Real estate adapts to life with virus

Drive-thru closings, virtual signatures in age of social distancing

Friday, April 17, 2020, Vol. 44, No. 16
By Hollie Deese

It’s business as usual – in some ways – at Wagon Wheel Title and Escrow in East Nashville. In other ways it is anything but.

The COVID-19 pandemic has rattled the real estate industry, causing multiple disruptions, changing business practices, adding new technologies, putting loans in jeopardy and canceling deals just as they were about to close as jobs are lost or income curtailed.

“There are obviously a lot of hurdles,” says Brandon Miller, founder of Wagon Wheel.

“In a closing, things can change,” he adds. “There could be a document that’s messed up. There could be a number to change on the settlement statement. And so, it is harder to fix things if the people aren’t with you in your office. And a lot of people want to sit down and go over their documents and understand them, and it’s easier to do that in person.”

Dealing with the hurdles has been helped by Gov. Bill Lee’s order allowing staff to email documents and the client to sign using FaceTime or Zoom during stay-at-home orders.

“There’s always been these low-probability scenarios that if you don’t see that person then they are signing under duress or other reasons why there’s never been an embrace of virtual notary,” Miller explains. “This may change some of that just by modernizing some things that have still been sort of the way they were 100 years ago.”

Safety first

The Wagon Wheel staff of attorneys and real estate professionals is working with a 60/40 ratio of in-office and at-home staff, a change that began after the March 3 tornado as the company dealt with broken windows and other minor damage. The business was without power for weeks.

At first, workers were jammed into a tight space at owner Angie Lawless’ house. That was before “social distancing” became a health issue.

“We were focused on spreading our employees out, making sure everybody got to a safe place for them to work,” Lawless explains. “And then it became, how do we keep our clients safe?”

The company began adding procedures and have continued as guidelines shift, starting with providing new pens for closings and keeping a full supply of sanitizer around. Employees have to do a temperature check and use hand sanitizer upon entry.

More recently, the office has been kept locked, and anyone entering must sign a form stating they are not sick or have traveled recently. Once in, they must maintain six-foot social distancing standards.

Once everyone was safe, the next task was to figure out how to do actual closings, especially when some people want to just continue business as usual.

“It’s just been a shift,” Lawless says.

Most clients are not coming in now, but if they do and have to sit at a closing table it will be at opposite long ends instead of across from each other, or they will take advantage of nice weather to go over documents on the patio.

“Or we’ve done a lot of the drive-thru closings where they drive up in their car, we give them the documents, highlighted where they need to sign and then we sit inside the office and they can call us with questions,” Lawless says,

Staffers then accept the documents through the window and review them.

Jumbo limbo

Lawless says her staff is seeing an uptick in refinancing because rates dropped for a brief time. But she says she is increasingly worried about job loss causing those deals to be canceled.

“I definitely think we’ve had several commercial deals in the last few days just fall through,” Lawless says.

Miller adds companies like Zillow and Opendoor have programs to buy homes, but they are all suspended right now.

“There’s good and bad about that,” he says. “For a lot of people, that was their backup plan for how to sell their house quickly without having to mess with anything. The big thing is that people don’t know what impact this is all going to have on the price of homes.”

Homes in the $250,000-$750,000 range are a lot less impacted by what’s happening than the million dollar-plus homes because those buyers tend to hinge more on the direction of the stock market. And a jumbo mortgage is typically needed for those buying more expensive homes.

But last week almost all jumbo mortgage channels froze. Wells Fargo, the No. 1 jumbo lender in the United States, was the first big lender to suspend jumbo loans. So mortgage loans of more than $500,000 are unlikely to happen until restrictions are lifted.

“There are banks that can still do what are called portfolio loans,” Miller acknowledges. “They may still loan you that money, but it’s going to usually be at a higher rate. And the terms are not as good.”

John Blackwell, owner of Blackwell Realty and Auction, says banks providing jumbo loans were mainly being carried by investors. So, anything that’s not government-backed is going to see some tightening of rules.

“The government has done a pretty good job on government-backed mortgages,” Blackwell notes. “It’s almost a lender by lender situation as to what investors back their mortgages now.”

Commercial loan woes

Many banks are also putting a pause on some of their commercial construction lending.

“We had a big deal that a bank had committed to, and they just pulled back from it because they said they’re worried about a run on their capital cushions, and they’re just not going to do that type of loan right now,” Miller says. “A lot of it just boils down to uncertainty about what the impact is going to be.”

Blackwell says many commercial strip centers are going to be in trouble as mom-and-pop businesses that fill those retails spaces begin to close or are unable to pay rent for several months.

