If the real estate business was easy, everyone would succeed at it. The most challenging side of the business, probably, is dealing with the human aspect. Our clients expect to profit off of their real estate transactions and they take it very personally when they lose. This is the dynamic that makes our industry so challenging when markets shift and correct. Understand, though, it is not our fault and we should not internalize their stress.
As a veteran broker of the Great Recession of 2007 to 2011, I had to navigate a market where there were no buyers and where sellers thought their property was worth 20 to 30% more than what the market would support. The bottom had literally dropped out of the real estate market. Months of supply was 20 to 30 months. Most sellers and buyers ended up renting. We survived off of rentals, short sales, and foreclosures. The sales transactions that were there were relatively rare and quite difficult.
The market finally gained pace again in 2013. But leading up to that time, we learned a lot about what the term 'being a broker' meant. It took skill and effort. And it took grit.
Compared with January 2013 to July 2018, today’s market conditions are challenging. Since last summer, our market has been correcting at different levels, but we are still at only 5 to 7 months of inventory.
I’ve had a lot of conversations recently with our agents about how to best approach their clients for a price adjustment and how to navigate those difficult conversations.
The truth of the matter is that we should be having these conversations right up front when we take a listing or start a search for a buyer.
You need to “Set the Expectations Up Front” so that your clients are educated on the current climate in their “hyper-local” market.
It is important to consider the following:
- Keep the conversation about the current market data. It is what it is. If the market is difficult, do not sugar coat it. They are hiring you for your expertise. Think of yourself as a physician. At times you have to give difficult information - do not delay it. It only makes it worse once the true conditions are revealed. It’s best that your clients hear it from you up front instead of waiting 6 months to find out the hard way.
- If prices are correcting like they are today, the seller will do much better if they price ahead of the current trend. It is your job to communicate that.
- Some sellers in their hyper-local market will make a significant price drop. When that happens, the market has officially met a new level. You want to be the first to have the biggest benefit. All properties will now have to appraise at that level. There are units that will close in the next 60 days that will be market movers.
- No seller is immune to a market. Buyers are smart, they know the market and they will wait for a deal. Buyers also have the pressure of not wanting to make a bad deal, so they wait. They don’t want to be embarrassed with their peers so they will try to time the bottom.
- In shifting markets, rarely do buyers buy on emotion. They are not motivated so they need to be compelled to purchase.
- We are experiencing a market full of egos. Everybody wants to win. We need to show our clients how they can win during a stretch like this.
Understanding all of this, you need to shift your #mindset as a real estate broker:
- You need to become an expert on the market, both through evaluating data and by using your street smarts. You must learn Trendgraphix, Infosparks, and other tools to educate yourself and your clients.
- You need to fully understand terms like “months of supply,” “absorption rates,” “replacement value,” and how those metrics have impacted markets historically.
- If you take a listing that is hard to evaluate and hard to price, make sure you and the seller are on the same page regarding projected price drops. In fact, build price drops into the listing agreement.
- Understand the 3 P’s and explain them to your sellers. (People, the Property, and Price). They all have to be in sync.
- Do not obsess about how “bad the market is.” Elite level producers crush it in these markets because sellers and buyers need an expert even more.
- Become un-emotional. It is what it is. Be a pillar of serenity with your clients.
- Part of being an expert is leveraging our Sotheby’s brand. The auction house has been selling high value properties for more than 270 years. The auction house knows that you need to get buyers to “raise their gavels.” You’ve got to set the price at the beginning. When buyers see that others want what they want, they want it even more. Competitive emotion kicks in. They want to win, so they pay what they need in order to procure the property. This is how properties sell in any market.
- When working with buyers, let them know that when this market hits its bottom, everybody is going to want to seize on opportunity. Understand the herd mentality. Buyers should take advantage of the current market and not wait.
- You cannot predict the bottom, although everybody tries to do it. Once it is apparent, the inventory will be absorbed. A lender told me that 4 out of 5 buyers that have pre-approvals have not acted.
- If one of your clients does not do well on the sale of their current property, they will most likely do really well on the purchase. Explain to your sellers what their final tab is and help them internalize it. Help them understand that this is the perfect time to upgrade.
- Get on the phone with other brokers in the markets that sell “like” property and get “off record, approved, and document pricing” from your seller and float it to other active brokers in the market. Buyers love deals that no one knows about.
- We have much better success selling off-market properties that are priced well. Again, buyers like to purchase property that is not listed. It is compelling to them.
Careers are built on markets like what we are now experiencing. Embrace it and look for opportunities.
Take these insights on consumer behavior and market data and EDUCATE your clients. Set expectations right up front.
When markets shift, we need to shift to being brokers not order takers. As Sun Tzu famously asserted in The Art of War, “In the Midst of Chaos, there is also Opportunity.” Let’s all shift our #mindset to that of Opportunity.
