An inside look at New Jersey’s unbelievable real estate boom.
Distressing unemployment numbers. A busted economy. Stay-at-home orders. A terrifying pandemic. In early 2020, it was time to cut your portfolio losses and forget about selling your house, right? Wrong. Against all predictions and, frankly, common sense, the stock market surged and the housing market went completely berserk.
Here in New Jersey, a pandemic-induced perfect storm saw home inventory evaporate by the summer of 2020, triggering bidding wars among panicked buyers fleeing New York City and Philadelphia. They were competing with first-timers hoping to take advantage of historically low fixed interest rates (as low as 2.1%) and voracious house-flippers looking at soaring demand for rental properties. The normally healthy and predictable housing market of 2019—which had only just recovered from the 2008 housing bubble—turned into a heart-pounding, high-stakes game of chicken between desperate buyers and stubborn sellers, which has continued into the summer of 2021. Who the winners are may take a while to sort out.
Pandemic pricing created a strange new normal, where a reasonable asking price was merely a starting point for bigger, better offers. If you were a realtor with a listing, you were sitting pretty. If you were chauffeuring couples from house to house, the property you showed in the morning had offers by afternoon. New Jersey was particularly appealing to unnerved city-dwellers who equated the garden in Garden State with a virus-free suburban/ex-urban/rural landing spot.
Millennials Drive the Market
The decision to move has become especially popular among Millennials, who represent the hottest age group in today’s market. “These younger buyers are ready to buy into the boom,” says Frank Isoldi of Coldwell Banker in Westfield. They are well-educated and well-versed in the finances of home buying. As they enter their 30s and their earning power increases, they begin to plan ahead—for a first home, for starting a family, for more space. They appreciate the financial perks that come with investing rather than renting. They are comfortable working remotely for companies seeking to reduce in-office space requirements without compromising personnel performance. This change in the business culture eliminates the need to “live close to the office” because the office can be right at home. As commuting has become a non-issue for many younger buyers, the concept of “geographically attractive” has been dramatically redefined.
That being said, New Jersey has become a particular hotbed of relocation activity because of its proximity to New York. You may not need to pull a 9 to 5 in the city every day, but physical proximity to clients, customers and co-workers—not to mention top-notch entertainment and dining—will never completely lose its importance or appeal.
Perception has also contributed to a red-hot New Jersey real estate market in 2020–21. Indeed, we are experiencing one of the rare moments in history where buyers believe it is the ideal time to buy and sellers are convinced this is the perfect time to sell. Just ask anyone in real estate: If you don’t move quickly, someone else almost certainly will.
“My buyers’ only concern is getting a house,” says Isoldi, who cites a tangible move from rent to buy along with COVID-phobia and lock-up lethargy as significant motivators. The downside of this frenetic pace is “fatigue,” he points out, explaining that some buyers are so exhausted from missing out on homes that they resort to unrealistically padded offers. This has led to a noticeable upswing in the number of withdrawals during the requisite three-day attorney review period, when some buyers and even some sellers have been known to back out.
“This scenario is not for the weak of heart,” agrees Stephen Smith, a realtor with Berkshire Hathaway on the Rumson peninsula in Monmouth County, who saw selling prices there jump on average 17% to 20% from the shutdown in March 2020 to March 2021. “The challenge for buyers is getting traction for their offer when there are multiple offers above the asking price. In Monmouth County MLS, we have a new ‘Coming Soon’ category for buyers to be able to view a property, online only, ahead of it going live on MLS. There are strict regulations preventing any property ingress during this period, but it enables the buyers to architect their offer with not only the number, but also the seductive terms along with a personal letter. The challenge for an agent is having the energy, the experience and the temperament to help your buyers woo the sellers. It’s a wild-wild west environment for everyone, including the appraisers, who need to keep up with rising values in order to support the financing for the robust contract prices.”
