ramifications will play out for years to come. So, in essence, this is just the beginning. How it ultimately affects the housing market is still unknown.
While that might sound ominous for the moment, the good news is that buyers are still looking for homes. Real estate is by nature a long-term business. Consumers don’t take the decision to purchase a house lightly, especially when half the country is on lockdown. In fact, many people are physically unable to buy or sell. In areas hard hit by COVID-19, activities such as house showings, auctions, appraisals, and inspections are shut down or restricted. And yet, real estate transactions are still happening.
Seller Takeaway: It’s wise to be cautious before selling a house. But with the right set of expectations, right now may still be a good time for many homeowners looking to sell.
Who’s buying houses and who’s not?
Under normal circumstances, sellers have a wide variety of ways to sell their house. The most common way is to work with a real estate agent and list your house on the market. This is still a viable option, with the federal government issuing guidance that real estate be considered an essential business. But it doesn’t mean sellers should expect business as usual. Most real estate agents have had to adjust to shelter-in-place orders and increased health concerns from potential buyers. This means the usual ways of attracting home shoppers to see your property are more limited.
In recent years, the emergence of iBuyers has offered an alternative route if you’re looking for speed and convenience. But during the uncertainty of coronavirus, a number of homebuying companies have made significant changes to their normal operations.
- Opendoor – suspended homebuying on March 18, 2020
- Offerpad – continuing to accept requests, but suspended homebuying on March 23, 2020
- Zillow Offers – suspended homebuying on March 23, 2020
- RedfinNow – suspended homebuying on March 18, 2020
- Knock – continuing to buy houses but with expected delays
- We Buy Ugly Houses – continuing to buy houses but with new safety precautions
Though some of the larger iBuyer companies have cut back on home purchases, small local homebuyers are still operating in most major markets. Working with a cash buyer is still a popular option. In fact, Sundae is helping sellers get the best off market price possible.
Seller Takeaway: The buyer market is not at full capacity with many iBuyers shut down. Expect a less diverse range of traditional retail home shoppers and off-market buyers.
Recognize the practical challenges
As a prospective seller, you have to think about more than just the financial impact of the virus. There are practical, logistical, and psychological concerns to consider, as well.
In many parts of the country, buyers are physically held back from normal home shopping activities. Driving or strolling around neighborhoods looking at “for sale” properties and walking up to doorsteps are not exactly socially acceptable behaviors right now. Open houses are prohibited, and face-to-face meetings between buyers and sellers’ agents happen far less frequently.
If you decide to list your home, prepare to get creative about how you and your agent market and promote the house. Expect a lot of virtual tours and video conferencing. Letting prospective buyers in to see the house in person means extra safety precautions for social distancing, hand washing, and sanitizing surfaces. It’s all still doable, but it may seem like more work than usual.
Above all, you’ll need to consider the biggest wild card: social anxiety and fear. Buyers may react in unpredictable ways to changing local and national news about the virus and the economy. Building a relationship with an agent may be harder than normal with the risk of getting sick in the back of everyone’s mind. Remember that trust is key in a house sale, and trust may be harder to develop in such precarious times.
Seller Takeaway: Get used to virtual meetings, higher standards for personal and property hygiene, and six-foot distances between people during showings, inspections, and at closing.
Think on a local level
In times like these, it’s important to remember that there is no U.S. housing market. Real estate trends fluctuate from city to city and neighborhood to neighborhood. While national economic trends influence local markets, there is never nationwide uniformity.
Coronavirus has only exacerbated these regional differences. In cities and states where the virus has hit hard, local governments and businesses have taken more drastic measures to slow the spread. These actions, in turn, create more disruption to local economies and increased reluctance among consumers to make large purchases like a house. Meanwhile, a number of states have not implemented stay-at-home orders.
Your ability to sell your house probably depends on the severity of the COVID-19 outbreak in your area. If you’re in an area hit with an overwhelming number of coronavirus cases (for example, parts of New York, New Jersey, Michigan, and Louisiana), consider waiting until the worst of the outbreak has passed. If for no other reason, this will increase your own health and safety.
Seller Takeaway: No matter where you live, take stock of local challenges, opportunities, and government regulations before listing your home.
Understand that uncertainty is universal
While we’ve faced health crises before, the current situation is unprecedented in modern history. Daily life has been turned upside down for tens of millions of people. Models and predictions are everywhere, but no one can say with certainty how it will play out.
For the housing market, these are uncharted waters. Consider how the following mixed signals affect anyone thinking through a major financial decision:
- Some local leaders are openly discussing keeping social distancing policies in effect for months.
- But at the federal level, discussions are taking place to open the economy.
- Unemployment is in undiscovered territory, with 17 million people filing jobless claims in a three-week period.
- But the federal government passed a multi-trillion dollar stimulus bill with direct payments for millions of American consumers.
- Mortgage applications have tanked, as lenders tighten mortgage requirements.
- But mortgage rates remain at historic lows, potentially enticing some borrowers.
- The stock market dropped 40% in one week in March.
- But the stock market had its best week in 45 years later in April.
- Sellers are pulling homes off the market, and the number of new listings is dropping.
- But many high profile economists are predicting a strong, fast recovery.
Seller Takeaway: Prepare yourself for any result. Don’t get too attached to pricing expectations or a precise timetable. Selling your house during coronavirus is not likely to go exactly as you expect.
