Housing market shifts to cyber side of business amid pandemic
Jennifer and Justin Lerma, Alexandria, Virginia residents for five years, had been searching for a house in that community for themselves and their three dogs for about six weeks when the coronavirus pandemic hit the Washington region.
Their determination to move by this summer - and stay safe - led them to make an offer on a property without setting foot inside.
"Justin found a 'Coming Soon' listing on a Thursday evening and when I checked it out online, I couldn't sleep all night," says Jennifer Lerma. "First thing in the morning, we saw that the listing was live, so we drove by to see the outside and check out the yard, which is our priority because of the dogs. I had our agent [Steve Gaich with Compass] do a tour with me over FaceTime and then Justin talked to him on the phone and we made an offer."
The Lermas, both 32-year-old first-time buyers, had their full-price offer of $617,000 accepted that evening.
"Technology allows us to do things that were unthinkable even just a few years ago," says Keith Gumbinger, vice president of HSH.com, a consumer mortgage information site. "Digital mortgage platforms can remotely verify employment and assets and the ability to communicate electronically means we can function. A decade ago, the housing market would have been completely shut down during a situation like this."
Michael Hernandez, a software engineer and first-time homebuyer from Arlington, Virginia, purchased a home sight unseen with the help of Redfin real estate brokerage agent Carly Guirola during the coronavirus outbreak.
"I'd been looking for several months and lost some bidding wars to other buyers," says Hernandez. "Because I narrowed the area to Hyattsville near Metro and the Arts District, I knew the area pretty well and had looked at several houses that were similar to the one I bought."
Hernandez toured the home via video chat with another Redfin agent.
"I was a little concerned that the ceilings would be too low on the upper and lower levels, so I had her reach up to show me the ceiling height during the call," says Hernandez.
Hernandez's $430,000 offer was $5,000 above the list price, which he says was a "little less aggressive" than his previous offers because of the pandemic. He was able to see the house inside after the offer was accepted.
Most contracts today include a coronavirus addendum that allows for greater flexibility in the timeline between the offer being accepted and the closing, particularly because of potential issues with inspections, appraisals and closings.
"The addendum says that if someone involved in the process is quarantined or ill or an office is closed or other issue, there's an automatic extension on the closing," says Steve Dean, a real estate agent with Compass real estate brokerage in Washington, D.C.
Buyers can also make their offer contingent on seeing the property in person to confirm that it has been accurately represented in virtual tours and photos, says Kathy Chovnick, a sales manager with Long & Foster Real Estate in Middleburg and Purcellville, both in Virginia. Sellers have the right to negotiate on that point.
Almost everyone applies for a mortgage on the phone or online today, says Stanley Middleman, CEO of Freedom Mortgage, headquartered in Mt. Laurel, New Jersey.
The Lermas were preapproved for a loan with Veterans United before they made their offer and handled the entire loan process online. Similarly, Hernandez had a loan preapproval and was able to move forward without needing any in-person contact with the lender.
"The things that slow down the process right now are appraisals, although sometimes we can do exterior-only appraisals," says Middleman. "The other possible glitch is that we must make sure people are still employed and verification can be tougher when everyone is working remotely."
However, Fannie Mae and Freddie Mac recently announced that an email verification - a bank statement showing the most recent payroll deposit or a recent year-to-date pay stub - could be temporarily substituted for verbal verification of employment on loan approvals.
"The mortgage industry is ready to do everything virtually, but regulations have held back the real estate industry more than the tech itself," says Middleman. "Electronic processing offers far more efficiency and is less subject to fraud than when we rely on humans."
Every real estate agent and brokerage is focused on upgrading their technology to provide 3-D tours, video tours, robust photos and live-chat tours that enable buyers to see properties virtually.
"We had professional photos of my listing in Brambleton that went on the market in late February, but we didn't think we'd need a virtual tour," says Chovnick. "The sellers suggested that they film a video tour and we promoted it with Facebook, Instagram and YouTube and got more than 50 views after open houses were banned."
The seller, Brad Gogot, used his GoPro camera to shoot his four-level townhouse and edited it with music. After seeing the video, the buyers requested an in-person visit and made an offer.
"We left the house and disinfected everything before and after with bleach," says Gogot, who planned to take the house off the market if they hadn't received an offer after the video aired.
If you must do a live video chat with the homeowners or the listing agent, says Guirola, you should ask them to show you the furnace, water heater and the ceilings.
"You want to see lots of angles and not let them skip any rooms or corners," she says. "The home inspection is always important, but I stress it even more as a safeguard for buyers who are purchasing based on virtual visits."
Even if the home is being sold "as-is," a home inspection can be a way to walk away from the deal if the house doesn't meet the buyers' expectations, says Guirola.
"It's hard to see everything from photos, so I asked my agent to open the cabinets in the kitchen and the pantry," says Hernandez. "The video chat was at night, which was good because I could see how much lighting there was. I think the video tour is a good way to see if the house matches the photos and to ask to see everything, not just the good parts of the house."
Guirola and Hernandez looked at the property disclosure before the video tour and created a checklist of questions to address. Guirola recommends taking notes during the video tour to follow up on by looking at photos, recorded videos and asking the listing agent.
"It's really important to have your own agent rather than the homeowner or the listing agent show you around," says Hernandez.
Like the Lermas, Hernandez had already toured properties with his agent so he felt comfortable that the agent would focus on his priorities.
