Better Homes and Gardens Rand Realty - The Market is Changing are you Changing With It?
The Market is Changing... Special Report:Special Report: How the Market is Changing, How Those ChangesWill Impact Our Business, and What Can We Do to Adapt and Thrive Joseph W. Rand Better Homes and Gardens Real Estate – Rand Realty March 2013
Introduction:The Market is Changing...The market is changing. We’re seeing it throughout the country, and particularly in our region. Inventory is tightening. Prices arestabilizing. Buyers are losing homes to bidding wars. Essentially, we have come to the end of a market cycle that began in about1997, and starting a new cycle that will drive sales and prices up for most of the next decade.This is all good news, of course, for those of us in the real estate industry. Having lived through the last market change, which wasthe transition from the bull market of 2001-2006 to the correction that started in 2007 and then accelerated after the financialcrisis of 2008, we certainly welcome a market in which sales and prices are going up instead of down.But change can still be intimidating. And even though this market change is generally good news, it does bring with it newchallenges that we will have to face and overcome if we want our businesses to thrive.That’s why Better Homes and Gardens Rand Realty has put out this Special Report on how the market is changing, and what youcan do to change with it. The Report derives from a series of seminars that we held at Better Homes and Gardens Rand Realty fromNovember 2012 through February 2013, and comes in two parts:The Market is Changing…This Part of the Report comes out the seminar series that we held in November 2012, where we discussed the coming changes tothe real estate market, how they would impact our business, and what we could do to adapt and thrive in the new environment.This part of the Report derives from those discussions, and includes not only an expanded version of my notes for thosepresentations, but many of the ideas that came out of the open forum we had with over 500 Rand agents.…Are You Changing With It?On the “flip side” of this book, you can find the other half of this Report, which comes out of the forum series we held in Januaryand February 2013 entitled “Extreme Makeover: Real Estate Agent Edition.” There, we discuss how you can implement change inyour own business, making over your productivity, technology, and systems to put yourself in a position to take advantage of theopportunities presented by this market change. You can find this part of the Report just by flipping the book over.We believe that forewarned is forearmed, and the more we do now to start preparing for the market changes that will startimpacting our business in the next few years, the better-positioned we will be to take advantage of all the opportunities the newmarket will be giving us. The “Market is Changing” and “Extreme Makeover” seminars were just the first step, and this Report justis the second of what will be a long process of revitalization, reinvention, and reenergizing.Our best wishes to all of you for your continued success in the new market.
The Market Is Changing OverviewThe November 2012 “Market is Changing” seminars were not the in whole series of company initiatives that helped us cope withfirst time that we held agent forums to deal with market change. the new market realities:Back in November 2005, on the cusp of the last major shift inthe market – from the seller’s market that thrived during the Partly as a result of our proactive preparation for the marketearly part of the decade, to the buyer’s market that we have all changes that we started to experience in 2006, Better Homesendured for the past seven years – we held a similar series of and Gardens Rand Realty was able to manage the disruptiveidentically-entitled events to discuss what we believed would be effects of those changes over the next seven years. Eventhe coming changes in the market. with the decline in revenues that came from the fall in units combined with depreciating sales prices, which drove many ofIn those forums, we came up with a host of ideas that we could our competitors out of the business, we were able to continue toimplement to help us adapt to an environment with declining grow the company with an innovative and aggressive spirit.units, falling sales prices, and ultimately lower revenues for thecompany and the agents. Indeed, those ideas ultimately resulted How the Market Was Changing, 2005 What We Did to Adapt…. We eliminated empty marketing in newsprint Prices and Units Going Down and cut unnecessary expenses. We took steps to create ongoing client experiences through the weekly Market Action and Property Traffic emails. And to protect Listings Would Take Longer to Sell ourselves, we created the Seller Packets, which locked in a 6% commission for a full nine month listing. Because it would be more competitive selling listings, we took steps to give our own sellers an advantage on RandRealty.com – more featured status on the front page, on search results, and Listings Would Be Harder to Sell on property detail pages, and more enhancements with higher quality photos, videos, and mapping. We also expanded paid listing syndication to better market listings. Knowing that it would be harder to cultivate and keep buyers, we improved lead generation from RandRealty.com, adding callouts to drive more buyers through our system. We also created Harder to Generate and Convert Buyers the R4L program to help agents build their referral databases to generate high quality leads, and initiated exclusive buyer agreements to lock buyers into our agents during their long searching process.
