Inman Connect Now: Assessing the California COVID Marketplace with Leslie Appleton-Young
Leslie Appleton-Young took the stage to present a rapid-fire analysis of recent statistics gathered by the California Association of Realtors. These metrics, captured by surveys sent to brokers, buyers, and sellers, give us a firsthand look at COVID-19’s impact.
• There’s disparity on how large brokerages vs. mom and pop shops will fare.
High-performing agents are faring significantly better than the average agents. There was an immediate 40-50% drop in March. Now we’re only down 20-30% from where we’d normally be this time of year, and data is trending up.
‣ A size-based divide is revealed in regards to the anticipated long-term impact of COVID-19 on agent retention. 48% of brokerages anticipate they'll lose some agents, and larger brokerages expect to be hit the hardest. 54% of brokerages with 50+ agents expect to lose 1-10% of their agents, and 24% anticipate they’ll lose 11-20%. To contrast, 70% of brokerages with less than ten agents anticipate losing no agents, and 14% anticipate losing 10% or less. Regardless of size, 12% of brokers are moderately confident, and 82% are very or extremely confident that they’ll be in business in 2021. But brokerages won’t get by unscathed. C.A.R. members surveyed anticipate business performance will be off by an average of 28% for the year.
‣ Brick and mortar real estate presence is anticipated to shrink significantly.
This is particularly true with larger brokerages, many of which are planning to consolidate office spaces, with some closing one or more brick and mortar locations to help tighten overhead costs. In fact, 2/3rds of brokerages with 50+ agents report that they’ll consider reducing their footprint when their office leases come up for renewal.
‣ Brokerages can no longer delay adopting technology tools.
Across the board, brokers are getting more agile and are being forced to adopt more virtual tools to simplify, automate, and streamline the buying and selling process. While nearly 80% of buyers and sellers are comfortable with virtual transaction elements, only 44% of agents are on the same page. This has been a struggle for agents and brokers working to act fast and keep up with the rapidly shifting industry.
• Everything has shifted - except for sale-to-list-price ratios.
‣ Buyers and sellers pulled back in April, but are starting to come around.
The number of California buyers and sellers pulling out of the market in April was in the 80-90% range; currently, it’s in the low 70s.
‣ The market paused; it remains to be seen how long recovery will take.
Early indicators suggest a minimum three-month market pause, and it’s been widely speculated that summer will become the new spring for sales numbers. A lot will depend on if we see a second wave of COVID-19 this fall and winter.
‣ Buyers and sellers disagree on where sale-to-list will land.
Survey data indicates that California buyers expected bargains. In reality, most sellers aren’t budging from standard market trends when it comes to sale-to-list-price ratios, which are consistent with pre-pandemic numbers, averaging around 29%.
• Things are changing within the industry; trends are accelerating.
‣ A majority of agents aren’t comfortable working virtually, but they’re doing their best to meet consumer demands. Most brokerages have adopted virtual meeting tools; many are offering agent training on how to manage virtual transactions. However, becoming primarily virtual has been uncomfortable for many agents in a historically belly-to-belly business. In contrast, consumers are far more comfortable with transitioning to a digitally-driven transaction.
‣ Agents and brokers are split on their comfort levels with the U.S.’s plan to loosen restrictions. Nearly all of those surveyed anticipate some fundamental changes in how transactions are managed and safely handled, both in terms of tools that will be used and in terms of how agents will interact with clients.
‣ Agents are getting creative to optimize spend, nurture client and prospect relationships, and prosper through this shift. Agents prioritizing nurturing relationships and being empathetic over all else as we navigate this crisis are making a positive impact and are poised to win.
• Residential real estate will emerge as a winner.
‣ The definition of home has changed for consumers.
Rather than serving as a place to come back to after work, home is now a school, a gym, the office. It’s a place to live, work, eat, sleep, and play.
‣ The concept of an ideal home is more valuable than ever.
It’s anticipated that this mindset shift will result in buyers putting more value into their home selection and will lead them to seek out more functional space, more land, and more opportunities to customize their space.
‣ Creative housing solutions may emerge as demand continues to grow.
The closure of retail locations and other commercial properties may prompt a creative use of space. Open buildings may be rezoned or re-defined in a way that allows them to accommodate residential or program-based housing.
What’s happening with the market?
Appleton-Young echoed the analysis she shared during her Ask Me Anything with Side a few weeks back. She says the virus has caused the California real estate market to press pause, and the outcome will depend on how long the pause lasts. To date, data suggests that the market is slowly coming around and making some headway back towards normal, but the real test will come in the fall, when we either experience or dodge a second wave of the virus.
How are agents feeling, and how is COVID-19 affecting how they do business?
Data points from surveys collected three subsequent weeks from C.A.R. members show that agents are consistently split on how to feel about current restrictions.
This fairly evenly split seems to be shared by a lot of the populace as we try to make sense of the rapidly changing information we’re being served on a constant basis.
