At the beginning of the year, the National Association of Realtors predicted a period of housing market stability. NAR’s forecasting has proven sound: Home prices are on the rise, but at a gradual pace that’s bolstered by wage increases and the lowest mortgage rates since 2016. The dramatic, competitive atmosphere of the past two years has evened out in most markets.
In any industry, change is all but guaranteed. If your real estate business is prepared, this shouldn’t be cause for alarm; you just need to know how to ride the waves of an ever-fluctuating landscape.
Signs of a market low point
At Sotheby’s International Realty (NYSE: RLGY), our teams are constantly checking market forecasts against actual results to determine how ready we are for changing conditions in the housing market.
There are several telltale signs that the housing market is about to dip. When properties’ time on the market starts to swell, that’s a yellow light. A drop in sale-to-list ratios is another indication of an impending valley. Increased inventory levels, decreased overall sales, regional unemployment, and drops in mortgage applications all serve as red flags, too.
An oncoming low point, however, can still be a time for growth if you are well-prepared.
How to prepare for a market low point
Try these strategies for weathering a downturn:
- Establish multiple revenue streams. This way, when the housing market isn’t so giving, you still have incoming cash flow. These can be ancillary businesses (such as title, mortgage, and new development sales) or the formation of a division for leasing and property management. Think creatively about the services that support your main business, and see if branching out can serve to fortify the whole.
- Ensure that your fixed expense percentages aren’t too high. This can be a delicate balancing act. When it comes to office overhead, study your occupancy to determine whether you’re paying for desk space that’s going unused, especially in a sales-oriented industry where team members are often working remote.
- Avoid cutting corners when it comes to salaries. It’s always important to provide agents with as much support as possible, regardless of market conditions. It’s also savvy to reserve cash for market lows to power growth during slow periods.
- Generate more company-owned leads for your agents. These can come from relocation, affinity relationships, and other methods for generating referral fees. Commission costs are under the most pressure in the brokerage business; pursuing fresh leads creates more revenue streams and mitigates increasing commission costs.
- Pull back on variable expenses when needed. Variable expenses are easier to manage than commission costs. Print advertising and direct mail can be the first investments to go if you need to shift to more cost-effective digital marketing strategies.
Don’t be afraid to pursue growth during a downturn — as long as your approach is creative and sustainable. When I owned my own brokerage, one of my direct competitors took advantage of a slow market by rolling her company into mine. By combining efforts, my company got to bring in a team of highly ethical brokers and eliminate some competition. She got to benefit from the strengths of our brand and our scale. It was an excellent way to expand, even as the market stalled.
When you’re falling behind in the market
If you’re monitoring market conditions closely and realize you’re starting to fall behind, your first area of focus for getting back on your feet should be recruiting. You can’t change a slow market, but you can change the number of productive agents you have on your team. I’ve found it’s best for your internal team to vet talent. Current staff members will be able to get a sense of whether new hires fit within the core values of the firm.
In addition to bulking up your team, focus on examining listings and managing the pricing of your inventory. If a property has been on the market for six months, for instance, review the market data and share it with your seller to empower his or her decision for a price adjustment. It doesn’t do any good to have homes just sitting stagnant on the market; follow the data and respond accordingly.
Plan for high points, too
Don’t become so concerned with preparing for a market downturn that you ignore growth opportunities when things are going well. For example, owners often focus less on bringing in new agents during high points because it seems the ones they already have are perfectly successful. But this can be a great time to bring even more top talent to your ranks.
Reach out to agents during market high points while your value proposition is provable. Show them what you look like at your best, and they’ll want to be a part of it.
An upturn is also an optimal time to fine-tune your marketing strategy. During a low period, marketing tends to take second position to more pressing concerns. When things are running smoothly, however, it’s time to take careful stock of what’s working, what’s not, and how you can best optimize your marketing methods to grow your business.
Market fluctuation is the only constant you can truly rely on, but a well-run organization will be prepared to thrive in any condition. The underlying business strategy may stay the same, but laying out your tactics in advance will allow your company to ride out the ebb and flow.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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