(This is Part 2 of a two-part series. See Part 1: Preparing for a real estate downturn.)
Will the bubble burst in your market? Will it merely slow down and remain stable? Will appreciation disappear? Will the seller’s market rage on? Regardless of what happens, being prepared for market changes is to key to surviving no matter what the market does.
Last week’s column discussed how to prepare your clients for a market downturn. An even more important issue is how you can prepare your business for this change. The most critical thing to track is the market statistics. You must pay attention to what is happening in each price range. If there are serious surpluses of inventory in the higher price ranges, they may be the precursor to of surpluses in other market segments as well.
1. Master market statistics
Why are market statistics important? First, when you observe an increase in market time, you must immediately start taking listings as close to market value as possible. You must be especially diligent in obtaining price reductions as well. Being able to explain the market conditions in clear mathematical terms may be the most important skill you can develop if you want to survive a major slowdown. Also, if the market is becoming a buyer’s market, it may be wise to increase your marketing budget for buyers, especially first-timers. In a buyer’s market, there are few transactions because no one is purchasing. The last segment of the market to feel this crunch is the first-time-buyer market since they have nothing to sell. Now may be an excellent time to start marketing for first-time buyers who are currently renting.
2. Monitor the market and quickly adapt to changes
For example, if you’ve been in a seller’s market and listings stop selling, stop prospecting for new listings. Instead, focus on obtaining buyers by holding more open houses, working with people or companies who are relocating, and working in a niche such as Baby Boomers downsizing or investments. The objective is to work with individuals who have the highest probability of buying. Shrewd investors tend to be contrarians. They sell when the majority of individuals are buying and buy when more people are selling.
3. Watch the sales board
If a certain area in your marketplace is significantly more active than others, prospect for listings and hold open houses (even if they aren’t your listings) in that area. The goal is to focus your efforts on areas experiencing the greatest number of closed transactions.
4. Be even more diligent in working your sphere of influence
In a buyer’s market, referrals are more difficult to obtain. This means you must be even more diligent about working your referral database. Regular contact with your sphere maximizes the probability you’ll receive the referral rather than someone else. Furthermore, don’t forget to regularly express your appreciation to this group. If you’re not top of mind, that business will go elsewhere.
5. Invest in yourself
Consider upgrading your skills whether it’s hiring a personal coach, reading a business book, attending a seminar, or updating your technology. When market conditions are difficult, only the most qualified agents get business on a regular basis. More importantly, take time to care for you. Down markets are the most stressful of any type of market. People lose money each month their property sits on the market. They have to sell and no one is buying. This is the worst possible time to be stressed out or running on adrenaline. To succeed, you must be the calm in the midst of the storm. It’s impossible to help others stay calm if you’re coming unglued.
6. Do a business plan NOW
More than 90 percent of the agents operate without a business plan. How well would you survive if your income over the next 12 months decreased by 10 percent? What if your income decreased by 25 percent or even 50 percent? While these numbers may seem impossibilities now, this is exactly what you will experience if you do not have a specific plan of attack for maintaining your business. Furthermore, you must also have a plan to cut back expenses. Unless you have money to burn, you cannot continue to spend at the same rate that you are currently and not end up in financial difficulty. An effective and well-balanced business plan includes the capability to make adjustments when necessary. Ideally, any business plan should include budget adjustments for both increases in your business as well as decreases. One strategy for achieving this is to use percentage allocations. For example, you allow 10 percent of your income for marketing, regardless of how much you make.
Don’t let an unexpected downturn catch you by surprise. Keep your eyes on your market statistics, be willing to shift to working with first-time buyers, diligently work your sphere of influence, invest in yourself, and be prepared with a plan of attack. Following these simple suggestions will help you to run a stable and profitable business through any business cycle.
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