Editor’s note: Some local real estate markets nationwide are seeing signs of change: increased listings inventory, increased days on the market, and more highly motivated sellers than in past years. Experienced real estate professionals say there’s no need to panic as long as you’re prepared. In this three-part series, we sought advice from industry veterans about how to survive and thrive in a changing real estate market. (See Part 2: Brokerage companies scramble for market share and Part 3: How top agents plan to stay on top.)
The boom in home sales has netted record transactions, record house prices, hordes of amateur real estate investors and a slew of new realty agents, some of whom have never experienced a slow market – or even a normal one.
Experts say not all agents will make it through a down cycle, if there is one. Many are predicting that markets are poised to cool from record highs of the last few years, and some local markets are already seeing the scales tip.
Inman News asked industry veteran Harley Rouda Jr., CEO of Real Living in Columbus, Ohio, to share his insight and experience on how brokers and agents can prepare now for a future flat market and even harness the opportunities that may arise.
“I would encourage everyone to approach their business plan from two perspectives: revenue and expenses,” Rouda said. “Revenue will be tougher to generate so you’re going to have to work harder.”
The first thing agents need to do is inform their distant sellers about what has changed in the market and make sure they competitively priced to keep in step, he said.
When approaching new home sellers, agents should show up heavily armed with statistical data on local market conditions, he suggests. Show new sellers evidence of increased inventory and a smaller pool of buyers so they’ll properly price the house, he said.
Also, “Agents can reassure sellers that even though they may be getting less money for the house than the year before, they’ll also be getting a better deal on the house they are buying,” Rouda said.
Agents should make sure prospective buyers are preapproved and motivated to buy so they’ll be more attractive to sellers, he said.
Real Living is an independently-owned residential real estate firm with nearly 5,000 sales associates and employees and more than 140 offices throughout the Midwest, Florida, South Carolina, Texas and West Virginia.
Rouda said in most of Real Living’s markets there’s been a significant shift from a seller’s market to a buyer’s market over the last 90 days. “Inventory is increasing rapidly and sales numbers are offer versus the same month the previous year,” he said.
“The thing we’re hearing from agents is how tough it is to keep buyers in a contract,” Rouda said. “They see that sellers are highly motivated – and they’re recognizing that they are in the driver’s seat.”
If brokers and agents haven’t already started preparing for a different market, now is the time to sharpen the pencils and start looking for opportunities to better manage expenses, eliminate redundancies and find new ways to do business, the CEO advises.
Specifically, Rouda said the number one area brokers should be looking at is their print media budget, which represents about 80 percent of most brokers’ advertising spend today.
In a bold move, Real Living was among the first to pull the plug on its print ads in the Sunday newspaper real estate section in 1997.
With the market starting to slow from record highs in a lot of places, now is the time for brokers to seek better ways to leverage their Internet presence and reduce print costs, or alternatively, to make their print media work harder for them, Rouda said.
For agents sizing up their advertising budgets, Rouda suggests they track every call to gain a better understanding of where those calls are coming from. “They should track not just leads, but the quality of the leads as well,” he said.
As for technology expenses, Rouda said each company has to weigh individually what is important to its business model.
“For a company that has not relied intensely on technology in the past, now might not be the right time to jump in,” Rouda said, unless it is offsetting cuts from the print side.
While business is not going to fall into brokers’ and agents’ laps as easily in a slow cycle, this type of market can create opportunities for businesses. Rouda said the two biggest beneficiaries of a slow housing cycle are strong brands and strong sales agents.
“When the market is hot, people will list their homes with part-time agents and relatives who dabble in real estate. But when the market is tough and you’re talking about selling typically your largest investment, you don’t want anything but the best,” he said.
That could fare well for experienced agents and well-known companies.
In past flat markets, Real Living has seen its market share increase, Rouda said, and “sometimes top agents have even better years than they had during boom years.”
At the brokerage or corporate level, tighter housing markets create a lot of acquisition opportunities, he said. Brokers will want to consider joining forces, buying another firm or looking at franchising options.
“Consumers are going to turn to the tried and true brands in the marketplace, and being part of them through merging or franchising can help small brokers continue to do well,” Rouda said.
Even though the market is softening in some areas, Rouda still expects 2006 to be a solid year for the real estate industry.
“The worst that could happen here is the market doesn’t go down and instead goes up and you end up making more money than you did last year because now you’re running a tight ship based on performance level,” he said.
***
Send tips or a Letter to the Editor to jessica@sandbox.inman.com or call (510) 658-9252, ext. 133.
