How has the coronavirus impacted the real estate market?
Are people still selling and buying homes during the pandemic?
What can you do if under economic duress you need to sell your home fast?
Josh Stech, CEO and co-founder of Sundae, which he started with Andrew Swain in 2018, shared his perspective on the real estate market, and introduced his business.
Stech described Sundae, which is funded by Silicon Valley venture capitalists and has offices in San Francisco, Manhattan Beach and San Diego, as a business which specializes in a niche in the real estate market.
“The category is homes that need a lot of work,” said Stech.
Stech told the Times, “Heading into this crisis, we owned a lot of properties and are now putting them back onto the market. We’re putting a lot of money into renovating them, so that the property we put back on the market is updated with what buyers want. It’s shifted to a buyer’s market, so you need to be thoughtful about doing work on a home if you want it to sell fast.”
Home building has paused, according to Stech.
“There are foreclosure and eviction moratoriums, which is a good thing for a time like this,” he said.
“In 2008, the Government didn’t step in soon enough to stop foreclosures. “Foreclosure is a forced sale of a house that doesn’t maximize price. The lower sales price then goes into the statistics on comparables, and contributes to a downward price spiral across the housing market.”
“Because of the CARES Act, people who are losing their jobs aren’t obligated to make their mortgage payments. So they’re not being forced into foreclosure. But when that forbearance stops, we might see a wave of foreclosures after this health crisis passes. Right now, we’re seeing a fairly balanced market with lower supply and less demand.”
“Virtual tours as a way of showing homes are really taking off, but as a new home buyer, it’s pretty hard to buy a home sight unseen. Ultimately, you need to see the home, and a lot of people are reluctant to leave their house right now, so demand has dwindled.
“But mortgage rates have gone down quite a bit. A lot of people believe mortgage rates are going to continue to decline. This is intended to spur home sales and will be a positive force behind the housing market.”
Stech told the Times, “Prices haven’t dropped significantly yet.
“There’s a pronounced movement toward detached living — a standalone, single family home — versus a condo, townhome or apartment where you’re next to people and share a wall. Theoretically, buyers and sellers will be happy right now when buying and selling the typical single family home. That market is doing fine.
“Atypical homes, such as homes on busy streets or bigger than average homes, are having a hard time because it’s a buyer’s market. Pre-COVID, those atypical homes were selling just fine, but they’ve really slowed down recently.
“When you apply for a mortgage, it’s a strong indicator of demand. We track those application rates. Those are down a lot in California and a lot of parts of the country. Although purchase mortgage applications have fallen compared to last year, 60% are still there, and that makes for lots of new buyers. There are still tens of thousands of homes on the market in Southern California. The median priced home is still going to trade.”
Describing Sundae’s role in the current market, Stech told the Times, “We’re both a buyer and a seller. We specialize in buying houses that need some love, and we renovate them and make them ready for a new family to buy and move in.
Surprisingly, about 8% of homes in the United States go through a significant renovation to get them ready for the market. The value we provide is to help the seller avoid having to do renovations themselves.
“For most of our customers, there really isn’t a market for the home. It’s not a move-in ready house. We make offers after undergoing a tour, and we allow the homes to move much faster.
“The result is a product that is more in demand today than pre-COVID because there are people in economic distress, and most of their money is tied up in their home. We help them tap into that money. We buy their house without them having to do any repairs, and if they want, they can even leave with their things still in the home.
“We buy mostly in Southern California, Riverside, San Bernardino, the Los Angeles area, the Inland Empire and San Diego. So it’s really very focused.
“We put $50,000 to $100,000 into renovating most homes. We target a 4% to 5% profit, which is because of the amount of work we put into the project.
“During the year-and-a-half Sundae has been in business, we’ve been able to transact on hundreds and hundreds of homes.
“We buy materials in bulk. We don’t get a general contractor for each individual home; we employ them full-time. So we’re not paying retail for labor and materials.
“We also offer the seller a cash advance. When we agree on a price with the homeowner, we can give the owner up to a $10,000 advance. Usually, the owner can’t physically move their belongings themselves because we typically work with an older clientele, and they frequently can’t afford to move. That advance really helps them in their time of need.
“Since the start of the coronavirus outbreak, in order to keep our customers and employees safe, we put booties on before we walk into the house, we use hand sanitizer, and we wear masks.
“When we buy a dilapidated home that needs work, we used to visit the homes and walk through, but now we are starting to do virtual tours via Facetime, Skype or Zoom. It’s pretty easy. We provide instructions to the homeowner on how to use the tools, and they begin walking around the house and we ask them to show the major systems outside, and then we ask them to walk through the interior and show the home’s condition, and we’re able to underwrite the home as accurately as we did before the pandemic and make a cash offer.
“We’ve found in these times that necessity is the mother of invention, and that’s been one of the few blessings or silver linings in our process: We’ve gotten more creative and we’re still helping homeowners when they need to sell.”
Describing Sundae’s business philosophy, Stech told the Times, “We saw it in the 2008 downturn. When people are going through distress, many home buyers see it as a time to take advantage. We see it very differently. The owners need this service more than ever because they’re going through more stress than ever. There are flippers out there trying to get the lowest price possible for the home, so we think our service is more needed than ever. We provide an honest alternative.
“Scalpers monitor public data and when they see someone going through an unfortunate life event, it signals them to swoop in. In essence, the least savory tactics often work and win during down markets.
“For example, one thing we really fight against is a tactic where someone offers you a price you think is fair, but they know they’re not going to pay it. They write up the sale for the agreed upon price, but they have a contingency period where they can still back out. Then they send a friend over to pose as a contractor who inspects the house and says what’s wrong with it, and they invent a bunch of fake or exaggerated issues with the house. Then the flipper comes back and says the inspection report shows it can’t be sold for the agreed on price, and has to be sold for much less. By this point, the owner has already put money down on another house, and the scalper knows he has the owner over a barrel.
“We have a great resource guide about how to think about selling and buying in the pandemic. Those interested can go online to www.sundae.com/blog/ and read some of our helpful tips and information.”
The philosophy of Sundae’s business is stated as follows: “For far too long, homeowners without the time or resources to get a house market-ready have been taken advantage of when it comes time to sell if the house needs some love. We think this isn’t fair and we started Sundae to change this. Our business is built on paying sellers the absolute most possible so that we can get more business and help more homeowners get the best outcome.”
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