"We'd toured a lot of homes with Steve, so we trusted him to point out the details that mattered most to us," says Jennifer Lerma. "This house was a flip, so I asked him to be sure it had been done well. He checked a railing to be sure it was sturdy, opened and closed the doors, checked the light switches and made sure the caulk was in good shape."
Jennifer Lerma also pulled up photos online of what the property looked like before the flip for comparison purposes and directed her agent to show her how the rooms flow together.
"I think a video chat is much better than a recorded video tour because you can ask questions and make the agent slow down for specific things if you want," says Justin Lerma.
Dana Scanlon, a real estate agent with Keller Williams Capital Properties in Bethesda, Maryland, recently held three virtual open houses on her Bethesda listing for small groups of buyers via Zoom video conferencing, resulting in a sale.
"It helped that the open house was interactive so I could open the closets and go outside and return to rooms to answer questions," she says. "The live tour is an important supplement to floor plans, 3-D tours and photos."
Virtual tours, renderings, photos and floor plans have all been elements of Van Metre's new construction marketing that are suddenly more important, says Brian Davidson, group president of Van Metre Homes in Fairfax, Virginia. Van Metre sold 18 houses during the last two weeks of March, some through virtual tours and others to buyers who had previously seen the models or walked through them alone.
"Our Design Center is also virtual now and we have 'Build-Your-Own' home software with every kitchen and master bathroom option available to view," says Davidson. "We'll have every other room of the house available for online customizing within 30 days."
For customers who want to see their design choices in person, Van Metre can drop off a sample or schedule a solo tour of a model to maintain social distancing.
While technology can remove the need for face-to-face interaction during the loan application and home search, appraisers and home inspectors typically need to see a property in person to make an evaluation. Appraisal alternatives are possible for many transactions, some on a temporary basis, such as an exterior-only appraisal or a desktop appraisal that relies on technology to evaluate property.
"Fannie Mae and Freddie Mac want to leverage technology to gather objective data for home valuations," says Kenon Chen, executive vice president of corporate strategy for Clear Capital, a provider of property valuations and real estate analytics, headquartered in Reno, Nevada. "The idea is to bring the home to the appraiser instead of making the appraiser go to the home."
Clear Capital, which gathers data from sources such as real estate brokers and agents, has used its technology to provide thousands of appraisals for lenders in recent years. In response to the coronavirus, the company released "OwnerInsight," a free tech tool that lets homeowners provide live photos and information to lenders and appraisers that is captured by the tool to protect against fraud.
"The tool syncs with a package that can be sent directly to appraisers so they can do desktop appraisals rather than visit homes," says Chen. "There are already opportunities to do automated valuations on some properties or to have an appraisal waived. OwnerInsight gives us one more way to do an appraisal without putting anyone's health at risk."
Home inspections, typically attended by buyers in the past, are now being done solely by the inspector. The inspection results can be shared electronically.
"I talked to my inspector after he emailed me the report, which had tons of photos and information in it," says Hernandez.
Van Metre provides virtual walk-throughs of new homes just prior to the closing instead of the in-person tour, using technology such as Facebook Live, says Davidson.
"We're also filming some of the instructions we usually provide during those tours," says Davidson, such as the home's furnace filter.
One of the most difficult pieces of the real estate transaction to complete without human contact is the closing, primarily because of the lack of universal acceptance of a remote online notarization (RON). While Maryland and Virginia have enacted rules to accept RON, in practice, the ability to use electronic notarization depends on each county's rules and technical capabilities, says Patrick Stone, executive chairman and founder of the Williston Financial Group, parent company of WFG National Title Insurance Co., headquartered in Portland, Oregon.
About half of all states have passed legislation to allow RON. The SECURE Notarization Act of 2020 has been introduced in Congress to permit immediate use of RON nationwide, but it has yet to pass.
In some locations, entirely digital closings can be done. In other areas, there are some workarounds so that real estate closings can occur.
"We have the option of doing a closing in the office with only the people who absolutely must be there," says Stone. "We sanitize the rooms and use all new pens and minimize touching anything."
Mobile notaries are also an option, with a notary passing papers through the window of the car to get a signature.
"We're already doing more signatures using software like DocuSign for the signatures that don't require notarization," says Stone. "That cuts down on the number of required in-person signatures to about a half-dozen."
Technology already in use provides a secure portal for transactions to protect customers from fraud and identity theft.
"A few years from now we're likely to see all real estate transactions done entirely online," says Stone.
The real estate industry has always been considered a "people business" more than a tech business, but this crisis may nudge companies to move faster to implement digital transactions.
"If done well, remote appraisals can result in high-quality valuations," says Chen. "This opens up the opportunity to use this kind of technology in the future depending on how well it performs during the crisis."
While technology can move transactions forward in many ways, some clients will always prefer to see a property in person and others may have difficulty accessing necessary technology.
"Everyone is embracing virtual visits while we're in self-quarantine, but I think in the future we're likely to see more people use this to self-select which properties they'll see in person," says Eddie Rangel, a real estate agent with Compass real estate brokerage in Washington, D.C. "It works best for new construction and when someone the buyers trust is holding the camera during a live video chat."
Technology that allows people to connect virtually has helped many to navigate work and socialize during the pandemic. In the real estate industry, new tools may have a lasting impact on the way transactions occur.