But what about performing necessary job functions? Are agents comfortable showing properties in areas that are allowing homes to be shown? What’s being impacted?
Survey results reveal:
• In areas with relaxed shelter-in-place orders, 70% of agents are very or extremely comfortable showing property
• May 22-25 metrics show that more than half (56%) of active listings are vacant
• Of agents who live in areas where shelter-in-place is still in effect, 51% plan to resume showing properties immediately after restrictions are lifted
How are buyers and sellers feeling, and how is COVID-19 affecting their behavior?
• Buyers and sellers took a timeout in mid-March through April
‣ 91% of buyers postponed their search in mid-April, down to 75% today
‣ 48% of buyers withdrew an offer in mid-April, down to 32% today
‣ 81% of sellers held back from selling in mid-April, down to 68% today
‣ A majority of closings that were delayed got hung up due to financing bottlenecks
Today, homeowners have lost confidence in the market’s ability to support a strong home sale, but consumer confidence in the buyer landscape is on the rise.
So how is all this impacting pricing? As a result of COVID-19, 89% of buyers expected lower prices in mid-April (down to 77% now), but only 22% actually tried to negotiate lower prices. Sellers have not anticipated selling for less. In reality, the percentage of seller price reductions has remained consistent with pre-pandemic numbers, averaging around 29%.
In addition to market trends, Appleton-Young highlights some interesting consumer behavior trends that are also emerging as a result of COVID-19. More specifically, she notes that:
‣ Consumers are saving more money and spending less
‣ We’ve seen an even more significant shift to online retail
‣ People are traveling less and focusing on local destinations
When it comes to what consumers are looking for in a home, COVID-19 has led to buyers valuing social distance and open space. Home has become much more than a place to cook dinner and sleep; it’s now an office, a gym, a school, and so on. Because of this, high-density housing has lost its appeal for many. Additionally, people are adapting to a work from home lifestyle as part of the norm, which could result in an increase in searches for homes with more space—those that can accommodate a dedicated workspace, playspace, and more.
How is technology helping agents facilitate transactions through COVID-19?
While buyers and sellers were already quite comfortable with the concept of making their real estate transaction more virtual, agents have faced the biggest hurdles.
Buyer and seller comfort with virtual transaction tools:
‣ 59% of buyers and 67% of sellers are very comfortable signing documents electronically
‣ 70% of buyers are very comfortable doing a virtual home tour, 66% of sellers are comfortable allowing their homes to be toured virtually
‣ 13% of agents have had buyers put a contract on a home without seeing it in person
Accelerating Trends Center Around Technology, Agent Retention, and Brokerage Structures
As they say, there is no better teacher than necessity. Since shelter-in-place orders were issued, agent and broker use of virtual meeting tools, like Zoom, have skyrocketed.
What are agents and brokers predicting will happen next?
As we head into the second half of 2020, most agents anticipate we’re a way out from total recovery, but the experts we’ve spoken with agree that steady indicators suggest things will continue to improve, albeit slowly. C.A.R. also asked their broker community what they anticipate happening next. The good news is, 94% of broker respondents report that they are moderately to extremely confident they’ll still be in business in 2021. However, brokers anticipate a fairly significant impact on overall numbers for the year, and don’t believe recovery will be fast (nor are we immune to the possibility of future virus flares).
Most brokers predict the market will take 3+ months to get back to pre-COVID-19 performance.
Brokers anticipate business will be down for the year. Here are their predictions:
As far as the impact on agents in general, 48% of brokerages anticipate that they’ll lose some agents due to the pandemic. Twenty-six percent anticipate losing 1-10% of their agents; 10% expect to lose 11-20%; and 12% expect to lose 21%-100%. Appleton-Young points out that it’s important to note larger brokerages expect to see the majority of this loss, as they have more agents to lose. Smaller brokerages and small teams are less likely to experience a major impact.
To compare, here’s what smaller brokerages are anticipating:
What does that mean for the future of brick-and-mortar real estate offices? Large brokerages are already talking about consolidating office space to tighten up overhead costs and future-proof their businesses.
What other changes can we expect to see?
Many agents are also looking to cut costs, often opting to reduce print marketing and increase digital efforts. 3D home tours, the simplification of the buying and selling process, and more online tools dedicated to supporting transactions will take center stage. It’s also safe to anticipate that sharing a car to get to listing appointments, shaking hands, and personal open houses will become less common while using masks, gloves, and sanitizer on a regular basis will become more prominent.
Industry Winners: Residential Real Estate and Relationship-Focused Agents
People will migrate to larger properties on more land, rates will continue to be low, and summer will become the new spring as far as home-buying trends are concerned. Relationship-focused agents who nurture past prospects and clients throughout this time will emerge victorious, taking on more market share as we work our way to the other side.
Though retail and commercial space owners are anticipated to experience loss, this shift will open up opportunities to get creative by rezoning and repurposing empty structures to create more housing in densely populated areas.