Even chaotic times can bring some positive lessons to learn from. Here’s how COVID-19 might change the real estate industry and how home buyers can benefit from the situation
originally published on Inman.com
BY ANDREW FORTUNE
04/26/2020 2:00 A.M.
I am a Realtor in Colorado Springs. As I write this, I am required to stay at home and not perform any of my normal job duties, as issued by the state of Colorado. It’s hard for me to see the silver lining under these conditions. Real estate sales are flat-lining in my area. Agents are stressed out and feeling hopeless.
This is the time of year when our market usually takes off. Most agents in my area would earn three-quarters of their yearly income within the next six months. That’s our normal trend. We plan all year for these next two quarters.
This year will not be normal. Many agents won’t see a paycheck for several months. Stopping all real estate activity in April is death for small real estate brokerages in Colorado Springs. It seems hopeless right now.
But even with the negative changes, there are some positive aspects to this strange situation. It’s likely that consumers will benefit from the extra stress dumped on the industry this year. Here are three ways I see homebuyers benefiting from the COVID-19 crisis.
1. Less inexperienced Realtors in the marketplace
There are currently 4,860 Realtors registered in the Colorado Springs MLS. We average around 1,200 sales per month. Each transaction has two sides: the buyer and the seller. That means there is a potential for 2,400 commission checks to be issued to agents each month.
Based on those numbers, we have twice as many Realtors as we have commission checks. This problem has been increasing over the past few years. Because it’s fairly easy to get licensed as a Realtor, many people try it. Our agent count has risen every year since 2010.
Is there any harm in this? I think there is.
If you are searching for homes online and you decide to reach out to an agent for help, the chances of that agent being inexperienced are very high. Being a test subject for a new agent can cost clients thousands of dollars. Not to mention, it sours the reputation of the entire real estate industry.
When more than half of the agents in the MLS are not selling homes every month, many of them will not get the experience needed. When they are broke, their motivation to close a deal becomes compromised. The quality of service in our industry seems to go down as the agent count goes up.
Real estate agents have less than an 80 percent success rate during their first year in business. It’s likely that this time of quarantine will flush out those agents who would never make it anyway. This is a good thing for both consumers and agents.
The amount of transactions that consumers have with inexperienced agents should go down. This will help increase the customer service of the industry as a whole. It’s a much-needed purge that will benefit homebuyers.
2. Increases in home prices may slow down
Last month, in my market, our median sales price went from $315,000 in March of 2019 to $352,400 in March of 2020. We’ve had an increase in sales prices for eight years straight. Prices are getting out of hand.
The average middle-class person in Colorado Springs spends around half of their income on the cost of their home. We work with buyers who are barely able to get into a home that they only marginally like. Buying a home should be fun. It’s a privilege. Instead, for many, it feels like going to war.
Homes will have 20 to 30 offers within the first few days in the median to lower price ranges. The last few years have been very hard on first-time buyers, which make up the largest group of those shopping for a home.
As I reach out to my clients and ask them how they think this pandemic will affect our market, most are hoping for price drops. Homebuyers are stressed out by the constant 10 percent year-over-year price increase.
Because people have lost their jobs during this pandemic, there will be fewer folks who are ready to buy a home when the quarantines are lifted. This will leave a window of time for buyers who are ready to take advantage of the drop in demand now.
With increased supply and decreased demand as a result of the pandemic, it seems likely that home prices will drop a bit. It may only be for a small window of time, but that’s still a glimmer of hope that homebuyers will gladly welcome.
3. The listing and closing processes are being refined
Sometimes it takes an emergency event to trigger change. I’ve been shooting 3D tours and videos for my listings for years now. At the same time, only a handful of agents in our community have been doing the same thing. Most still rely on basic photos.
Thanks to this quarantine, marketing techniques that have been around for years are finally being utilized by agents. They didn’t have the motivation to use them before this. Now they do. Pictures alone aren’t enough anymore. From here on out, you’re going to see more 3D tours, as well as fully narrated walk-through videos. This will be great for homebuyers searching online. More content means more clarity.
Also, title companies have adapted as well. In the 10-plus years that I’ve been licensed, I’ve had multiple conversations about digitally streamlining the closing process. It’s been an “idea” for many years. Now it’s become a necessity.
To have digital closings, title companies need remote online notarizations. This is not legal in many states right now. States have been scrambling to pass legislation that would allow for remote online notarization.
There are people in the industry who have been operating under the same routines for decades. COVID-19 is shaking them up. It’s likely to create better online listings and remote closing processes moving forward. This is great for homebuyers!
As the national real estate market gets shaken up, loose limbs will fall. Pruning is coming. Brokerages, mortgage and title companies, appraisers and home inspectors will all feel the pinch. The weak businesses will be purged, and the strong will take more market share. This is the nature of business.
As all this plays out, keep an eye on the companies who emerge and those who fade away. Success leaves clues. Let’s learn from this and build stronger businesses in the future. As business become refined, the experience will be better for homebuyers nationwide. It’s a win-win for homebuyers and the industry as a whole. It’s just hard to see the silver-lining today. Keep your heads up! We’ll be stronger once this is over.
Andrew Fortune is the owner and managing broker of Great Colorado Homes, Inc.Connect with him on Facebook.
