Fear and Uncertainty in the Local Real Estate Market.

An Industry Ground to a Halt.

The recent developments in the global battle against Covid-19 have had a devastating impact on the local real estate market.  Even before the recent shelter in place order took effect, the wild swings in the stock market forced many buyers out of the market.  The lucky ones simply went to the sidelines to wait out the market volatility.  The less fortunate saw so much of their equity wiped out when the stock market cratered that their pre-approval status has been voided.

But by far the most devastating blow to the market is the shelter in place order that is now in effect throughout the Bay Area.  Holding open homes and showing properties to clients are considered to be “non-essential” activities by the government, and are therefore in direct violation of the order.  And gauging on the sheer contagious nature of the virus, it's just common sense not to put anyone in that dangerous situation in the first place.  Nevertheless, a freight train cannot stop on a dime, nor can a market that involves so many people and had so much momentum just a few short weeks ago.

Transactions in Flux.

Homeowners who were thinking about listing their home in the Spring will obviously have to put those plans on hold until business resumes to normal.  But what about sales contracts that were already started before the proverbial roof caved in?  The best case scenario is that the closing date may be delayed slightly, if at all.  The worst case scenario is that the deal may fall out of contract because it simply can't be completed.  The difference between those two lies in how far along the contract was before everything stopped.

For those deals that are near the closing date and have no remaining conditions or contingencies, there is a much better chance of the deal actually closing.  Banks are required to stay open during the shelter in place, and escrow companies are working with the County Recorder's Office to enable e-closings, which will enable real estate deeds to be recorded while the County offices are closed.

Newer contracts face a much higher risk, especially if there are contingencies in place.  Appraisers and property inspectors are “technically” not supposed to be visiting properties, so unless other arrangements are made, this can create a real hardship in a real estate contract.  Buyers and sellers are going to need to work together to resolve the inevitable delays in order to get these contracts to the finish line.

Finally, one hopes that the buyer's funds to complete the purchase have already been liquidated prior to the precipitous drop in the stock market, but this may be another hurdle that buyers in contract may face.

Risks to Consider.

There are three risks that I think you need to consider if you're currently in contract, or if you have your home on the market now. Some of these risks are more obvious than others.

1. Escrow Delays. As I mentioned above, the odds that your escrow will be delayed are probably pretty high.  While this may not pose a problem for some,  it will definitely cause hardship for others.  Sellers who need the proceeds of the current sale to complete the purchase of another property (i.e. a simultaneous closing) will need to manage the close dates very carefully.   Buyers who may have already given notice on their rentals may also be in a hardship position if they can't move when they originally planned.
2. Rent-Back Risks.   The practice of a buyer offering a rent-back to the seller after the close of escrow has become commonplace in almost every real estate transaction.  But home buyers often overlook the fact that they technically become landlords during these rent-back periods. Temporary, blanket moratoriums on evictions are likely to be implemented nationwide as the federal government looks to protect tenants who may be experiencing hardship.  While it's probably unlikely that you'll run into an issue with a seller/tenant refusing to move because of the situation, it's still a risk that you should assess with your agent and/or a qualified California real estate attorney.
3. Stagnant Listings.  Home sellers whose home is currently active on the market will need to make decision on how the listing should be marketed during the shutdown. Leaving it on the market as an active listing gives it the most visibility, but you'll be unnecessarily racking up days on the market (DOM) since it is technically not allowed to be shown.  And as you know, a high DOM figure usually raises some level of suspicion with potential buyers.   Withdrawing the listing from the market keeps the contract in place, but serves to “freeze” the listing status and the DOM counter.  And canceling the contract outright resets everything to zero (after it has been off the market for a minimum of 30 days).  Talk to your listing agent about what is the best path going forward — don't just assume that leaving it alone is the best option for you.

Got Questions?  Just Ask!

Like all other real estate offices, we are closed for business until the shelter in place is lifted.  But rest assured that I'm still working from home, and I'm available to answer any questions you might have about what's going on in the market right now.   Feel free to call me at 650-207-2024 or shoot me an email.

Above all, please stay safe and healthy while this perilous situation runs its course.  I firmly believe in the saying “this too shall pass”, and at some point in the near future we will turn the market back on in a new and different world.