Before COVID-19, the single-family housing market in the U.S. was booming. Sellers were fielding multiple offers as buyers scrambled to find their ideal dream homes among limited inventory.
Now, amid social isolation, shelter-in-place orders, and quarantines, the housing market continues to be surprisingly strong, even as the economy struggles. First-time homebuyers have been able to find their ideal homes and to properly insure them.
However, the homebuying process has changed during the pandemic. As such, buying a home during COVID-19 requires ongoing preparations and careful decision-making during every step, to ensure that the discovery, negotiation, and closing processes — as well as putting into place the right homeowners insurance — have a positive impact on your financial well-being over the long term.
In this article:
- State of the Real Estate Market During the Pandemic
- What to Consider Before Starting Your Home Search
- Top 5 Things to Negotiate For During a Pandemic
- How Will The Pandemic Impact Your Homeowners Insurance
- What Are The Experts Saying?
- The Bottom Line
State of the Real Estate Market During the Pandemic
According to housing data company CoreLogic, overall home prices increased by 1% in June 2020, compared to the month before. The reason is demand, as “first-time buyers, and millennials in particular, have jumped at the opportunity to achieve homeownership,” said Frank Nothaft, CoreLogic’s chief economist, in a press release. Also, home-purchase applications submitted by first-time homebuyers increased 20% in June 2020, versus the year before.
There are a few reasons for this, with one being rock-bottom mortgage rates, which have led to more interested buyers. Then there are the demographic trends. According to Fortune magazine, the competition is heating up among homebuyers, especially those who are anxious to move from the more crowded cities, with a higher potential of coronavirus spread, into the less-populated suburbs, which allows more space to spread out.
Meanwhile, housing inventory continues to be limited. Sellers are finding they have to work harder to sell their homes by ensuring absolute cleanliness and sanitation for showings, walk-throughs, and inspections. Because of this, many are delaying putting their homes on the market.
To compete in this type of market, you need to be prepared to outbid other buyers who are also in search of their dream home.
What to Consider Before Starting Your Home Search
It’s essential to keep in mind there is more to snagging your house than outbidding those other buyers. Here’s a list of things to consider before you begin your search.
Understand your budget
It’s important to know how much you can afford to pay for your house at the moment, and to be aware of the factors that could impact your budget during the pandemic, like income stability and job security. Although there’s always a level of unpredictability, it’s better to start a home search when you’re reasonably confident your job and income are secure. Keep in mind the following list of homeownership costs and make sure you’re budgeting for them:
• Home maintenance. Plumbing repairs, annual furnace check-ups, lawn maintenance, and other costs need to be a part of your budget.
• Furniture and appliances. If you are moving to a larger space, or if you’re currently renting, make sure to consider the costs of buying basic appliances, like a refrigerator and washer and dryer, as well as some additional furnishings.
• Homeowners insurance. You will need proof of insurance before finalizing your home loan, and your homeowners insurance must be enough to cover expenses in the event of a worst-case scenario. Many lenders require that your home be insured for 100% of replacement costs, so make sure you’re prepared to protect your investment.
Target the right real estate agent
Your real estate agent is your partner in helping you find the right house and negotiating the best price. Rely on trusted recommendations (such as those from friends or colleagues) to help you. Be sure the agent knows the local real estate market in which you want to live. Evaluate their expertise by asking to talk to their references; an agent that won’t give you references is not one to work with. Before deciding who to use, chat with several on the phone first, and especially test their knowledge of the current COVID-19 real estate landscape. The rule of thumb here is to ask a lot of questions.
Get pre-approved for a loan
While loan pre-approval doesn’t guarantee financing acceptance, it can give you a leg up on other buyers, especially in a competitive market. To prepare for pre-approval, gather your proof of income, credit report, employee verification, driver’s license, and social security card.
Limit your COVID-19 exposure during your home search
An on-site visit might not be possible, so be prepared for virtual tours and document digitization. If you can tour the house in person, be sure the seller cleans before and after each showing. And, always bring — and wear — your mask.
Top 5 Things to Negotiate For During a Pandemic
Even armed with knowledge and a great team, it’s important to understand that, as a buyer, your expectations will differ from those of the seller. Wise negotiation brings the two of you closer to a signed contract, and a successful closing. Below are the top negotiating points for homebuyers during the COVID-19 pandemic.
