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Agents wonder if virtual property tours are enough to seal million-dollar deals
THE real estate industry, for all its newfound tech savvy, still relies on handshakes across mahogany tables.
The coronavirus pandemic has exposed that weakness: Real estate is a cheek-by-jowl business, methodical by design, lumbering until the final, crowded contract signing. Almost overnight, it has been forced to rethink the entire model.
New York state's stay-at-home order, and similar restrictions elsewhere, have complicated every part of the months-long home-buying process not only for buyers and sellers but also the movers, appraisers, back-office workers and lawyers who handle the physical stacks of paperwork still required by law to close a deal.
Alex Vaynrokh is a sales manager at the Broad Exchange Building, a condo conversion in the financial district. In anticipation of the stay-at-home order, his firm shot 52 video tours on smartphones in two days in mid-March, expecting they would no longer have access to their sales office.
"Virtual" is likely to be the operative word for the foreseeable future. From March 15 to 30, nearly 2,000 listings for sale in New York City included a link to a video walk-through - almost twice as many as in the 2-1/2 months prior, according to StreetEasy, the listing site.
But they are a poor substitute for the real thing, said Frederick Warburg Peters, the CEO of Warburg Realty.
"A picture may be worth 1,000 words, but only an in-person visit is worth US$1 million," he said, adding that he expects signed contracts could fall more than 70 per cent in the second quarter, compared to the same period last year.
Prices in New York real estate have been sliding since the peak of the market around 2016, but the extraordinary damage the pandemic has caused to the economy could push prices significantly lower.
It is unclear how far prices might fall, but after the Sept 11 terrorist attacks and the collapse of Lehman Bros in 2008, real estate prices dropped 25 per cent to 30 per cent from the peak, according to Jonathan Miller, a New York appraiser. Already, buyers in contract are aggressively renegotiating prices, agents said.
Those who brave the market now could get some of the best deals in years, with near-record-low mortgage rates, but the path is complicated by ever-changing guidance and all the minutiae that video calls fail to convey.
New York agents were banned in mid-March from showing apartments in person. That decision was seemingly reversed, but only to allow them to record virtual showings - a distinction without much difference, since most apartment buildings are refusing to admit non-residents anyway.
Some lenders will accept "drive-by" or "desktop" appraisals that don't require a physical inspection, but there is limited data on how far home values have fallen since the outbreak.
The state is also permitting some forms of virtual notarisation to prove that key documents were signed, but it remains unclear whether many banks will accept these standards.
Even the most pedestrian tasks have been transformed: How does a co-op board interview your dog over Skype? How do you read the room when the deal-makers are talking heads on a screen?
Still, many of the changes made over the next several weeks could actually improve the antiquated buying process. These are some of the obstacles ahead.
In the first quarter, the median sale price in Manhattan was US$1,060,000, down 7 per cent from the same period in 2016, when the market peaked; but a surge in sales in the early part of the quarter suggested the market was turning a corner. With the arrival of the virus in March, all momentum stalled.
Lisa Lippman, an agent with Brown Harris Stevens, expects the market below US$2 million to suffer the most because of surging unemployment and a steep drop in the stock markets that will make buyers reluctant to cash out.
Many sellers have simply given up for now. In the second half of March, new listings in New York City were down 75 per cent from the same time last year, with just 541 homes coming to market, according to Nancy Wu, an economist with StreetEasy.
"There's this whole other part of the market, of these apartments in limbo," said Melissa Leifer, an agent with Keller Williams NYC. "They haven't listed but are available."
Before the stay-at-home order, she recorded virtual tours of her five listings and has six more properties that she would have listed before the pandemic.
The search continues for some, despite the inability to see apartments in person.
Warburg agent George Case said he has a client who is in the process of selling her apartment in Harlem and had been attending open houses every weekend to find a new home downtown. Now she searches online as he tries to finds her listings with video tours.
"We are trying to keep her engaged and she enjoys the listings," he said about the client, who has shown interest in two properties. "But is she going to pull the trigger? I doubt it."
New development was already on weaker footing than the resale market before the pandemic hit.
Nearly half of new condo units in Manhattan that came to market after 2015, or 3,695 of 7,727 apartments, were unsold, according to a December analysis by Nancy Packes Data Services, a real estate consultancy and database provider.
The median sale price for new development in the first quarter was US$2.8 million, down 23 per cent from a peak of US$3.63 million in 2016, according to Mr Miller, the appraiser.
New development that is still under construction will likely face delays because of a statewide halt on non-essential building.
Some projects facing sales deadlines set by their lenders will likely miss them now, but these exceptional circumstances could actually benefit those developers because banks are now more likely to work out extensions, rather than seize properties in a moribund market, said Nancy Packes, the data firm's principal.
At the Broad Exchange Building, a 308-unit rental-to-condo conversion in the financial district, the sales team recorded 52 tours on their smartphones in two days to supplement 20 professional videos they had already commissioned, said Angela Ferrara, executive vice president of the Marketing Directors.
To encourage virtual showings, they recently started to offer brokers 4 per cent commission on sales, higher than the typical 3 per cent.
Prices start at US$830,000 for one-bedrooms, US$1.295 million for two-bedrooms and US$5.31 million for the three-bedroom penthouse.
Since the virus lockdown, they have given 17 virtual presentations to possible buyers, many of whom had not set foot in the building.
Two buyers who had agreed to buy before the outbreak needed coaxing, said Mr Vaynrokh, the sales manager.
"We had to resell to those people - they were shook up, like everybody else," he said, though both eventually signed.
For the developer, LCOR, every sale counts because it is required to sell 15 per cent of the building's 308 units to primary residents by July, or else its plan to convert the rental tower to a condo would fail and it would have to return all the buyers' deposits, according to rules set by the state Attorney General's office.
If LCOR failed to meet that deadline, it's highly unlikely it could attempt the conversion again, because a law passed last summer now requires substantially more buyers to convert a rental to a condo - 51 per cent of all tenants, up from 15 per cent.
New closing process
For those who make it to the contract signing, deals are still getting done, but nearly every step in the process has been affected.
For instance, New York used to require a notary to be physically present to witness the signing of key documents, but an executive order in March authorised the use of audio/ video apps so the notary need not be in the room, said DeAnna Stancanelli, the principal at National Granite Title Insurance Agency.
But many lenders may not accept this standard of virtual notarisation because they believe the security features of several popular video apps are lacking.
A more stringent protocol called remote online notarisation, which includes multi-factor authentication and stricter encryption, has not been adopted by New York.
Since New York still requires "wet ink" - original signatures on important documents - lawyers and title agents have had to be creative.
A closing that would have required 10 people in a conference room can now be held, in part, in two idling cars in a parking lot, where one party signs papers and passes them through the passenger-side window of the recipient.
A backlog of requests to property managers and county clerks' offices, some of which are closed or are working shortened schedules, has made it harder to determine what is currently owed in taxes or unpaid utilities, so title companies are holding estimated fees in escrow to help move deals forward.
Despite the hurdles, deals are still proceeding. The concept of "force majeure" - akin to an act of God or superior force - is making its way into more closing contracts to indemnify parties from missed deadlines or other forms of liability caused by the pandemic, agents said.
The most immediate question for buyers and sellers is figuring out how prices have been affected.
"Nobody knows exactly what's going to happen to values," said Cathy Taub, a Sotheby's International Realty agent and co-chairwoman of New York Residential Agent Continuum, an agent advocacy group.
"It was already a difficult market before Covid-19." NYTIMES