Come spring time, Chicagoans are ready to burst out of their homes into the warm air and sunshine. Normally, open houses are packed and real estate agents hustle from house to house during the city’s busiest homebuying season. That isn’t the case this year.
The housing market has taken a hit due to the coronavirus pandemic. New listings are harder to find and potential homebuyers want to know what’s going to happen next week, next month, or even next year. The circumstances are unprecedented, but there are still people who—for various reasons—need to find a new home.
In this unprecedented situation, the homebuying process has changed. Agents are hosting open houses via FaceTime. Attorneys are managing contracts from their homes. And title companies are now doing curbside closings. It’s a lot to process if you’re in the middle of making the most significant purchase of your life.
We’ve sourced expert opinions from real estate industry pros so you know what’s happening every step of the way. Here’s what homebuying looks like in Chicago in the middle of a pandemic.
Can you buy a house under a shelter-in-place order?
The short answer is yes. But the entire process has changed quite a bit, from house hunting to closing on a new house. Right now, agents are still allowed to show properties because real estate is considered an essential business. Most agents are only touring homes that are vacant because sellers don’t want people coming through their home if they’re still living there.
Agents are also much more selective about who they’ll work with. In some cases, a buyer will need to be fully vetted and have a pre-approval letter for a mortgage in hand.
“We don’t do meet and greets anymore. We’re only doing showings with past buyers that we know are serious. And the same thing is happening for our clients, there’s more screening online than ever before,” says Compass real estate agent Jill Scott.
There’s also a lot of hesitancy. Potential buyers who are worried about financial security are waiting to see how things turn out. Sellers, too, are hitting the pause button, which means there are fewer homes to choose from. For now, Scott is still busy and grateful to be in a large city like Chicago where people are still moving. More rural real estate markets will have a harder time bouncing back.
“If a buyer needs to buy, then they will. And low interest rates are moving those people along,” Scott says.
How are people touring potential homes? Has that decreased?
The number of open houses have been cut in half since the stay-at-home order was issued, according to data from MRED. Agents are now relying heavily on virtual tours through FaceTime, Instagram Live, and Zoom. Buyers are able to see some homes in person, but most agents will only tour homes if they’ve been vacant for at least a day.
For some vacant properties, it is “business as usual,” says Ted Kuhlmann, an agent with Berkshire Hathaway HomeServices. Sellers who have vacant homes that show well—professional listing photos, nice natural light, thoughtfully staged—are moving along, he says.
“Showings in general are down, but the interest we do get is from serious buyers, a higher quality,” says Kuhlmann.
Across the board, online traffic for listings has spiked for real estate agents. But, the number of actual inquires and leads is less than normal, says Scott, indicating that the buyers that are out there are ready to purchase.
“Buyers are making a decision after seeing one or two properties instead of 10. They are doing all the screening online,” says Scott.
Efficiency is an upside. But Annie Coleman, managing broker of Living Room Realty, says it’s hard to really know you’re making the right decision without seeing a place in person.
“I have found that people prioritize certain things and then fall in love with a house they didn’t expect to,” she says.
The moment of discovery may be dampened by viewing properties through a screen, but dig into the floor plans and measurements, Coleman says. Measuring your own familiar place will help you better judge new homes. Plus, you’ll get an idea of what square footage you need and if your furniture will fit.
Are prices coming down? By how much? When do you expect to see prices change, if at all?
So far, it doesn’t appear that home prices are dropping too much. Chicago’s housing prices weren’t over-inflated before the coronavirus crisis hit, says real estate attorney Joan Maloney.
Scott agrees that prices probably aren’t headed downward and doesn’t think it will trend in that direction.
“In months, I don’t know where we’ll be. That’s where the uncertainty lies. April will be okay, but June, July, August—sellers might be more eager to sell and don’t want to wait. That’s going to increase inventory and allow buyers an opportunity to negotiate. But right now, that’s not the case,” says Scott.
Coleman has seen drastically fewer listings on the market and properties temporarily going off the market. Across the board, she hasn’t noticed significant price reductions but there are a handful of homes where “the pricing is very aggressive.”
Kuhlmann explains that new inventory isn’t coming on the market like it usually does in the spring. He estimates that there are about 50 to 60 percent fewer homes on the market because sellers that are living in their homes aren’t listing their properties. Even still, prices aren’t falling because sellers are in a wait-and-see mindset.
“Buyers are trying to come in a little lower now. The standard offer is usually 3 to 5 percent under asking. But now, buyers are trying to lowball but sellers haven’t reacted,” he says. “There’s strong demand still, the same supply and demand curves are there but there is just less activity.”
