As the high-flying housing boom loses feathers in some formerly hot markets, real estate consultants say it is time for brokers to focus on those survival skills that will carry them through a market shift.
“There are two things that brokers watch: interest rates and the bubble scare. In general, what I’ve witnessed is that brokers are taking a hard and strong look at expenses built in a great market and looking at a normal market — and trying to pair those two things up,” said Kenneth L. Jenny, managing director and CEO for tranCen, a company that offers business advice to residential real estate companies.
“People either face that dilemma at the time the market goes down or they do it ahead of time,” he said. “I’ve heard more brokers now are being very conservative about expenses and in some cases cutting back now even while the market is good.”
Many agents, brokers and companies have joined the real estate bandwagon at a time of record home sales and home-price appreciation, and historically low mortgage interest rates. The housing boom has prospered for more than a decade in some markets, and many real estate professionals have never known a “normal” market or a cyclical downturn.
But Jenny said real estate companies know that the market is subject to change, and some companies are planning for this return to normalcy by focusing on efficiency. “Companies are tightening the reigns. I think people realize this is a cyclical market. It may be a longer cycle than normal. Nobody is that intoxicated to (think) that this party is going on forever. They do not want to make these changes when it happens because it’s almost too late,” he said.
Brokers are especially interested these days in trimming down advertising budgets and monitoring individual transaction costs, he said, as a way to prepare for a softening in the real estate market.
“Brokers in general are taking a really hard look at the cost per transaction,” Jenny said, and are working to measure specific costs related to each transaction. “They are really closely evaluating the cost of every deal now. In a normal market every broker will measure the cost of doing business — whether they can do it themselves or need a third-party to do it.”
Advertising is a major expense for real estate professionals, and Jenny said brokers are looking at ways to cut advertising costs by partnering with agents to buy advertising. More brokers are establishing systems to track advertising expenses, he said. “Brokers are asking agents to partner with them on advertising expenses before the house sells,” Jenny said, which can lead to cost savings for both agents and brokers through bulk advertising purchases.
Jenny, a former executive for Prudential Real Estate Affiliates and Coldwell Banker Residential Affiliates, has worked with major real estate companies, among them Cendant Corp. and ERA Franchise Systems.
Brokers also are taking a look at recruiting and commission practices, he said. “I don’t think they’re being as aggressive with commission splits for agents,” he said. Also, brokers are weighing how the company generates its business, and agents are a part of that but not the only part.
Jon Cheplak, a former real estate executive for Better Homes and Gardens of Las Vegas who now serves as a real estate consultant for The Real Estate Recruiters, said he expects that some agents will leave the real estate industry and some companies won’t survive the transition as the market turns. “Some of the people that are making it today won’t make it in the market-shift. You will see many agents getting out of the business,” he said.
Companies should retrain their agents and establish a company culture to weather a downturn, he said. “Agents have been able to operate at a much lower capacity (of service) because the market takes care of the sales.” Brokers must evaluate, he said, whether their companies’ results are related to their management skills or to the booming market.
His advice to brokers: “Real estate agents are emotional and you’ve got to keep that good relationship, good communications lines and a level of support for people that you haven’t had to give to them.” At the same time, though, brokers need to improve agents’ accountability as sales slow. If cutbacks are needed, he said brokers and office managers should be open with agents about any necessary changes. “Make agents and staff part of the process,” he said. Brokers are in the human resources business and shouldn’t lose sight of that, he added.
Cheplak said brokers are definitely aware that some markets are turning. A couple of months ago a real estate professional told him that the Orlando, Fla., market is showing some signs of slowing, he said, though by outward appearances that market is still hot. “Don’t spend so much time focused on everything that’s wonderful. A broker looks for what’s not right (too),” he said. “Some people say that numbers don’t lie — they do if you look at them the wrong way.”
Marie Marshall, broker at Marie Marshall & Associates real estate in Mesa, Ariz., said she believes that brokers have more pressing issues to contend with during a strong housing market than in a weak or normal market. There are more inexperienced agents in the market during a boom phase, for example, she said.
While the Phoenix metro area housing market that Marshall serves is showing some signs of slowing, she said she doesn’t plan to change the way she does business. “Most people here . . . are looking forward to a more balanced market, I think,” she said. “It will give the clients time to breathe and think about their decisions before they act.”
Rick Czeh, broker-owner for Real Estate Warehouse, which serves Central Ohio, said brokers have a more important role when the market shifts toward a sellers market. “It is our job to keep the office motivated and to assist in coming up with new ways to attract more prospects in a down market. We also have to provide more education on creative financing,” he said.
Czeh said any turn in the market won’t affect the company’s investment in technology, “We feel that (technology) is vital to our efficiency and our clients appreciate our ability to rapidly respond to their requests and keep in touch.”
Marshall said, “Technology is driving the way the business is done and no one can change that at this point in history.”
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