What’s up with this crazy housing market during a pandemic?

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I’ve been scratching my head since late February or early March about why the housing market has been doing so well during this crazy coronavirus year. For the first time since I’ve been running our South Carolina operation, I was asked to re-do (reduce) my 2020 budget earlier this year. As it turns out, the original budget my crystal ball predicted last October is closer to reality than the reduced budget from April. In fact, we’re having a record year.

How can we be having a record year in the real estate industry when jobs are being lost and small businesses are closing? Our real estate closing offices are running at full pace, vacations are few and far between, lawyers are trying to hire closing staff members to alleviate the pressure and are finding that task next to impossible. Most lawyers and paralegals are attempting to hang on for the ride, knowing a slow-down will likely occur at some point.

One major factor attributing to the frenzy in the market, of course, would be the record low mortgage rates we’ve experienced this year. Another factor may be the legislative efforts to prop up paychecks and the economy until we have a solution for COVID. Additionally, I keep hearing tales from South Carolina law firms that clients are sick of the houses from which they’ve been working at home and either want to renovate or relocate. I get that! Finally, we hear our friends from the north want to relocate to our sunshiny, beautiful state. I get that, too!

Now, autumn is near, a time where the speed of our business typically slows. But we’re not yet seeing a slowdown. I don’t want to jinx us. That slowdown may yet hit us in 2020. But I read an interesting article from Forbes dated September 11, entitled “The Fall Real Estate Market is Abnormally Hot as Mortgage Rates Break Records.” That article is linked here for your reading pleasure.

This article quotes a Zillow economist who said demand in housing continues to be fueled by low mortgage rates. Who would have predicted the thirty-year mortgage rate would be under 3% and the fifteen-year rate would be under 2.5%? Additionally, home prices continue to increase as inventory shrinks. It’s clearly a seller’s market!

Read this article, real estate friends, to see whether you think it holds true for our fair state. If so, let’s all buckle up for the ride!

A glimpse into the future of residential real estate sales

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Here’s what may happen when iBuyer companies enter our market place

iBuyers

I read an interesting article from Forbes recently by John Wake entitled “The Surprising Way Real Estate Agents are Adapting to ‘iBuyers’ Buying Houses Directly From Sellers.” I invite you to read the article in its entirety here.

The article focuses on residential real estate sales in the Phoenix market which the author calls “ground zero for the iBuyer explosion.” What does he mean by that? Apparently, the largest iBuyer companies, Opendoor, OfferPad and Zillow Offers, either started their operations in Phoenix or concentrate their efforts there. He estimated five to six percent of houses that change hands in that market are sold to iBuyers.

The article focuses, as its title suggests, on how real estate agents are adapting to this disruption in their market. But I find the article instructive to South Carolinians on the topic of how these internet sales are orchestrated and how they might affect sellers in our market when this disruption migrates east to us.

The author says that a homeowner who seeks to sell a house via an internet company must first complete an online form. An offer is typically made within two or three days. If the homeowner accepts the offer, inspectors will be sent to the house and will come back with a list of repairs and estimated costs for the repairs that the buyer requests before the closing.

As in our current process, the seller can agree to make the repairs, to reduce the price of the house to cover the cost of the repairs, or to terminate the contract.

The author suggests that real estate agents commonly complain that iBuyers tend to offer less and to ask for more repairs than traditional buyers. In other words, the seller makes more money in traditional sales involving local real estate agents.

The flip side of that coin is, of course, that closing with one of the iBuyer companies is more convenient than the process in our marketplace. A seller doesn’t have to get the house ready to sell, stage it, keep it clean for showings, or leave home for showings and open houses. The closing date may be more flexible, and there probably will not be contingencies for appraisals and financing.

How are real estate agents in Phoenix adapting? According to Mr. Wake’s article, real estate agents are assisting sellers by obtaining multiple iBuyer offers, analyzing and explaining the offers, discussing the options of accepting one of the iBuyer offers or beginning to market the home in the traditional manner, and coordinating everything with the iBuyer or traditional buyer, including repairs.

In short, real estate agents are attempting to become iBuyer experts in addition to traditional home sale experts.

Real estate lawyers, we need to be ready for this disruption when it hits us. We will want to be able to explain the changes in the market to our clients as well as to educate our real estate agents on how to stay in the game. Let’s keep our eyes and ears open! I’ll help!