Are sellers reconsidering listing their homes? When do you think people will start listing their homes?
Normally in spring, the number of new listings jump by 62 percent from March to early April. But now, new listings are down by 38 percent year-over-year and have dipped by 19 percent since March 1, according to Zillow.
The first week of March saw 8,743 new listings and 4,795 homes went under contract, according to data by MRED. After the stay-at-home order from Gov. Pritzker went into effect on March 20, the following week saw a drop in these numbers. There were only 4,288 new listings and 3,095 homes that went under contract in the last week of March.
Sellers are feeling the impact of the coronavirus crisis. If a family is currently living in their home, they don’t want potential buyers, inspectors, and agents walking through their property. For those that need to sell, there is less of an opportunity to negotiate a better offer. And the people that can afford to wait? They’re hitting pause on the process entirely or temporarily delisting.
“I have listings we’re waiting to put on the market. No one is backing out, but we’re just on pause and waiting it out for a few months,” Coleman says.
For clients that planned to list their home in the spring, Scott is advising them to wait. She has privately listed homes or marketed the properties as “coming soon” on Compass’s website to generate interest. In one case, a privately listed home started getting offers so they officially listed it and received eight offers over asking price. While that was a unique situation, Scott does believe there are serious buyers out there.
People are spending a lot of time at home. Noticing that your family is on top of each other in your condo? Do you wish you had a backyard? Or are you actually grateful for your space? Kuhlmann thinks that people will be thinking about these questions. “There will be a big boom at the end of this. People are cooped up now and later there will be a surge of people,” he says.
As for when that happens? Scott is hoping that the busy season will just get pushed further down the line. “Instead of April and March being the busiest months, it could look more like July and August,” she says.
Maloney says it all depends on when the shelter-in-place order is lifted. If the state has to extend it again past the end of April, not many people will be want to buy or sell until there’s more information.
“Could be two weeks or three months maybe. Even so, people will still buy and sell, but it won’t be anything normal, it’ll be like the slowest possible January you could imagine,” Maloney says.
Because of all the financial uncertainty, are banks tightening up even more? Are banks slower than before?
In Chicago, lenders are busier than ever between refinancing and mortgages, says Scott. Low interest rates set before the coronavirus crisis are keeping them occupied, too.
Banks are prioritizing purchase loans for homebuyers over everything, according to Kuhlmann. So there’s no lag there.
However, lenders are starting to get backlogged on refinancing requests. The time it takes to turn that around is typically 30 days, and now it’s closer to 60, Kuhlmann says. He’s also seen lenders that are hiring a new processors to get things into the system more quickly.
Whether you’re on the buy side or sell side, it’s a go in terms of financing, Kuhlmann says.
Are buyers pulling their offers more than usual?
Those that already had deals in the works are bending over backwards to make sure the sale or purchase is successful, says Scott.
“Buyers and sellers are working together more than ever. They’re being flexible with the timeframe and they have more understanding.”
But it’s clear some buyers are pulling offers. Deals are falling through. Most of that is because people are uncertain about the future and their job security. Some have noticed first-time homebuyers are pulling offers more frequently. An attorney, Kelli Fogarty of Fogarty & Fugate law offices had 11 deals fall through in one week.
“I feel like a triage nurse. Talking people off of the ledge. Prioritizing which is the biggest fire I need to put out now,” Fogarty says. “I do a high volume in the city normally, but I’ve never had a week where I’ve been this exhausted moving from depressing conversation to the next.”
Most recently she was working with two clients who were breaking up and selling their property. Based on that sale, they were planning to buy two new homes—but all of that fell through. The buyer for the first place was denied a mortgage from a lender; Fogarty believes they did that intentionally by opening multiple new lines of credit so they wouldn’t get penalized for backing out.
As for Fogarty’s clients, they’ll probably cut their losses and end up listing the property again since they need the sale to happen.
Buyers backing out, through loopholes or not, is something other attorneys are noticing too. Maloney won’t take on buyers as new clients, she’s only working with sellers right now. She’s worried that buyers will want her to get them out of a commitment last minute—and once you’re far enough down the road it’s tough to legally do that.
“I just can’t do it right now because I don’t know how to council buyers through this. We advise based on experience and we’ve never seen this before,” Maloney says.
What should I do when an offer falls through?
Ask yourself: Do I need to sell right now? For those who can’t wait, it’s okay to put your home on the market. There was a lot of demand until this hit, which means there are a lot of buyers waiting to see how this turns out. So, if you can get creative and list your home online with as much information as possible, it could yield additional offers.
Scott is advising her clients who haven’t listed to wait. If her current clients have an offer that falls through, and they don’t need to sell immediately, she thinks it’s best to pause before listing again. “Hold off and worry about health first,” she says.