The seller should be encouraged to conduct a home inspection before you make an offer, especially if you can’t view the house in person. The seller’s home inspection tells you the condition of the house, as well as whether that house is in a flood-prone or wildfire area, which is important to be aware of when determining how much homeowners insurance you will need. Knowing your new house’s liabilities will also help you better anticipate and budget for your monthly homeowners insurance premiums. And, remember, mortgage lenders require you to have proof of homeowners insurance before finalizing your loan.
Your home-buying team will consist of many members, ranging from your real estate agent to your mortgage lender to your home inspector. Under normal circumstances, this team will operate like a well-oiled machine. However, with the uncertainties of COVID-19, the team will likely be less agile. To help, ask the seller for additional negotiation time and a flexible closing date to ensure that corners aren’t cut during the process.
A deep housing cleaning
Pre-coronavirus, sellers were only asked to leave homes “broom clean” before moving. Now, you have every right to negotiate a deep-cleaning clause in your closing contract. An ultraviolet (UV) deep-clean system can be deployed, which is close to 100% effective at killing viruses. At the very least, disinfecting agents, as advised by the Centers for Disease Control and Prevention (CDC), should be used before move-out.
A coronavirus clause
The typical real estate purchase agreement includes deadlines for various steps, such as property appraisals, inspections, and agreed-upon closing and move-out dates. But these days, reaching milestones in a timely fashion won’t be a given. Most real estate contracts include a force majeure clause, which means “a provision in a contract that excuses a party from not performing its contractual obligations that become impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled.” A coronavirus clause goes further, stating that both buyer and seller acknowledge that COVID-19 events could mean difficulties in meeting deadlines and performance dates.
A one-year home warranty
Home warranties are purchased and put in place to cover the costs of repairing appliances or major home systems, from HVAC systems to dishwashers and garbage disposals. Asking the seller to pay for your home warranty during your first year of ownership helps protect your budget, in case one of your appliances malfunctions after move-in.
How Will the Pandemic Impact Your Homeowners Insurance?
Home warranties are just one part of the home-protection focus. Having the right homeowners insurance in place is also essential when it comes to protecting your investment. In some cases, COVID-19 is having an impact on the ability to obtain and maintain homeowners insurance, which means it’s important to keep the following considerations in mind.
Pandemic uncertainty in coverage
The pandemic’s long-term impact on consumer’s home insurance is uncertain, but with families spending more time at home, there are different liabilities to consider. For example, you’ll need to ensure you have enough coverage for any work-from-home equipment, and you’ll also need to be more mindful of attractive nuisances on your property, like swimming pools, trampolines, tree houses, and fire pits, since kids are spending less time at school and more time at home and walking around the neighborhood.
Unfortunately, insurance fraud has also been historically higher during times of economic unrest, so be careful when selecting your provider. To ensure that you and your house are adequately covered, don’t go cheap, and make sure your budget can cover additional costs that may crop up in the future.
Paying for homeowners insurance during COVID-19
In light of the coronavirus pandemic, the National Association of Insurance Commissioners has asked all states to implement continuity plans for consumers. For example:
• The Wisconsin Office of the Commissioner of Insurance has requested that insurers offer flexibility to clients who incur economic hardships by offering non-cancellation periods, deferred premium payments, and premium holidays.
• The California Insurance Commission requested that all insurance companies provide their policyholders with at least a 60-day grace period for nonpayment of premiums.
• The West Virginia Insurance Commission has requested that insurers be flexible when it comes to collecting premiums, cancellations, non-renewals, claims, or other documentation.
In addition, insurance companies are responding to the pandemic in their own way. For example, AIG, SageSure, and Plymouth Rock have coronavirus-specific provisions, including forgiveness on policy lapses and reinstatement, fully operational call centers, and more time for sellers to make home improvements in a buying situation. Other insurance companies have initiated the following relief programs:
• To deal with identity fraud concerns, Farmers homeowners insurance customers with optional IdentityShield coverage can qualify for extended identity fraud remediation services for family members through the end of September 2020. These include adult children and their families, parents, and siblings.
• Allstate is offering special payment plans to homeowners facing financial challenges. The plans help delay payments without any penalty.
• Liberty Mutual has been waiving late fees and continuing insurance coverage for policyholders with overdue payments. The company is also offering payment programs for financial hardship situations.
