By: Alex Craig
When speaking with other real estate agents and professionals, I hear a sense of hesitancy, uncertainty, and in some cases, fear. Many of us are wondering what’s going to happen in the real estate market.
We’re starting to see rising interest rates, high levels of inflation persist, and a number of publications are promoting “doom and gloom” for the real estate market and the economy at large.
Plus, it feels hard to separate fact from crap in today’s social media-driven world.
While we can’t predict with certainty what the real estate market is going to look like over the next 12, 24, or 36 months, we can start making plans for various scenarios.
There are two types of market shifts that I believe could happen.
- The number of homes sold per year dramatically drops due to rising interest rates and increasing home values.
- Homes start to lose value because we’re pushed into a recession by the Federal Reserve’s aggressive action to get inflation under control.
For a real estate agent, both situations may mean less gross commission income and production volume.
In the first case, there are a lot of real estate agents competing for a few transactions. If your unit production decreases, rising home values may not be enough to offset the drop in units sold.
The second case is self-explanatory. A recession means lower home values, fewer homes sold, and an increase in days on market. All of this will lead to lower production volume for a real estate agent.
So, what can we do? Here are my five tips:
1. Hone in on Your Margins
Right now, inflation is a big problem for many of us, both professionally and personally.
If you don’t already, now is the time to have better financial control in your real estate business. That means better bookkeeping and expense tracking. Where are you spending your money?
We’ve already noticed the cost difference at the grocery store and the gas station, and prices are creeping up in other places, too. I have received several emails from software companies and vendors about increasing prices.
All of this influences my take-home pay, and it will affect yours, too.
Ask yourself a few questions when going over your expenses:
Is this expense necessary for my business?
Is this expense worth it?
Should I cut this expense or simply monitor it?
I’m not advocating that you go out and slash all of your expenses, but rather I’m pushing for greater accountability and awareness of your money.
Rising real estate markets tend to create lazy accounting and financial practices. However, we need to be aware of where our money is going. Once we know where it’s going, we can make appropriate decisions based on the way the real estate market moves.
Hopefully, many of us learned this lesson from the COVID-19 pandemic.
2. Cut Unprofitable Marketing
We also need to hold ourselves accountable when it comes to our marketing efforts. Cut any marketing that isn’t profitable.
If you don’t know what’s working and what’s not in terms of marketing, it’s time to do an analysis of your efforts.
A comprehensive analysis involves some math, but you can keep it relatively simple. First, take the total cost of your marketing. Next, find the total gross commission income generated from each marketing channel and total up the figures.
Lastly, divide your gross commission income by your total marketing costs. This formula helps you determine and measure your return on investment (ROI). So, if you generated $10,000 in gross commission income and spent $2,000 on marketing, it would look like this:
$10,000 / $2,000 = 5x ROI
This metric measures the return on investment (ROI) of your marketing spend. Here are some ideas to keep in mind:
- <10 ROI: Any marketing channel that is greater than 10 is excellent marketing and lead generation strategy
- 5 – 10 ROI: Likely a good marketing channel, find ways to optimize this channel to move it closer to 10 or above 10x ROI.
- 1 – 4 ROI: Carefully examine these lead generation strategies. You may need to cut them or they are at a high risk of becoming unprofitable.
- >1 ROI: Cut these efforts immediately. Through this marketing channel, you’re spending a dollar and bringing in less than a dollar. It’s better to just keep your dollar.
Take the time to analyze your marketing and lead generation efforts. Cut anything that isn’t working.
With rising costs, I’m a fan of returning to many of the low-cost and traditional methods. Yes, I’m talking about door-knocking, open houses, floor time, and all the other old-school traditional models.
3. Consolidate Processes and Seek Efficiency
Sometimes we can gain better control of our costs by consolidating and driving efficiency. This is especially true for real estate teams and brokers. Now is a great time to look at your technology systems and processes.
Is there any waste? Are there any inefficiencies? It’s time to get lean.
Fast-moving real estate markets, like the one we saw in 2021, can create a lot of bloat in real estate teams and brokerages.
Take a look at your CRM systems, for instance. Are you or your team paying for three different CRMs to handle lead sources from different channels? Think about how you can consolidate your technology. Is there a low-cost all-in-one platform that might meet your needs?
Another example is an agent’s listing process. How efficient is your listing process? Have you become a bit lazy because pretty much every home sells within a few days?
4. Learn and Adapt
The real estate market (and economy) is changing rapidly. What is published today seems out of date by the next month. So, make sure to spend time learning about the economy and the real estate market, locally and nationally.
Spend time watching videos and reviewing the reports published by the National Association of Realtors. This is the most credible source for our profession. Don’t get wrapped up in the news on TV or the boundless articles around the internet. If you’re not aware, the National Association of Realtors publishes reliable research reports on their website.
Be ready to adapt. The real estate agent who is up to date on the market and can adapt is going to have a better chance of surviving this market and any future market. Now is not the time to be complacent.
5. Stay Calm
It’s easy to get wrapped up in fear. The news is always pushing some negative story about the economy and the real estate market. Fear starts to creep in. When we’re acting from a place of fear, I don’t think we can be the best for our clients.
When I notice this, I pause and breathe deeply. I seek out the truth from reports like those published by the National Association of REALTORS®. The point is to calm myself down.
And that advice is something I want to pass on to all of you. Stay calm, find the facts, and keep moving forward. That’s what I tell myself.
Avoid focusing on the things we can’t control—interest rates, a war in Ukraine, inflation, rising gas prices, and on and on.
Keep your focus on the things we can control—being available to our clients, representing them to the ethical standards we agreed to as real estate agents, and helping our clients.
Stay calm. Move forward.
I wish I had a crystal ball and knew what the real estate market was going to do. I think we ALL wish that.
While we can’t predict, we can prepare.
That’s such a profound insight I want to say it again… While we can’t predict, we can prepare.
If you take nothing else from this quick-read article, I want you to take that with you. Make the effort to prepare, to plan, and create contingencies for various scenarios.
Get to a point where you can confidently say, “if this happens, then I will…” By creating these types of plans, we can respond to any real estate market — favorable or unfavorable.
Disclaimer: When it comes to predicting the real estate market, the predictions shared are those of my own and do NOT necessarily represent the opinions of NAR. Please do your own research and draw your own conclusions for your real estate market. Remember, real estate is local.