Editor’s note: Some local real estate markets nationwide are seeing signs of change: increased listings inventory, increased days on the market, and more highly motivated sellers than in past years. Experienced real estate professionals say there’s no need to panic as long as you’re prepared. In this three-part series, we sought advice from industry veterans about how to survive and thrive in a changing real estate market. (See Part 1: Survive the storm and make money too and Part 3: How top agents plan to stay on top.)
While experts continue to toss out widely varying predictions on when, where, why and if there will be a sudden end to the prolonged housing-market boom, there is a difference of opinions, too, on which real estate companies will be the most resistant to a market downturn.
What business models are best suited to survive and thrive when a strong seller’s market gives way to a strong buyer’s market? Some business models and real estate agents have not been around long enough to experience a down real estate market, but does that mean they are doomed to fail? Will long-established real estate brands find that it is time for an overhaul when the real estate cycle spins down?
Inman News asked some real estate professionals to share their thoughts.
Dave Sorenson, a real estate agent for Sellstate Advantage Realty in Fort Myers, Fla., said “old main-line companies” and new companies that expanded too fast during the boom will have trouble in a down market. Likewise, part-time agents will struggle during a down market. Agents will want a higher commission share from brokers in a down market, he said, and the companies that realize this will succeed.
“Lazy agents who don’t keep on top of the market will fail as they are living on the cream of a bull market in real estate,” he said, adding that he expects a stabilization in the Southwest Florida real estate market next year.
Sorenson offers a low commission rate to his consumers who list their properties with him — he charges a total 4.5 percent commission on the sale price and gives 2.5 percent to the agent who represents the buyer.
Meanwhile, Ryan Denke of ERA Encore Realty in Phoenix, Ariz., said mom-and-pop real estate companies and “low-service” companies will be doomed at the end of a boom. “The discount and low-service model will be less attractive because people realize that it may cost more to make payments on an extra house for a few months than they might save in commissions,” he said.
“Additionally, people recognize the extra value and services of the larger, more established firms and franchises. The smaller firms will have difficulty retaining agents in a tough market and will be forced to close down.”
Rick O’Neil, former president of Help-U-Sell Real Estate, a pioneering flat-fee real estate company that offers different service options for consumers, said he expects the number of real estate startups to dwindle in a down market, though he expects consumers to seek out established, alternative companies.
In any industry, he said, companies tend to re-evaluate their business plan when the market slows down. “Everyone is going to take a look at their business and say, ‘What can I do differently?'” he said.
But discounted rates, alone, are not going to draw consumers, he added. “A company that doesn’t do much and doesn’t charge much is not going to do well. I think the service has to match the savings.”
Commission rates shouldn’t matter to consumers, said Mike Hyles, broker-owner for RE/MAX 1st Choice in Pleasanton, Calif., and he explains to clients the net value they receive from working with him. In a down market, he expects that commissions will remain fairly steady and that “cut-rate people are not going to be able to compete.”
Also, mom-and-pop companies will struggle against large companies, he said. Marketing and presentation becomes more important in a slow real estate market, and Hyles said those companies that provide extra service to consumers will be rewarded, regardless of market conditions.
Hyles said he has a policy to provide a folder with marketing materials for high-end properties, and to provide online virtual tours for a range of properties.
So many people think a career in real estate is just a matter of getting a license, he said, but that isn’t so. “It’s kind of like painting (a house). Everybody can paint, but the quality of the job is going to be a lot different. Everybody can get a real estate license but can you sell?”
Marketing and specialization are important survival traits for real estate professionals in a down market, said Philip “Mike” Murphy, broker-owner for United Country Clemens Real Estate of Eastern Oregon. “Agents, brokers and real estate companies with savvy national marketing should continue to do fine,” he said.
His company specializes in rural land sales, from five to 250 acres. An upturn in interest rates “doesn’t worry me,” Murphy said. Many of his buyers pay cash at closing, and about 90 percent of the company’s buyers find him through the Internet.
“Those that have their feet on the desk and are waiting for someone to walk in and take their listings off their hands are less likely to succeed, and the lack of self-marketing ability of your listings will speed up the fall,” he said.
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