Residential Real Estate Transactions: Navigating Challenges During the Pandemic
By Greg Mollett
In addition to the pragmatic challenges of buying and selling residential real estate during a pandemic, the State of Illinois has recently instituted new requirements for licensed real estate professionals and those individuals seeking to buy and sell residential property.
On March 20, 2020, Illinois Governor JB Pritzker issued Executive Order 2020-10. In so doing, the Governor placed restrictions on all non-essential businesses. One business deemed essential was “real estate services (including appraisal and title services).” Under the Order, real estate businesses could continue operating subject only to general requirements pertaining to safety, such as maintaining social distancing.
Following the issuance of the Order, the Illinois Department of Commerce and Economic Opportunity (“DCEO”) provided guidance for various specific industries through the publication of Frequently Asked Questions and responses to those questions (the “FAQ”). Since publishing the initial FAQ, DCEO has updated the FAQ on multiple occasions, most recently on April 7, 2020.
Noteworthy Restrictions Related to Residential Real Estate Transactions
As part of DCEO’s April 1, 2020 FAQ update, new restrictions on residential real estate sales were outlined. Corresponding restrictions have been published by the Illinois Department of Financial and Professional Regulation through its Essential Businesses and Operations Guidance for Real Estate Licensees (the “Guidance”). Noteworthy changes impacting residential real estate transactions are outlined below:
1. Owner occupied homes for sale
While the Order does not prohibit owners from meeting with real estate professionals in their home, the Guidance counsels real estate licensees against engaging in such conduct. “All meetings between real estate brokerage professionals and clients or prospective clients should take place remotely via phone, video or other electronic means.”
While phrased in mandatory terms, the Guidance acknowledges that remote meetings may not always be possible. However, under those circumstances licensees are required to adhere to all social distancing requirements. Guidance at 2.
Nothing in the Order prohibits owners from obtaining necessary pre-sale services, such as completing projects involving plumbers, electricians, HVAC servicing and painting. Although not specifically referenced in the Order, potentially home inspections will be permitted under a portion of the order authorizing “other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences.”
The new requirements restrict the options for previewing homes with potential buyers.
The most sweeping change is the outright prohibition of open houses. Long a staple of the residential real estate sales process, this technique is presently forbidden. FAQ at 6; Guidance at 2.
While inviting the public to preview property en masse is prohibited, private showings are not. Sellers may still show the home to prospective buyers in person. However, that may prove logistically difficult. Showings must be scheduled in advance so that the number of people inside a residence at any one time can be controlled. In particular, no showing may involve more than four people in the home. FAQ at 6; Guidance at 2.
It is unclear whether the four person maximum includes the presence of one or more homeowners. With shelter-in-place orders in effect, the presumption is that the homeowners would be at the property during a showing.
It is similarly unclear whether the four person maximum could be subverted by individuals taking turns going through the home with the real estate professional. Neither the FAQ nor the Guidance speaks explicitly to this point.
The most reasonable interpretation of the requirements in the FAQ and the Guidance is that a total of four people can be in the dwelling during the entirety of a given showing. This interpretation is based in part on language applying the four person maximum to vacant properties as well as owner occupied properties. If only four total people can participate in the showing of a vacant property, it stands to reason that the total potential interaction associated with a showing should be restricted to four, whether including the sellers or not and whether done at one time or by turns.
Moreover, the restrictions likely were issued to reduce the potential for transfer of infection and cross-exposure through direct contact or contact with infected surfaces. With those goals in mind, it should be assumed that the four person maximum was intended to be an absolute maximum.
The guidance places no restrictions on the number of showings that can occur within any set period of time. Thus, arguably a series of showings could be scheduled in advance and carried out in sequence, so long as no one showing involves the presence of more than four people. Whether taking such an approach is advisable is a different question. And, ignoring or attempting to avoid the restrictions could lead to adverse consequences for licensed real estate professionals.
Finally, regardless of how many people are present in-person showings must involve compliance with “all social distancing requirements specified in the Executive Orders.” Guidance at 2.
2. Tenant occupied properties for sale
The requirements are even more restrictive for any owner attempting to sell a tenant occupied property. Although many residential leases explicitly allow an owner to conduct showings of tenant occupied dwellings during the lease period, a licensed real estate professional assisting a landlord in invoking such a clause will be in violation of the Guidance. “Showings of occupied rental properties are not permitted.” Guidance at 2
3. Applicable time period
By Executive Order 2020-18, the Governor extended the duration of the original Order through April 30, 2020. Presumptively, the requirements set forth in the FAQ and the Guidance will remain in place at least as long the applicable provisions of the original Order, as extended. As the situation remains fluid, attention should be paid to further updates and revisions to the FAQ and the Guidance and to the potential for extensions of the applicable time frames.
If you have questions concerning your rights as a buyer, a seller, a tenant or a real estate professional, you should consult counsel before taking action. Please reach out to your Greensfelder contact, or the author, with any questions you may have about the issues raised in this article.