Well 2020 was an incredibly exciting year for real estate investors, but maybe not so much for the infrastructure that supports it. Talk to any agent, flipper, contractor or county clerk and you’ll hear the same story – everything is backed up.
According to Zillow, 5.64 million US homes were sold in 2020 – an increase of almost 6% from the previous year. In December alone, home values were 8.64% higher than the same time in 2019, and predicted to continue rising at a similar rate in 2021. Under normal circumstances, we would be able to keep up with this pace of transactional growth, but 2020 was anything but normal!
Due to the COVID-19 pandemic, we’ve experienced an unprecedented slowdown in the supporting businesses that are required to close real estate deals. The primary reason has been a reduction in the workforce due to medical absences, shutdowns in response to outbreaks, precautionary closures and an overall stress on the system. The increase in demand combined with the decrease in labor has produced massive delays in the following areas:
Permits: New applications are taking longer to process. Several local building departments are either closed to the public, or working by appointment only. In one case, a local town hall left a dropbox outside of the building to collect permit applications and checks for payment.
Inspections: With fewer inspectors available and extended municipality closures, inspection times are unbelivably long. We have experienced delays of several weeks to schedule finals, and there have been accounts from some contractors that they’ve been given dates that are months in advance.
Title Recordings: Even after transactions are closed, you still may face delays depending on your location. Closing documents are not adequate to establish official record of ownership. So you’re at the mercy of your county and state to complete the process. In a recent example, we had to wait 5 months after the closing date for our county to finalize the recording. If you are flipping a property in a short period of time, this can pose a major challenge to your 2nd transaction.
We are hopeful that accelerating the COVID-19 vaccination rate will alleviate some of this pressure. At the time of this article, 27.8M Americans have received their first dose of the vaccine . In Q1 we expect to see a more robust and consistent workforce to support the growing demand for home sales this year. If not, investors and other real estate professionals should brace for more of the same delays, and use the experience of 2020 to set clear expectations with buyers and sellers.
Kousa, LLC 