Awareness: The Challenge Of Changing Real Estate Markets
by Jim Crawford
Every day in real estate we are challenged with changes of market conditions
that impede or ability to succeed and be profitable. Rising interest rates,
shortages of listing inventory, excess listing inventory, foreclosures, etc. can
all have an impact on our business.
These fluctuations in our marketplace are precipitated by changes in local
economies of job creation, relocation and even layoffs of local industries,
outsourcing, and perhaps even corporate bankruptcies. All these scenarios can
directly impact our business, and are part of a normal business cycle. Novices
or newbies in real estate industry that have not weathered the roller coaster
effects of these business cycles may find themselves bewildered and perplexed
when their earnings and business stalls. They are only used to profiting from a
successful career in real estate, and not the downturns. It is too late when the
only reactions we have is when change has already occurred.
Perhaps our first indications of change go unnoticed. Maybe it starts when the
phones start or stop ringing that we realize the market has changed. Most of us
will first look into changing and adjusting our marketing. We can easily spend
more and more money chasing the business, but fail if we remain ignorant to
changing real market conditions. We must move beyond being uninformed to
enlightened. It is important to pay close attention to the markets we are in,
monitoring it, and then fine-tuning our efforts.
There are many different scenarios to the cycles of business, and they are all
worth taking a look at. Which market are you in?
Seller's markets: In super hot real estate markets, there are shortages of
inventory. These are seller’s markets. You can buy a home, on the seller’s terms
only! In these over heated markets, buyer agents compete feverishly to find
homes for their buyers. Contract after contract is written with multiple offers
on every deal! Rejection is the buzzword! After a couple of unsuccessful bids,
the buyers lose faith in you! They feel you do not have what it takes to
represent them, and you’re fired! Perhaps in frustration they decide to rent for
a year. The scenarios of many buyers and a few mediocre overpriced listings are
baffling. Frustration and stress ensue, and drain the soul. For the agent in
these markets, burnout can become a reality!
Stress, however, is not limited to the buyer’s agents. Changing market
conditions effect all in our industry! For listing agents in these hot markets
feel obligated to take a listing at any price and terms! They have already sized
up the market’s short supply, and if they don’t take he listing on the seller’s
terms, they feel someone else will! After all… it will sell quickly, but are
they making a profit?
Buyer's markets: In a buyer's market, listing agents who once earned a lucrative
living from quick sales may start to notice that their listings are taking
longer to sell. Perhaps they first feel they can fine tune the listing with
fresh paint, new carpet, reduce the listing price, hold an open house, or hold
an agent luncheon. Disappointment sets in as no offers or hostile offers come
in. Even in markets that are normal markets, rising interest rates will dampen
buyer enthusiasm. As the market cools a bit more, there is competition from
local inventory, or from new homes construction. Incentives, or bonuses, or
increased commissions lure would be buyers to other available new homes
inventory. The market has softened and there are excesses in inventory, and
softness in demand. That is great news for a buyer that has a plethora of homes
to choose from, but not so good news for the listing agent or property owner.
These markets can sometimes drift without direction. They are soft, and may lack
homebuyers due to layoffs and a lack of local job creation.
There are other problems, and it is also not uncommon in soft markets that
sellers have already tapped into their homes' equity! They may not be in a
position to negotiate an already leveraged property. That’s just another factor
that may makes negotiating the only offer they will get a nightmare scenario.
To possess such knowledge of our local and national real estate market is
powerful. It can be an education tool to teach home sellers how to price a home
realistically. Seller preparation of the home is very important to a successful
sale! Before we take listings, we must find out if we are all reading on the
same page. Does the seller identify the market as soft? No, of course not! The
seller must also understand the competition. If not, the seller’s frustration
identifies the agent, as the main reason the home isn’t selling.
Phone calls will ensue from unhappy home sellers asking about feedback, where
the home is being advertised, and does the agent have plans to hold more open
houses? They will tell the listing agent in no uncertain terms that you’ve not
done anything to sell their home! They will tell you that smaller home around
the corner sold in just one day on market at thirty thousand over asking price
just two years ago! So not only does the listing agent spend money on obtaining
the listing via direct marketing and mailings, but now has to maintain the
listing with even more marketing and personal attention. It is very time
consuming, and you are not making money!
For buyers, it is very important to educate them to current market conditions.
How long should the home buying process take, what are the scenarios for
submitting a contract that will close? What strategies will you employ to get
their offer accepted? Buyers in these markets must be qualified first! There
isn’t room for a buyer in these markets that do not have their finances or
financial picture in order!
We must first acknowledge to ourselves, that all of the market conditions raised
here are outside our control! They are externals. They are the result of
economic changes, and part of supply and demand forces that drive our economy.
The amount of homes for sale, the numbers of buyers and sellers in a given
market, the location of the property, gasoline prices, inflation, and interest
rates all have a direct impact on our business and profit. The secret is to
determine when market conditions change, and to identify those areas in our
markets that is will be our next niches to become profitable again, and how
should it be approached? This isn’t about guesswork…it’s about research.
The key to success may be innovative thinking. We must challenge ourselves to
look at our market place numbers, and determine what is selling! Where is the
demand? How long does it take to sell a resale home? What’s the list price sales
price ratio… where is the strongest demands…are just a few of the questions we
should ask!
If the market has a short supply of homes, and we have more buyers that we can
deal with but nothing to sell… we must rethink some strategies. Does it make
more sense to continue with buyers? Or does it make sense to list? In a soft
market with loads of inventory does it make sense to list more overpriced homes?
The questions are many, but it is in the identifying our markets, and adapting
new strategies that ensures continued success in your real estate career.
Published: July 2, 2004
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