You can’t time the market
It’s an age-old truism across any investment category. You simply cannot time the housing market. Markets are inherently unpredictable, and even more so in the face of a global calamity like what we face today. Don’t try to wait for the right moment. Do your homework and figure out why you want to sell. Set the most realistic price you can and go for it.
In traditional markets, sellers run the risk of overpricing their house and having it sit for sale for a long time. This creates a stigma among buyers who see the increased Days on Market (DOM) and think something is wrong with the house. During coronavirus, however, most MLSs are pausing their DOM counters, so that risk is diminished. Instead, as a seller in this historically unique time, you need to be as informed as possible and flexible in your expectations. The best thing you can do is be reasonable about what you expect to get for your home, and recognize that now is not the time to be rigid in your negotiating stance.
Remember, even if the economy has a quick rebound, the housing market may never be the same again. An unprecedented event like this virus will have lasting effects on how people think about buying and selling, and their ability to buy. The consequences will play out over years. Basing your decision to sell on a prediction is a fool’s errand.
Seller Takeaway: If you decide you need to sell your house, don’t wait for the market to turn positive. It’s impossible to know when that might happen.
Get ready for lower prices
In economic downturns, asset prices fall. Some just fall sooner, and faster, than others. Real estate prices are no exception. If the economy takes a sustained turn toward recession, housing prices will probably go down. Lower income due to joblessness and reduced wealth due to stock and bond market depreciation mean fewer people with money to buy houses. This will generate lower demand for houses and fewer buyers.
Looking at past recessions can help set your expectations. For example, based on the Case Shiller Home Pricing Index, average prices dropped by about a third from peak to trough during the Great Recession starting in 2007. No one knows if we’re looking at a similar down market, but recent history provides a good frame of reference for what’s possible.
As an owner looking to sell, you need to prepare yourself for the possibility that you’re going to get less than you would have a month before the virus. How much less is anyone’s guess. Unfortunately, recent sales comparables provide little help if you’re looking to price your home accurately. With activity slowing, most of the recently sold houses near you probably closed before the virus hit. Meanwhile, the federal government paused foreclosures and auctions during the outbreak, so those numbers are not factored into average sales prices. A house is only worth what someone will pay for it. That’s a total unknown right now.
Seller Takeaway: Get comfortable with the fact that you may have to accept less for your house. Even if average asking prices don’t drop, fewer buyers means you’ll have less leverage in a price negotiation.
Buyers may buy faster than expected
Whether a drop in buyer demand happens in the long run is still unknown. In the near term, most consumers are hesitant to make any big purchases. After all, business activity is at a standstill but prices still haven’t changed much. In effect, no no one knows what houses are worth. If buyers fear prices nosediving, as they did during the last housing crash, they’re not going to take huge risks.
On the bright side, even in a down market, housing transactions will still occur. There may be fewer buyers overall, but those who are shopping are likely to be serious. The last recession was caused by a housing bubble that, once deflated, destroyed the credit markets and put millions underwater. This time around, the causes are external (a pandemic) and not based on fundamental flaws in the housing market itself. As mentioned previously, there could be an income problem in America creating fewer buyers. But with banking lenders largely still lending, anyone testing the market probably has the means, and may even move faster than normal.
Seller Takeaway: Though there may be fewer of them, buyers testing the market during coronavirus are likely to be serious. The downside for sellers is that buyers will have more opportunity to negotiate favorable terms.
Buyer behavior is changing in surprising ways
Because this disruption is so unlike anything we’ve seen before, it’s going to create a slew of unforeseeable consequences. And, in some cases, great opportunities will arise for home sellers.
Google search behaviors already demonstrate several interesting trends. Not surprisingly, overall searches for real estate are down. But searches related to mortgages and refinancing have spiked in concert with interest rate changes by the Federal Reserve. Searches for “home office” and “safe home” have also risen dramatically. Perhaps the nationwide tsunami of work from home employees may drive up demand for houses with built-in office spaces or safety features.
The coronavirus experience may create other trends in what home shoppers value. We could see an increased appetite for in-law suites or features that accommodate multiple generations under the same roof. Meanwhile, in the era of social distancing and voluntary quarantines, home buyers will certainly covet more space. Real estate listing sites are beginning to receive more visitors to listing pages in rural areas, while traffic to property pages in urban areas is decreasing.
Seller Takeaway: What buyers want in the post-viral world is still unclear. Consider your ideal buyer type, what they’re probably thinking right now, and what your house has to offer them.
Investors may outnumber retail buyers
When the worst of the virus started spreading, the Federal Department of Housing and Urban Development suspended housing foreclosures. At the same time, many state governors and local authorities approved mortgage payment delays, in addition to banks providing increased mortgage forbearance. With landlords and governments offering tenants extensions on rent deadlines, evictions are on pause nationwide.
Collectively, these decisions keep owners with financial troubles in homes they may eventually need to vacate. This means that thousands of properties are not making their way onto the market. Normally, these types of houses are magnets for real estate investors and fix and flippers. But for now, property investor activity is reserved.
If history is any guide, this could all change soon. At the peak of the last market downturn, there were more than 1.1 million foreclosures out of about 4 million total home sales. Though selling to a property investor may not be your top priority, it’s worth it to consider what your net proceeds would be from selling off market to a cash buyer vs. a traditional buyer. With COVID-19 playing havoc in the traditional real estate sales process, perhaps your best bet is to avoid it altogether by selling to an investor.