Consider, for example, some of the changes in the company over the last seven years: • Growth within our territories. As of 2005, BHG Rand had about 17 offices in Westchester and the Hudson Valley, with about 500 agents. We now have 25 offices in that region, with over 700 agents. • Territorial expansion. Just in the past two years, BHG Rand has now expanded into two new markets in northern New Jersey – Passaic and Bergen counties – in an attempt to fully service clients who are looking at broad geographical areas. • Technological Innovation. BHG Rand has continued to be a leader in technological innovation in our region. Just like we were the first regional company to put our inventory online in the late 1990s, we were the first company add high-resolution photos, mapping, blogging, and research tools to our website. And in Randcenter, we created a series of programs to help agents run their business, including the letter-writer function in Contact Manager, and a host of creative presentations on Presentation Center. • CORE. Over the past five years, BHG Rand has pioneered an innovative approach to agent development in the “Client-Oriented Real Estate” program, which has led to a series of initiatives to better help agents service their clients: the disclosure packets, the Realtor for Life program, the Orientation Guides, the Consultation Guides, and more. We are the only company in the country, much less the region, that is setting out to change the client service experience in the real estate industry. • The Breakthrough. Even while revenues were declining, BHG Rand implemented a dramatic change in our compensation policies, adding an 80% split level that can be reached at about $25,000 in agent earnings and providing agents with myriad choices for starting splits and personal assistant time.Thus, those 2005 sessions were instrumental in sparking now that the market seems to be going through a market changeactionable programs, tools, and resources that helped us get again. And just like last time, we hope that the ideas generated inweather the storm of a declining market. Accordingly, we those forums will help guide us in continuing to innovate over thebelieved it would be similarly helpful to hold a series of forums years to come. The purpose of this year’s “Market is Changing” seminars was to answer three basic questions: 1. How is the market changing? 2. How will those changes affect our business? 3. What can we do to adapt to those changes? We will take each of those questions in turn. Ultimately, our goal for the forum was to generate ideas for new processes, programs, and tools that we could develop or implement to help us thrive in the new market.
Question #1: How is the Market Changing?The market is changing. We are seeing it throughout the industry, – i.e., maybe you’ve started to see inventory decline, or you hadwith transactions and sales prices rising throughout the country your first multiple bid situation in years – it’s still important toafter many difficult years. More importantly, we are seeing it in back up your first-hand impressions with actual market data andour local markets, with sales up from last year in every region and a full understanding of how the market cycle works.prices stabilizing and actually up from the bottom they hit in late2009. We believe that our local housing market is slowly workingits way through the end of a market cycle that began in the last The Market Cycle1990s, and that we are poised in the next few years to start a new The fundamental economic rule of supply and demand saysmarket cycle that will bring a true seller’s market that will drive that for a fixed supply of goods (i.e., a housing inventory), anyboth prices and transaction up through the end of the decade. increase in demand is going to drive prices up, and decreases inIn this section, we’re going to review the economic fundamentals demand will push prices down. That simple rule is what drives theof the housing market cycle, and show how that cycle has housing market cycle, which moves through a predictable seriesplayed out in our regional markets. Although many of you have of fluctuations depending on the interplay of inventory and buyeranecdotal evidence that the market has started to turn around demand.The below chart identifies the basic properties of the market cycle stages: Seller’s Market Correction Buyer’s Market Recovery Buyer Demand High Declining Low Increasing Inventory Low Increasing High Declining Increasing, Declining, Sales Declining Increasing then stabilizing then stabilizing Average Sales Price Increasing Stabilized Declining Stabilized GROWTH AHEAD