Kuhlmann hasn’t encountered many offers falling through for his seller clients. Although he’s “heard rumblings of that” happening throughout the city. Last week, he had five buyers closing on homes. All of them were worried, mostly about still being able to close under a stay-at-home order, but none wanted to back out.
“Buyers are a premium right now and sellers are worried. If you do have a buyer, you want to keep them,” he says.
Are we in a “buyer’s market”?
Typically in the spring months, sellers have the upper hand in Chicago. After a long winter, people are excited to get out and look at homes. There are plenty of buyers and chances are good that they’ll be able to get what they want price-wise. In the midst of the coronavirus crisis, things have flipped.
“We’re in a temporary buyer’s market. Whether it stays that way for long, who knows. We were in a sellers market and slowly heading away from that. It’s a healthy change since we were in a sellers market for quite a long time,” says Coleman.
There are a lot of sellers waiting to list though—so even though buyers have more leverage, they could also have fewer options. That’s usually similar to what happens in the fall season when buyers have more of an advantage.
“It’s always best to buy in fall or winter when home prices are at the bottom. Those who want more bang for their buck will wait until then,” Kuhlmann says.
When sellers do decide to list their homes will determine how long this buyer’s market lasts. If people are eager to put their home on the market and there’s a flood of new listings when the city possibly reopens in July—that’ll be good news for buyers, Kuhlmann says. If most sellers chose to wait until the following spring, it will mean that inventory and activity stay low.
Because homes will be getting fewer offers overall, should I make an offer that’s lower than recent comps?
It’s clear that some buyers out there are trying to take advantage of sellers who are worried about securing an offer on a place they need to sell. But, that happens outside of a pandemic, too, says Kuhlmann. Just because you send a low offer now doesn’t mean you’ll get it.
“A seller will accept what a seller wants to accept. Buyers can go in lowballing 25 percent off a listing price but most people will say no to that even now,” he says.
Buyers do have a little bit more power, so if his clients like a property they’ll go after it with an offer that’s a little bit lower. If enough sales are made that way, home prices could start to tick down in the following months.
What protections should you put in your contract? Is there a COVID-19 clause?
The Chicago Association of Realtors (CAR) sent out a coronavirus addendum that is currently being added to sale contracts. It essentially protects both parties from delays due to COVID-19. Buyers aren’t required to use the addendum in their sale contracts, but if they do, attorneys on both sides will need to negotiate the exact terms, CAR says.
“Everyone wants to be protected. You don’t want a buyer to walk away, skip out, and get away scot-free,” Kuhlmann says.
While the addendum is a safety measure, it does make the closing process a bit more complicated, says Fogarty. When attorneys come into the process, each side will propose modifications to the contract. That isn’t unusual as some of the form sale contracts have weaknesses in them. So, a brand new legal clause to incorporate means that there’s more to worry about.
“Some of the contract clauses I’ve seen just aren’t always well thought out or well intentioned,” she says. “I’ve never had so many puzzles thrown at us, we’re finding really creative ways to keep things moving.”
Overall, it’s important to address potential uncertainties in contracts. You’ll want to be protected if there are any delays, loss of employment, or even hospitalizations.
How have inspections and closing processes changed?
Appraisals, inspections, and closings have all shifted towards minimal contact and essential parties only.
“Last week I had a place under contract and the buyers didn’t want to physically show up for the inspection. So, I got to the property after the sellers had left and met the inspector. He was wearing gloves, a mask, and did the walk through all by himself,” says Kuhlmann.
It’s important to hire a good inspector who will take the time to explain everything he saw and what it costs to fix, says Kuhlmann. Especially now, since buyers and their agents can’t all be in the same room for that conversation.
As for closings, there are big differences. It’s usually a joyous occasion where buyers will invite friends and family, but that can’t happen anymore, says David Zawadzki of Proper Title. “Only required signees can come into the closing office—that means the buyer and the attorney via FaceTime or over the phone,” he says. Attorneys can also still come into the office because they are required for the closing and in that case everyone practices social distancing and minimal contact. His office also started curbside closings where buyers can sign all the documents in their cars.
When Fogarty saw the stay-at-home order, she knew her clients would be affected and wanted to ensure that they could close.
“We immediately sent out power of attorney documents to every single buyer closing in the next week and a half. They all signed it, got it notarized, and dropped it off at my home. That way I could attend closings on their behalf—other than that I just didn’t see a way to feel comfortable closing,” she says.
“It’s supposed to be a happy, exciting time, and now they’re just feeling overwhelmed and not full participants in the process.”