The secret to success? A smart buyer must quickly formulate the best possible offer, one that the seller simply cannot refuse. A bidding tug-of-war among the bravest buyers often leads to a seller resorting to a master list of the “highest and best” offers from which to select a winner. Long gone are the days of emotional and drawn-out (yet sometimes exhilarating) face-to-face negotiations—antidiscrimination laws have made those risky. Gone too is the endless trekking through open houses; realtors have upped their game on virtual tours. It is no longer unheard-of for an out-of-town buyer to make a strong offer on a home he or she has never set foot in.
What makes an offer irresistible? As always, cash is king. A full-asking-price offer is also tempting. An above-asking offer even more so. In lieu of an all-cash offer, buyers have been sweetening deals with the waiving of contingencies that were once accepted as part of the transaction, including no appraisal, no inspection, no house-sale contingency and a convenient and flexible closing date. “Love letters” accompanying offers have become popular, but there is growing concern in the real estate profession that they expose sellers, agents and even buyers to possible legal repercussions down the road (see sidebar on facing page).
Ask a New Jersey realtor what they’ve seen over the past 18 months that they couldn’t have imagined a few years ago and you get some really interesting answers. Jaynie Wagner Carlucci of David Realty Group in Westfield has noticed a couple of aggressive new buyer strategies. One is offering all cash for a house and then refinancing after closing. This eliminates the mortgage contingency, which is appealing to sellers in a hot market. “I have also heard of people losing a bid and then ‘stalking’ sellers by going on social media and finding some way to reach them,” she says. “For instance, they find mutual friends of the seller to create an emotional connection…and sometimes actually change the seller’s mind to win the house.”
Like many realtors in the Garden State, Carlucci has written successful offers for buyers who didn’t set foot in the house until the home inspection. In another instance, she had a client offer $100,000 over asking price with appraisal waiver who still lost the bid. Recently, she posted a fast-forward video of the staging of a house, mostly for fun. She ended up getting calls from 10 realtors, triggering a bidding war before the property was even listed.
Buyers and Sellers
Are sellers experiencing remorse that they sold their homes too early, missing future appreciation? Smith answers with a resounding No. Sellers, he says, are appreciative of this opportunity to capitalize on a hot market and are cognizant that the stimulus of this surge in demand may not be sustainable. “And buyers express little or no regret at having paid top dollar, because by the time the deal closes, they have often seen additional appreciation. It’s a win-win scenario, and a win-win-win if you factor in the State of New Jersey, which is experiencing a transfer tax windfall at a time when it needs the money most.”
One change in the business, Isoldi points out, is that the relationship with buyers has become trickier, while sellers have become easier to deal with. Realtors are reticent to make recommendations to buyers about making “best offers”—particularly waiving contingencies—but also when it comes to sweetening the deal in other ways. One buyer, he says, resorted to dangling expensive box seats at a critical Yankees game. Sellers, on the other hand, are more open to advice now, since the best agents come loaded with detailed metrics, a long list of “comps” and recent contract closings. And of course, proposing an attractive asking price is easier in a town such as Westfield, with an enviable mix of home sales, from brand new to historical vintage, in all price ranges.
Isoldi has been enjoying the energy and buzz in the marketplace and doesn’t mind the chaos. As he looks to the future, he is convinced that the market will stay strong, although it might not continue to rise at the same rate. In his opinion, there probably will come a point at which more buyers start to get cold feet and the seller boom levels off. Still, he points out, if interest rates stay low—and if the construction industry rebounds to feed the inventory, jobs increase and the economy stabilizes—the prognosis looks excellent. Despite so many “ifs,” according to Isoldi, “There’s still a lot of wind left in real estate’s sails.”
The real estate market shows no sign of cooling down thanks to the widespread availability of vaccinations and some positive signs of economic recovery. New Jersey’s current inventory shortage is projected to persist in the near term, keeping prices high through 2021 and into 2022. The consensus is that sellers will continue to maintain the edge in the tug of war with buyers, who will continue to find daring and creative ways to make their bid the best.
“Timing is everything when houses are selling as soon as they hit the market—or before,” Carlucci says. “Being able to act fast and in a compelling way is the key.”