So, we stand here heading into the first week of April experiencing something that none of us could have imagined when we sat down to do our business planning last fall. That’s normally how it goes - you can never predict when challenges are headed your way. That’s just how this thing called life works.
A month ago, we were celebrating as a company at our Annual Sales Awards and two weeks ago we were just starting to get familiar with terms like "social distancing" and "shelter in place.” Now, we’ve bought all the food we can buy for now, we’ve cleaned out a few closets, knocked out a few projects and just have started to find our routine. As we head into this week, we’re forced to get re-introduced to ourselves. What now? What do I want? How long is this going to last? What will life be like after this passes? When will it be safe to go out? How will my business change?
It's become incredibly real and I’m 100% sure that we enter a different world once we exit this quarantine.
Change is in the air. It’s time to pivot.
We must remember that change is not always negative and, in many cases, change creates clarity and opportunity. Nelson Mandela spent 27 years in a South African prison. After he was released, Tony Robbins asked him a question - “How did you handle all of the suffering being in prison for 27 years?” And he beautifully answered “I wasn’t in misery; I was in preparation. I knew that when I was released that I was going to die and spark a revolution or was going to lead the country.” You hear me talk about #mindset but this story about Nelson Mandela is next level. He was in prison for 27 years and he wasn’t thinking about being in a prison cell. He was thinking about what he would accomplish when that phase of his life ended. We need to do the same. We need to continue to handle the here and now but start putting our focus on post-quarantine.
So, I invite you to just consider what life could be like post-quarantine? You’ve got a shot to really build something special during this forced downtime.
I quoted Tim Grover last week during our Town Hall meeting. He said “You know that list of things you said you do if you just had the time? If you’re not working right now and you’re not attacking that list, just admit that you are never going to do those things. Ever!”
So, what is on your list? Have you started a list of things you need to accomplish? I’m not going to spend a lot of time on that today, but I do want to start giving you my thoughts on how this period of history will change the landscape of the real estate industry. I just happen to be in the position of talking to a lot of agents, lenders, and consumers. I try to stay on top of the economic impact of this crisis so I can be a best equipped to help you. The news on both the economic and global health front are changing by the day so keep that in mind and with those changes my predictions will change.
These are my current observations, thoughts, and predictions based on what we know today. Now, before I give you my thoughts I need to remind you that I am not an economist and that I do not want you to take any unnecessary risks to perform your business over the coming weeks. I fully support every effort needed to social distance, keep everyone safe, and speed up the timeline so we can all get back to work safely. So, April and most of the 2nd quarter are going to be tough. As this quarantine lingers, there will be more and more negative economic news. Luckily, Congress passed a $2T package to help the economy survive the next 90 days. There are so many questions about the CARE Act. Just know that when we get more details about it, we’ll research it, and we will most definitely pass on what we know. We are working with our vast network around the country to formalize answers to questions that I am sure that you have. Just prepare yourself and protect your mind for the volatile news cycle coming our way.
On the transaction front, there will be significantly less activity just because we will have fewer listings on the market that can be shown. A large percentage buyers will not want to be out. Sellers will not want people in their homes. A property will need to be vacant to have a real shot of trading over the coming weeks. Q2 will be especially tough for the high end of the market. This demographic is much more sensitive as a group to “timing the market.” They will want some certainty before they jump back in. Not saying there won’t be transactions at this price point, it just won’t be as strong as the market under $1,000,000. Once they have confidence, look for them to be online looking for an opportunity. Your first-time homebuyers that are nearing the end of a lease will still be out for reasons of necessity. Those with big dollars won’t care. IF they have a housing situation that needs to change, they will move on a property. I read a Real Deal article this weekend that talked about New York’s elite opening their checkbooks to get out of the city and move to the Hamptons. Many of them said budget was not a consideration. The majority of the activity, in my opinion, will be happening under $1,000,000, at least in the Chicago market. This will be the case until there is more certainty as to the length and severity of the crisis. For those properties that were already under contract, I’m seeing properties being re-traded and sellers are settling for the lower price just to close as planned. So, expect a temporary drop in pricing in the 3 to 5% range. There will be a lot of pressure on sellers who have to move over the next 90 days. As we come out of this crisis, it could prove to be an ideal time for that client that needs to right-size. They might just be able to transition much more smoothly do to less activity in the market. The combination of low rates and advantageous pricing will be a great opportunity for buyers. What will happen with pricing overall, I’m not fully sure. All I know is that if a seller needs to sell, they are looking at all reasonable offers. The one thing that could maintain pricing would be the lack of inventory on the market.