“They’re all not working. They’re all closed,” Blackwell says. “Those people have no income. They have no reserves. Commercial real estate is going to take a beating in Nashville, and there’s no way to avoid it, even with a shorter shut down.

“WeWork are already missing payments nationally. That’s because their people aren’t coming in. They’re going to immediately change how they pay those guys, and that model will go away.”

Wagon Wheel is a 6,600-square-foot building with about 40% of the space dedicated to conference rooms in case there are four or five closings going on at the same time.

“That’s a lot of real estate being used that is not really being used all the time,” Lawless says. “If we were doing these things from our desk and could do away with that, it would just make it so much more efficient to have one or two conference rooms. I can see some potential changes.”

So, while many people are going to get into a ‘hold-tight’ mode, Miller says there are plenty of signs that the sub $500,000 market remains strong. But he also saw interest rates on 30-year mortgages swing by more than two points in one week, from 2.75 to 5, with no good economic news to back it up.

“It was just all panic and liquidity concerns,” Miller says, adding this is totally different vibe from the crash in 2007-2008.

“The problems then had deep structural roots,” Miller notes. “You had massive changes in how mortgages were underwritten. And there was a huge overbuilding of homes. This time, we have a severe housing shortage. Especially in the affordable housing price point.”

Housing shortage still an issue

Josh Anderson, owner of The Anderson Group with Keller Williams, says the market remains strong, and unlike what many might hope, it isn’t going to suddenly become a buyer’s market.

There has to actually be inventory sitting around for that to happen.

“We don’t have any inventory in most price ranges,” Anderson says. “I’ve got a couple people that we’ve talked to this week that are $275,000 to $350,000 buyers. Well guess what? That market’s still really competitive. It’s not going to change, and as Nashville gets more expensive, $250,000 and $300,000 properties are going to be really hard to come by.’’

Blackwell low rates are a big driver of inventory shortages in affordable categories and the reason we haven’t seen a decline in sales. But it will come.

“The mortgage market is a complete mess,” Blackwell says. “When you’ve got people that are being furloughed or they’re going from 40 hours to 35 hours, that affects all of their pre-approvals.”

However, it’s a good time for buyers who have steady employment to take advantage of the market.

Miller says once we turn a corner on COVID-19 – when everyday lives aren’t in so much turmoil – many things will improve quickly because the fundamental economics are still sound.

“Nashville’s still growing,” he says. “The city still has a huge need for affordable housing.’’

Buyers might be ready to look for something with a bit more space around it, upgrading from apartments to homes. Miller says agents are talking about clients interested in selling their condo for a single-family home, just so they’re not in such close quarters with other people.

“This may have some big structural impacts,” Miller explains. “Social life may change a little bit. We’ve been working on a book about Nashville forever, and one of the things we thought a lot about was, what could happen, if anything, that could kill this narrative, slow down the momentum? Of all the scenarios, the biggest worries were some sort of terrorist act or a mass shooting on Broadway.

“Nobody thought about something like this.”

Still, he thinks big picture there will be more emphasis on technology in home closings from now on.

“There’s going to be long-term impacts from just the increasing use of technology and embrace of technology, and even how offices are designed,” he says. “I think there’s already been a little bit of a pullback from open architecture in office design. And this is probably going to push that even further, the idea that people need to be able to have space that is a little bit more private and a little bit more maybe secure.”

Serious buyers

Blackwell says people are going to continue doing what’s comfortable and are going to find a way to buy or sell a house if that’s what they need to do.

“It hasn’t slowed people down,” he says. “There are some that just aren’t getting out of the house. Everybody’s learning to use those tools a lot better. So, I think it’ll be a great addition. But the thing about real estate is that is not all just technical.

“It’s a lot of emotion. It’s a lot of psychological. It’s a lot of face-to face, and that will never go away in this business.”

Now agents are taking precautions when showing homes too, if they decide to show them at all.

“We’re still showing properties,” Anderson says. “We’re doing it in person, we’re doing it FaceTime, Zoom, whatever the people want. If they’re in town and they want to go see a property, we’re going to go show them a property. We’re just taking more precautions. Some of these houses are vacant and staged and that makes it really easy.”

One benefit Anderson says is that anyone who is going to go look at a house right now is a serious buyer, not someone cruising properties for fun.

“If somebody wants to go look at your property, they’re not messing around,” he says. “They’re serious buyers. They’re not just wasting time.

“And by the way, they’re also preapproved or a cash buyer. This is accelerating what should have been happening anyway. These are the serious buyers. Nobody’s getting out and looking at a property if they’re not seriously wanting to buy.”