Recession, depression, or compression in the Real Estate market? It doesn’t really matter!

Many of the economic pundits are predicting that our economy will weaken over the next couple of years. Many more have said we will see a recession that could impact the Real Estate sector. I actually heard one of the popular analysts compare what he thinks is coming to a depression like 1929! Does any of this really impact you as a real estate professional? Let’s examine this a little further.

The Housing Market

First, mortgage rates are at a historic low. Under 4% for a 30-year loan and the Fed says they will cut further which could cause a slight additional drop. Second, housing demand is at a low compared to housing availability. We simply aren’t starting enough new homes to have enough available to the new entrants into the housing market. That means that supply is low and demand is high with more people able to qualify with lower loan payments! Sounds like a solution, not a problem!

How to prosper

That means even if only the same number of houses sell next year, the agents that set a business plan in motion to let people know that they can purchase first time, move-up to something better, or capture their equity and down-size easier than at almost any time in recent history will continue to succeed. If the market drops off a little, those who aren’t consistently pushing their relationships and marketing are the ones who will decline in the number of sales. Don’t let the market have any effect on you. Set your target, figure out the best approaches to hit your target and break down each approach to the little things that need to be done consistently to succeed in each approach. Once you have done that, track what you do for each of the little things and the approach becomes successful and the target gets hit, regardless of what the economy does!

Carpe Diem!!

Today, more than ever, buying or selling real estate is like trying to win a football game. To win the game, every player involved must do their part. There is the offense to move the ball toward accomplishing the goal of scoring. There is the defense whose job it is to keep the game going toward our goal, not the opponents! Then, often overlooked, there are the special teams. Designed to provide strategic positioning on the field these are specialists whose job is to do one thing extremely well.

Change is inevitable, except from a vending machine! The Real Estate industry is changing rapidly and dramatically. Tech companies are invading the space and capturing the supply of buyers. Now they are working hard on capturing the supply of Sellers. What’s next, go after commissions as well?

Whats happening now

That’s exactly what is now happening! There are as many as 9 major law firms in the US that have joined in a lawsuit challenging our system of commissions. They have sued the major MLS systems, NAR as the Mothership, and all the major Franchise firms as co-conspirators. Those firms believe that a firm, the MLS, or the Mothership requiring a listing agent to “offer” cooperative compensation is anti-competitive and artificially increases the cost of selling a home. To help with their claim, they note that this system “prevents” Buyers from negotiating with their agents for the services they provide.

The Dept of Justice is now looking into MLS data to determine how many agent searches begin with or include cooperation commissions. This is to determine how anti-competitive cooperative commissions really are. Results could be that sellers save the cost of paying commissions to the buyer’s agent and leave the Buyer to negotiate what his/her agent will be paid. That becomes an additional cost for the Buyer that would need to be built into the loan system or will increase out-of-pocket cash costs to the Buyer.

Here’s how it could change…

Do you know a few buyers who won’t seek an agent’s help if they have to pay cash for services? I certainly do! More importantly, what amount will Buyer’s be willing to pay for the services we can provide?? How many will willingly pay $6,000 for your services to purchase a $200,000 home? Unless I miss my guess, and I haven’t missed many, how Buyers agents get paid IS going to change, and probably dramatically. The very least of changes will be total full disclosure from the agent to the Buyer of how much the agent is being compensated. This will be only if there is some sort of Seller participation. If not, you will have to negotiate your compensation with your Buyer before beginning your representation. Are you confidant enough in what expertise you bring to a transaction to set across the table from a first time home buyer and tell them they will be responsible for paying you 3% of the cost of whatever they purchase?

Many firms have tried to avoid these pitfalls by having their agents negotiate with their buyers at the beginning of representation and complete a Buyer’s Representation Agreement. That is a significant step but how many of you have managed to get a buyer to sign a Buyers Representation Agreement only by telling them they don’t have to worry because the Seller will pay it? I’ll bet many of you have even told Buyer’s that if you collect less than what you agreed to on the Buyer’s Representation Agreement you will settle for whatever the Seller paid!

Conclusion

The results of these lawsuits are going to at the very least require significant disclosures of what you get paid to represent the buyer (no more cloak of invisibility because the Seller paid it) and more likely will require both front end negotiation and full disclosure. If you are primarily representing Buyers, ask yourself if you would willingly pay for the services you provide to a buyer what you want them to pay. Should you answer yes, get what you provide down on paper so you can build upon that with other buyers. If you wouldn’t pay for your services, you need to re-think how you represent buyers and discover what you would want to make it valuable enough, then implement it! Don’t make it about what you get paid, make it about what your buyer needs and wants!   

 This is the time of year that we first start looking to see where we stand on our production goals. Statistics show that we should have closed or have in the pipeline as much as 40% of our entire year. Many of us suddenly have to wonder why we aren’t on pace to reach our goals. Others will say they are on track if they can simply continue as they have. For both, the determining factor is really the same, can we make the decisions to take the necessary action to pick up the pace and finish out the year strong. What actions are you willing to do to finish the year strong. Will you take the time to do those calls? How about getting out to do a pop-by to those important contacts? This time of the year sees many agents taking it back a notch because it is the beginning of summer, graduations are near, and summer vacations are at hand. While few are out there in our space, the time is ripe to make noise and make up ground. However, the point is if you aren’t prepared to take action, you won’t make up any ground and hit your goal. If you are still waiting to get it just right or still trying to figure out what you should do, don’t wait any longer. Make the decision to take action, move forward and find food. That’s right, it is a conscious decision that only you are in control of. If you don’t finish the year the way you wanted to and you didn’t take action each and every day, you have no one to blame but you. Remember, the legs feed the wolf and like the wolf you only eat if you run towards the prey. It is even better when there are fewer wolves to compete with.