Okay, now I’d like introduce you to a few terms that you should add or refresh in your vocabulary:
You’ll be touching base with your clients and prospects over the coming week. After you catch up with them and see how they are doing, you can ask them how their current housing situation is performing for them. They will have time to talk so they will most likely divulge how the “stress testing process” is going. Again, I’ve predicted that many people will want a change for one reason or another post crisis. As you know, in our market, we have a lot of people who have relied on the rental market and have never purchased. Because this is a trend at all price points, you must know the "Rent vs. Buy” calculation intimately as to the economic benefits of purchasing. This comparison will be helpful in convincing the people that are living in 1,100 square feet and paying $4,000 a month for a 2 bedroom/2 bath in a downtown luxury apartment building feeling cooped up with the common areas shut down. For example, if they have at least a 3-year horizon, they could take out a $450,000 mortgage on a 15-year fixed and pay down approximately $75,000 of principal in that 3-year timeframe. Their monthly commitment would be similar to that $4,000 a month rent payment (depending on taxes and assessments). A 15-year fixed is a great way to force savings. Almost 50% of their payment will be principal reduction. On top of the financial reasons, if they purchase a home that checks all the boxes, they will enjoy a much higher utility value. Utility value basically means the level of comfort the property brings to them.
During these uncertain times, make sure to stay in regular contact with your lender. The secondary mortgage market is changing by the day, impacting rates and the products offered, especially for those in the jumbo category. It will be very important to identify transaction partners that can operate virtually as well.
So, this leads me to give you my predictions on how the industry will change because of what we are experiencing.
Personally, I think buyers will be much more comfortable with an enhanced, virtual approach to buying real estate. Technology is changing the industry but not in the way many thought it would be changed. Some proposed that technology could replace the human element that the real estate broker provides the transaction. I believe the broker will become even more vital to the transaction as the market becomes more dependent on virtual methods. They will be looking for a trusted adviser that can “personally shop” for them, identify, and research those listings that best meet all of their requirements. I think we’ll find a larger portion of the buyers looking at fewer properties before they make a decision. To do that, they will require a broker that they “know, like, and 100% trust.” Your marketing and branding will need to pivot to show the market that you can perform in this new arena. So, my prediction is that an enhanced virtual process coupled with a trusted adviser will be how technology changes our industry. This quarantine has forced society to go virtual for human interaction. Zoom, Webex, and HouseParty have become household names and have been used for all sorts of business and personal "meet ups.” These apps and FaceTime have fundamentally changed how we communicate. As you plan to market your listings, your focus will trend more towards virtual marketing using both professional and amateur video. Video paired with digital brochures using ISSU links and our Narrate brochures will start to replace the need and use of paper brochures. We are currently operating in this fashion at the brokerage level during this crisis, so we are already there. Many of you have already increased your video. I’ve found it really compelling, so keep doing it.
If you are looking for a project or hobby during this time, get comfortable shooting video on your phone. The next level would be editing video with apps like iMovie (comes with your Apple products).
The industry was fundamentally changed coming out of the great recession of 2008-2010. This economic challenge will be much different but, no doubt, we will see a shift in how we interact, how we socialize, how we conduct our business, and how we need to change the way we market ourselves.
There is a mom and pop meat market named Falatics close to my home in Michigan. It’s been owned by a husband and wife team and their family for 48 years. Out of necessity, they have completely pivoted to a drive through method. I made my order online, paid for it, and they brought it to my car. Honestly, I hope they keep it in place post crisis. This is a business that could have been completely crushed if they didn’t pivot.
You cannot just ride this out if you want to continue to grow as a real estate broker.
Change is in the Air. It’s Time for you to Pivot.
Listen, you will continue to hear me say this this. This crisis is putting a different type of pressure on society. Being forced to quarantine is stress testing relationships, families and their housing situations like never before and, for the first time in a long time, they have to think about their lives, their homes, their health, and their careers. They will right size, they will geo size, and they will adapt. I believe there will be a trend towards an easier life, more privacy, an easier commute and an a more holistic lifestyle.
“In a rush to return to normal, use this time to consider which parts of normal are worth rushing back to.” - Dave Hollis
You, as a real estate broker, will be on the forefront of this change. With legitimacy and trust that Sotheby’s International Realty naturally affords you along with a strong personal brand, you have an opportunity to come out of this stronger IF you put the work in during this quarantine. To do that, you will need to get out of your comfort zone and adapt to the changes that are coming our way.
Change is in the Air. It’s time to Pivot!
