Keep Calm And Carry On Through The Pandemic’s Emotionally-Charged Escrows
One of the National Association of Realtors “30 Under 30” real estate agents, serving the Del Mar and San Diego luxury residential market.
Low inventory and record low interest rates signal a hot seller’s market. However, uncertainty about how the ongoing pandemic and future tax legislation might impact the economy has created a lot of unrest among buyers and sellers. And while sellers would ordinarily expect to have a clear upper hand in a typical seller’s market, like we’re seeing in the San Diego area, they may need to adjust their expectations to meet the needs of today’s extra cautious buyers, who are more likely to second-guess or even back out of a deal during an emotionally-charged escrow.
The good news is that with the right awareness and preparation, buyers, sellers and their agents can work to prevent volatility throughout the homebuying process. Here are a few of the biggest issues I’m seeing and how I’m preparing my clients to work through sensitive sticking points.
Don’t sweat the small stuff.
Normally, when a seller is seeing a lot of activity on their home, they can go into escrow with a certain degree of confidence that they’ll be able to negotiate with one or more competitive backup offers. If home inspections reveal any issues, sellers usually have the upper hand in negotiating the cost of repairs. Now, however, emotions are running so high that the usual “stickiness” of these transactions just isn’t there – and a deal can fall apart over relatively minor issues that might have seemed trivial before the pandemic.
It’s not uncommon now for a transaction to fall apart over the cost of repairing a few drains or something as small as a screen door. Because the pandemic has many people taking advantage of low interest rates to flex up and buy bigger homes with more space, buyers who feel that they’ve already stretched to put in a competitive offer may expect to receive 100% of their repair requests.
Sellers should both be prepared for buyers to back out more easily and understand the potential consequences of multiple offers falling through. The activity sellers initially see on their home might be their one opportunity to maximize the competition, because once a home has fallen out of escrow once or even twice, it’s difficult to drum up the same level of competition again. I’m now often reminding sellers to put a gut check on whether or not it’s worth countering over small issues, because the stakes are higher and the process is more fragile.
Maintain checks and balances.
While it’s important to view today’s real estate transactions through a more sensitive lens, it may be equally important to maintain the normal series of checks and balances. For example, a buyer who submitted a higher offer to win over other bidders might panic if the seller accepts the offer without countering. In this instance, the buyer could easily think that they overpaid for the home in a hyper-inflated market and consequently back out of the deal. This is an unfortunate scenario for both the buyer, who might later regret not buying the home, and the seller, who may have to sell the home for a lower price down the line.
Be fully transparent.
Sellers should always strive to offer full transparency, including the necessary pre-inspection reports, but when emotions are running high, trust is more important than ever. If, for example, the seller forgets to disclose an insurance claim that surfaces during the escrow process, buyers are much more likely to lose trust in the seller – even if the oversight was an honest mistake. In these instances, buyers may second-guess themselves by asking questions such as “What else is the seller not telling me?”
Expect lender delays.
Buyers and sellers should expect delays with loans closing on time, especially in luxury markets. This is because many lenders are moving the mile marker at the finish line and requiring higher down payments and employment verification at a level we simply didn’t see before the pandemic. It’s important for the seller to recognize when the lender is impacting the flow of a transaction outside of the buyer’s control. If a buyer has switched lenders three times and hasn’t locked in their interest rate, that’s one issue. But just because there’s a delay with the loan doesn’t mean the buyer isn’t still a good buyer.
Anticipating these speed bumps and sensitivities, there’s still a lot of room for buyers and sellers to be optimistic. In San Diego, where we’re leaning heavily toward a seller’s market, buyers who might ordinarily be discouraged to hear there are six or seven offers above asking price on their dream home should be encouraged to keep the conversation going with their agent, in case those offers fall through. All hope is not lost and it could only be a matter of time before a home that was previously out of reach becomes a strong possibility. Even though, at times, it might seem like the real estate world is turned upside down, buyers and sellers should remember it’s not all doom and gloom; it’s just different.
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