For those who are buying homes, many homeowners insurance companies are offering payment solutions for both existing policyholders and new homebuyers who need coverage to satisfy mortgage requirements, but who might not be able to afford to pay the monthly or annual premium due to coronavirus-related hardships.
Tips for reducing your homeowners insurance rates
As you’re researching the right homeowners insurance, use these tips to help you reduce your overall rates:
• Increase your deductible. The deductible is the amount you pay toward a loss before your insurance coverage kicks in. The higher the deductible, the more money you can save on premiums. While most insurance companies recommend a deductible of at least $500, if you can afford to raise that to $1,000, you could save up to 25% on the policy.
• Consider bundling. Some insurance companies offer “bundled” policies. If you purchase auto and homeowners insurance from the same company, you could lower the costs of both.
• Improve your home security. You could get a discount of at least 5% for installing a smoke detector, burglar alarm, or dead-bolt locks. If you feel like making more of an investment, installing a burglar or fire alarm that rings directly at a monitoring station could also mean a hefty insurance rate discount.
• Maintain your credit. A good credit score is just as important for saving money on your insurance policy as it is for getting that low-interest loan. Avoid debt that is in default, and be sure you pay your credit card balances each month.
What Are The Experts Saying?
Real Estate Agent: Adrienne Allen, Head of Real Estate for Homie in Nevada
What are the biggest pain points for your clients during the pandemic? To remove all risk of exposure to COVID-19, a buyer will have to be willing to purchase the home without doing a physical tour. They will have to rely on virtual tours, property photos and the information provided by the listing agent. Otherwise, they will have to take on a little risk by continuing to do physical tours, while wearing masks and limiting what they touch inside the home.
What advantages does our new reality offer to new homebuyers? Our tumultuous economy has offered one significant advantage: low interest rates. People that were not able to afford a home before can afford to buy a home thanks to lower interest rates.
If you could wave a magic wand and instantly win one concession in negotiations (besides a lower price), what would you choose? In today’s market where we often face multiple offers on the home the buyer wants, I’m just hoping to have the winning bid. However, if I have to pick one thing, I would hope for closing cost assistance for my buyer. There are so many new buyers in the market, especially with the record low interest rates, but they are finding it difficult to purchase a home due to lack of funds to close and the lack of sellers willing to help out.
Insurance Expert: Thomas York, President, CastleWise Insurance Group LLC, and CastleWise Realty Group, LLC
What are the biggest pain points for your clients during the pandemic? Insurance has largely been untouched in the way that it operates, save for a few scenarios. The claims process may now take additional time. Where an insurance company would send out a claims adjuster on site to survey the damage, the homeowner is now being asked to participate in the documentation and survey process. From taking pictures, to FaceTime calls and Zoom meetings, insurers are relying on the cooperation of the homeowner more than ever. [Also], interior and 4-point inspections that would once be conducted by a licensed inspector have now been turned over to the homeowner in a lot of cases. In an effort to reduce interaction and maintain social distancing, homeowners are now being asked to take photos and document electrical, plumbing, HVAC, and roof coverings. While the effort required to complete the inspections doesn’t necessitate a trained eye or a lot of skill, the work can still be tedious and cumbersome.
What advantages does our new reality offer to homebuyers? Homebuyers should be on the lookout for a potential downward trend in prices, should this economic climate continue. Although not guaranteed, it should be somewhat reasonable to expect that the housing market will loosen up, and pricing will ease.
What recommendations would you give to new homeowners in terms of what insurance they should look for during the pandemic? From a coverage standpoint, I’m offering the same advice to clients that I always have. A discussion and audit of the homeowner’s living space and lifestyle are the key components to ensuring that a homeowner is covered properly. It’s important to evaluate coverages on an annual basis with your insurance agent, which also provides an opportunity to shop around to make sure you have a competitive rate. More than anything, the financial impact of COVID is pushing clients to make sure that they are getting the most for what they pay for.
The bottom line
Even in a strong economy, buying a home requires preparation, research, and finding the right people to help you out. During the pandemic, the process will require more flexibility and thought, but it can be accomplished, even as more buyers are competing for less inventory.
Also, make sure you negotiate for concessions in the process that will alleviate some of the uncertainties associated with buying a home during COVID-19. And remember: Properly budgeting for and protecting your new investment with the right homeowners insurance is even more critical now than ever before.