Here’s how the market cycle plays out.Seller’s Market. As a seller’s market begins, we see rising demand results in fewer and fewer buyers looking in the market.buyer demand and low inventory, which has a tendency to push Indeed, the very fact that prices are falling makes buyerstransactions and prices up. This goes on for a period of time, with reluctant to pull the trigger, because they’re afraid to buy aprices continuing to rise so long as buyer demand stays strong. depreciating asset. So prices continue to go down, which drivesAt some point, though, prices get so high that buyer demand transactions down even more. Over time, though, we reach aebbs – buyers become skeptical of the high prices and lose some point where prices have come down so far that they becomeof their urgency. This leads to a transitional period that we’ll call attractive to buyers who now start to take a second look at thethe “Correction”. market. They start to scoop up bargains, which stabilizes both the transactions and ultimately starts to prop up home prices again. That leads to the Recovery.Correction. In this transition out of the seller’s market, we havea disconnect between sellers and buyers: sellers still think that Recovery. In the Recovery, we start to see sales slowly startit’s a seller’s market, and demand price appreciation, but many going up again. Buyer demand is rising, spurred by the perceptionbuyers are too skeptical to meet those price demands. So what that housing has finally become more affordable and a “goodhappens is that transactions fall as fewer buyers rush to meet investment” again. Inventory starts to drop off as buyer snatch upseller demands, but prices hold out for just a little longer. Why? their bargains. Ultimately, all this buyer demand starts to put someBecause the homes that sell involve those holdout sellers and pressure on home prices, which start to rise. So where does thisthe diminishing number of buyers still willing to meet their price leave us? In a situation with low levels of inventory, rising buyer– thus, the homes that close are still selling at the “seller market” demand, and upward pressure on pricing. This, of course, leads usprice. Over time, though, as transactions fall, inventory grows, back to the beginning, and the start of a Seller’s Market.and it becomes increasingly difficult for sellers to insist on price So that’s how the housing market cycle develops: a Seller’sappreciation. At that point, prices start to fall, and we enter a Market with rising prices and transactions leading to abuyer’s market. transitional Correction phase with flattening prices and declining transactions, which brings on the Buyer’s Market where pricesBuyer’s Market. In a buyer’s market, the buyers have the upper and transactions both fall, until prices fall so much that buyerhand. Inventory is high, sellers are in retreat, and prices are demand comes back and brings on the market Recovery. Andfalling. Transactions also fall, because the reduction in buyer then, of course, the whole cycle starts up again. This brings us to the big question: where are we now? In our current market conditions, what we see is the following: Buyer demand is going up. Inventory is going down. Sales are starting to go up. Prices have deterioriated a bit, but are stabilizing. In other words, the part of the market cycle that we’re in looks a lot like “Recovery.”
$700,000 20,000$650,000 17,750$600,000 15,500Illustrations of the Market Cycle$550,000 13,250 The Three Market DistortionsYou can see this market cycle play in our regional housingmarkets. For example, look at this graph entitled “Westchester$500,000 11,000 of 2005-2010 In looking at the graphs we’ve supplied, you might have anInflation-Adjusted Average Sales Price,” which sets out the$450,000 8,750 objection – you might notice that the clean, fluid wave cycleinflation-adjusted average sales price for Westchester County$400,000 6,500 seems to get a little little choppy in the 2007-2010 period, wheregoing all the way back to 1981. We use Westchester because it goes down, then up, then down again, then flat. That makesit’s the only county for which we have a full 30 years of data,$350,000 4,250 the second wave look a little different from the first. You mightwhich allows us to see an illustration of two full market cycles.