A great Real Estate agent is like a great Caddy! A professional golfer’s caddy is trying to help his
employer navigate the golf course, to give him the opportunity to use the right clubs to make the right
shots to make the right decisions, and win the round. Caddies have enormous “local knowledge” as they
walk the course making notes on distances from the tee to the green. They need to know from
landmarks on the course how far a shot must go to help the golfer select the right club. It is their job to
know intimately the slope of the green to or away from the pin and to be fully aware of the terrain. A
great Caddy accompanies their pro to the driving range to study the distance the golfer gets consistently out of each club.

That helps the Caddy offer wisdom to the Pro on the course. More information gives more knowledge which when combined with the Caddy’s experience allows the Caddy to help the Golfer make the proper decision based on good judgement. The Golfer still has to make the final decision!

Are you like the Caddy? Have you properly prepared to undertake representing your client knowing
everything about the playing surface, the rules, the course, and about your clients wants and needs? A
good agent knows what is available in a neighborhood, what has sold, what hasn’t sold, and details
about the neighborhood. A good agent will advise the client on the real condition of the property and
the things that add to or detract from the price of the home and provide multiple looks at pricing. They
provide proper documentation, communication on every hole, and try to keep ther client in control of
the process!

Great agents have learned enough from the client to understand their expectations and
their real needs to help them apply experience, knowledge, and good judgement in making their
decisions. Perhaps you should watch the Golf channel and pay particular attention to the caddies. They
depict the great “Realtor” we all want to be and you can learn a great deal about properly serving your
clients and participating in their “win.” Or… you could just carry the clubs and be replaced by a golf cart.

The choice is yours.

One of the greatest lessons I learned at an early age was “fishing” was not as simple as throwing out “bait” and waiting for the fish to find it. I hiked in a full day to a beautiful lake in the Sierra Mountains where “golden Trout” were said to be abundant. Stayed a cold night waiting for dawn to get my chance to catch these gorgeous fish. As dawn came, I was out at the water’s edge, baited my hook, slip weighted the line to get the bait to the bottom where I believed the biggest fish were hanging out and tossed my line in. After some time and no real activity I figured I was fishing in the wrong spot. Moved to another promising spot and tried again. Still nothing. Did I have the right bait? Changed bait and moved again but to no avail! This went on all morning. With nothing to show for the morning’s push, I decided to try the top of the lake and began using top water lure’s hoping that the big ones would be coming to the top to get food and I would attract them with my lure. Still nothing. By now I am getting nervous as what I was to eat for dinner was to be what I caught. Then a fellow fisherman passed by with a stringer full of beautiful Golden Trout. I asked where he caught them and he said “in this lake in doesn’t really matter where you fish”. I told him of my poor results and explained all I had done. His response is one I will never forget. He asked me if I had tried using a bobber and fishing the middle water? Puzzled, I said no and asked if that’s how he got his catch. The answer, “yes!”, he said “In every body of water there are fish. You just have to try different depths and different baits until you get it right and right today may not be right tomorrow as fish, like people, have different experiences every day.”

The lesson here is that to keep consistently helping people buy or sell homes, we have to “acquire” them in different ways with different tactics. There is not one way, one bait, one place, or one depth that universally works. Pay attention to the other fishermen, particularly those who have had success, and learn from them. Then, remember, tomorrow is another day and what worked well today might not be right tomorrow. That’s why fishermen take tackle boxes and different types of bait and lures. You just never know what works on any given day in any given environment. Be prepared to try and adapt- success will come. Yes, I ate well that night because I expanded my knowledge and tried something new, will you??

What exactly is it that we as real estate professionals provide that keeps us relevant? For many, nothing that can’t be replaced by technology, is the answer. Those agents, unfortunately, will be the agents replaced by the current set of disruptors in our business. If you believe your responsibility to a client is to simply help locate a property they find acceptable, write up a “standard” contract for its purchase, and then be available to help them qualify for the loan and close on the property you are at risk of being disintermediated (being irrelevant and out of business). Why? Because a machine can do all of that more efficiently than you. What keeps us relevant is what we add to each stage of the process. For almost every person buying or selling real estate the primary elements of a transaction actual revolve around the person’s emotions. Computers aren’t yet very proficient at understanding and navigating the tide of emotions in buying or selling a home. This is where the “true professional” agent becomes not only relevant but irreplaceable. How? By providing wisdom into every level of a transaction!

Wisdom is defined as “the soundness of an action or decision with regard to the application of experience, knowledge, and good judgment.” In other words, we don’t help make decisions for clients logically, we guide decisions by applying our experience, knowledge, and good judgement to the client’s emotional goals. They then can use our input to shape their decisions and the soundness or lack thereof is theirs- not laid at the feet of their agent. For example, did your buyer consider the neighborhood only because of the price of the home? Should we not have advised them to consider the resale value of the neighborhood in the coming years? How about the schools, the safety, or the density of the neighborhood? Was the financing merely the most for which they could qualify? Did they consider the number of years they might be in the property and what that might do to their ability to resell? These represent items the professional agent is aware of through experience and knowledge and by asking the right questions can help impart good judgement into the process.

To be relevant and of value to the buying or selling public you need to be selling “wisdom”! The public isn’t generally aware for example that the purchase or sale of a home could have three complete and distinct set of negotiations, each of which will require them to make an emotional decision. Those decisions could have consequences they aren’t aware of, but you should be. You have the obligation to inform them of consequences your experience and knowledge tell you could affect their “judgement” and thus their decision!

Want to remain relevant and never be replaced by an I or E broker? Stop thinking of your commission and provide your wisdom to your clients at every stage of the process. They will become your raving fans and tell others. It could cost you a sale now and then but that seems a small price for remaining relevant and continuing in business with a sales force of raving fans!