When the market softens, it doesn’t just soften for you; it softens for everybody.
According to the National Association of Realtors, national inventory has crossed 1.6 million units for the first time since November 2019, and existing home sales are down 2 percent month over month.
As a veteran of several real estate cycles, my advice is simple: When the market shifts, great agents align their resources to match. That means spending less money on non-essentials and more time on the things that matter most.
What to do financially when the real estate market shifts
Immediate steps: Prioritize financial stability
The business plan you’re operating with today probably started with an income goal that sounded good, not one grounded in a margin target or other financial benchmarks. It’s no surprise that most real estate business plans are rarely followed.
The first thing to do is to rebuild your plan from the bottom up, rather than the top down. Begin with your expenses, not your goal.
Identify your monthly personal budget: Not the comfortable number, the essentials. Then, add comfort items. Repeat the process with your business expenses. Combine the two essential numbers, and that’s your minimum. Add the two comfort numbers, and that’s your goal.
Compute your budget by going two years back through your bank accounts. This prevents you from missing quarterly and annual charges. Almost every agent who does this finds redundant spending: streaming subscriptions no one watches, paid lead channels or overlapping design and video subscriptions that rarely produce closed business.
Every set of books I’ve gone through in this way has contained the same kind of hidden leaks.
Once you know your numbers, work backward using your average sale price, commission rate and split to calculate the number of units you need to close to hit your income goal and your minimum. Each month, your year-to-date closed and pending unit production becomes the trigger for your expense decisions, rather than how you are feeling in the moment.
Rank your expenses, personal and business, in order of importance. When your units are on pace, leave the list alone. If you begin to fall behind, start executing on your ranked expense cuts.
It’s like the story of Odysseus and the Sirens. Odysseus knew that once he heard the Sirens’ song, he would try to steer the ship into the rocks. So he had his crew tie him to the mast and gave them strict orders to ignore anything he said once the singing started.
If you rank your cuts while business is calm, a bad month stops being a decision and becomes simple execution.
Medium-term adjustments: Invest in education
A shifting market has a way of exposing knowledge and skill gaps that a rising market allowed you to ignore.
The answer isn’t to become a professional student and sign up for every class you can find. Instead, pause and reflect on your last few transactions. Where did you find yourself guessing, scrambling or asking for advice? Those are the areas where investing in education can have the greatest ROI.
Start with your transaction knowledge. In a more balanced market, inspection contingencies are back in play, financing issues can matter more, and negotiations may take several rounds instead of one. If you haven’t had to navigate some of these situations recently, review the contracts, contingencies and negotiation strategies that are becoming relevant again.
Next, immerse yourself in your local market data. A national real estate forecast is about as useful as a national weather forecast. Spend time studying your local numbers: months of supply, days on market, list-to-sale price ratios, etc.
Look for patterns in your business. Maybe you consistently work with downsizing sellers, a particular price range, a specific subdivision or a unique property type. Expertise is more valuable when the market becomes more challenging.
Learn how to build a structured communication plan and how to have difficult conversations when you don’t have good news to share. A seller whose home has been on the market for weeks without a showing needs a very different conversation than a seller who received multiple offers after one weekend. Learn to communicate consistently, even when there is nothing new to report.
The skills you develop to navigate a difficult market stay with you long after the cycle changes.
Long-term strategies: Strengthen relationships
In a strong market, financial opportunity generates leads. In a softer market, life events become the primary driver.
As The Beatles remind us, life goes on. People get married, have children, get divorced and retire, and they want to work with a real estate professional they know and trust.
Start by looking backward 12 months and listing all your closed transactions. Beside each closing, note the specific lead generation method that produced the business. Then ask: What was happening in that client’s life that caused them to move?
You may find that many of your transactions weren’t created by marketing at all. They began with a relationship that existed long before the real estate need ever did.
Rather than continuing to purchase attention through leads, advertising and sponsorships, invest in your relationships. Call past clients. Check in with your sphere. Send handwritten notes. Have lunch with the people who can refer business to you. It costs less money and more time, which is exactly the trade this market demands.
The same principle applies to your professional relationships. In a tighter market, the agent on the other side of a difficult transaction, the lender who answers on a Sunday and the contractor who can solve a problem quickly can all become critical to getting a deal across the finish line. Don’t wait until you need those relationships to start building them.
A softer market doesn’t require you to spend more to generate business. It requires a different mix of resources. Spend less money buying attention and more time developing expertise and relationships. A strong market rewards reach. A softer market rewards depth.
Money Matters Month is here. All September, Inman is focused on the financial side of real estate — the part nobody teaches you when you get your license. How to budget through lean times, protect your profits when business is good and find new ways to grow your bottom line no matter what the market is doing.
