Advantages to First-Time Buyers while we Shelter in Place

I was asked to respond to the following question by our publicists, Lion and Orb, and thought I’d share my (lengthy…) response with everyone. Most of the answers really apply to all buyers right now. 

What are some ways the pandemic could make it an easier time to buy for first-time buyers? What factors will benefit first-time buyers right now?

It’s an interesting question! The key factors that my first-time buyers are experiencing are in two main areas:

1. Financing: Interest rates have hovered between very low and record low rates during this period! That means buyers have more buying power, assuming they are among the fortunate ones whose incomes and assets have not seen a significant downturn.
2. Buying process: 

Several aspects of the buying process have shifted in ways that can benefit first-time buyers:

More information available on line

While casually attending weekend open homes is no longer an option, we as listing agents are now motivated to provide increasing amounts of information online. Video tours have existed for some time, but now a very high percentage of listings have some manner of walk-through available to buyers from the comfort of their homes. That can be a 3-D walkthrough, a professionally produced video tour, a narrated slide show, or an agent-produced video tour. In addition, agents are now scheduling Virtual Open Houses at set times. Instagram Live, FaceBook Live and Zoom are all platforms in use for these fairly quick—usually half hour or so—walkthroughs with the agent at the property, sharing a narrated tour, and answering any questions from the viewers.

Reduced Competition

Restrictive new requirements to physically view properties has limited the showings, and thus reduced competition.

In our highly competitive East Bay market one of the most daunting factors for first-time buyers is accepting just how much competition they may face to acquire their first home. This shows itself in three ways: numbers of offers, percentage of sales price over list price, and the actual sales price.

Lower number of offers

Before SIP, the average number of offers received per listing was around five. But some of the most attractively priced, well-located and desirable properties would occasionally receive 15, 20 or more. Number of offers on average has been reduced to three, and a recent poll of active local agents showed that while the majority of listings received multiple offers, it was a small majority. Pre-SIP, a very high percentage of properties received multiple offers.

Reduced overbidding rates

Pre-SIP sales prices often exceeded list price. Behavior has always depended on the city and neighborhood, but 10% overbidding was common in the East Bay as a whole, and in Berkeley 20-25% was expected. But in some of the most desirable, and especially walkable neighorhoods, overbidding of 50% or more was extreme, but not unprecedented. Now on average prices are selling 7% over list, but changing week-to-week.

Prices closer to market value

Prices are not following a clear course yet, but agents are reporting that they are expecting prices to be 1-5% lower now than pre-SIP. We are seeing more price reductions compared to pre-SIP, which is often an indication of some change in the market. Significantly, more agents are pricing their homes “transparently” which generally means a price at which the seller would accept an offer, should there be only one. That does not preclude sellers wishing for more, and sometimes scheduling offers to be heard on a set date as before, hoping to receive multiple offers. But at least for this immediate period, we are seeing more sellers giving an indication of their pricing strategy, and that information alone is a major benefit to first-time buyers who were previously left feeling that they were tossing darts at a dart board when deciding on what price to offer! Pricing more transparently is good for the credibility of our industry, as well as helping limit the number of buyers moving through homes at this time when we want to limit exposure to COVID.

Shorter time period for review

The new restrictions for viewing, including the most recent requirements imposed over this past week for listing agents to wipe surfaces between every showing, and provide “thorough cleaning” at the end of each showing day is also encouraging a shortening of the review period. Pre-SIP the standard schedule was to have two weekends of open homes once the property was on the market, followed by a set date to hear offers. Now some sellers are stating they will hear “offers as they come.” While the majority of sellers are still setting an offer date, it is now considerably shorter: either waiting a few days after a weekend, or giving a property one full week of exposure, but rarely two.

Increasing inventory

While the initial response to SIP was a pause in our market, inventory is increasing as we speak, and we now are at levels slightly higher than a year ago. That benefits all buyers.

For my first-time buyers the longer wait period was an added source of stress. Both having somewhat clearer expectations around price, and a shorter window within which to respond are welcome changes.