$300,000 2,000 look at that and think that the two market cycles aren’t in fact 2010Q1 2011Q1 2012Q1 2002Q1 Q2 Q3 Q4 2003Q1 Q2 Q3 Q4 2004Q1 Q2 Q3 Q4 2005Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 2008Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 2006Q1 2009Q1 2007Q1 the same. Average Sales Price Transactions That’s a fair point. The two cycles followed the same trajectory, Westchester Inflation-Adjusted Average Sales Price but they aren’t exactly the same. As anyone who has been in the (Source: MLS data) market over the last seven years can tell you, the buyer’s market that we went through was harsher and more volatile than what $1,200,000 we had seen in the past. $1,000,000 But the difference is not something that was inherent to the market cycle, and doesn’t disprove the idea that the last fifteen $800,000 years have conformed to basic economic fundamentals of $600,000 supply and demand. Rather, those aberrations from 2007-2012 were caused by three major artificial distortions of the normal $400,000 market cycle that impacted the market during the last ten years. We’re written about these market distortions at some length on $200,000 the “Market Intelligence” blog and the Rand Quarterly Market Report. The basic idea is that the normal evolution of the last 0 ‘82 ‘83 ‘84 ‘85 ‘86 ‘87 ‘88 ‘89 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 market cycle was distorted by three outside influences that 2000 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘11 ‘12 1981 1990 2010 created many of the severe shocks that we experienced over the last ten years.What you see on the graph is a perfect articulation of themarket cycle playing out twice: from 1981 through 1996 andfrom 1997 through 2012. In both cases, you have a similarlyshaped curve that goes up during the seller’s market, tops out Here are the three distortions:at the correction, goes down during the buyer’s market, andthen flattens out during the recovery. Credit Bubble. The first distortion was the “credit bubble” that was created from 2005-2007 by the expansion of • First Market Cycle (1982-1996): We see the cycle available credit to unqualified borrowers, which artificially start from 1982-83, when prices rise for what was expanded buyer demand and kept pushing prices up for the first time in years. That kicks off a Seller’s Market two years when they should have been flattening. That’s that continues until about 1987, when prices top why you see prices going up in that 2005-07 period when out and the market starts a transitional two-year they provably should have been plateuing the way they did Correction that turns into a Buyer’s Market that lasts in the 1987-89 comparable period of the last cycle. from about 1989 through 1994, until it flattens out into Recovery from 1994-96. Financial Crisis. The second distortion was the financial crisis of 2008, which was obviously precipitated by that • Second Market Cycle (1997-2012): This cycle starts in credit bubble. As you know, the market came crashing 1997, as prices start to go up as the Seller’s Market down around us in late 2008, and over the next eighteen starts up. That Seller’s Market continues through months we had prices come down over 25% across the to about 2005, when prices plateau and we start region. So instead of a nice soft decline in pricing like we the process of the Correction. That lasts until 2007, had in 1989-1994 over the last cycle, we had a dramatic fall when the Buyer’s Market takes hold and prices that took place over less than two years. plunge for two years, spike up for one, and then gradually recede through to 2012. Tax Credit. The third distortion was the Home Buyer Tax Credit, which spurred another artificial increase inNote that both market cycles last about 15 years. The first cycle buyer demand inlate 2009 and early 2010. That’s whystarts around 1982, and lasts until about 1997. The second starts you see that odd spike in home prices in 2010 – becausearound 1998, and lasts until at least the present day 2012. And government intervention pushed prices up for a briefin both cases, prices rose for four or five years, flattened out for period when buyers were rushing to take advantage of thetwo or three, then fell for three or four, and then flatted out again. tax credit. Again, that’s why the curve looks different fromBoth cycles play out the same way. the comparable period of the last cycle, when prices went slowly but surely down from 1989-1994.
and Prices 2002-Present Westchester Rolling Year Transactions $1,000,000 7,000 and Prices 2002-Present Westchester Rolling Year Transactions $950,000 6,500In other words, the market cycle looks a little different this time than $1,000,000 $900,000 Westchester Rolling Year Transactions and Prices 2002-Present 7,000 6,000in the 1981-1996 period because the market was artificially distorted $950,000 $1,000,000 $850,000 and Prices 2002-Present 6,500 7,000 5,500– first by the credit bubble that extended the price appreciation for $900,000 $950,000 $800,000 $1,000,000 6,000 6,500 5,000 7,000another two years, which led to the financial crisis, which led to the $850,000 5,500 $900,000 $750,000 $950,000 6,000 4,500 6,500 $800,000 5,000government intervention in the form of the tax credit. If not for the $850,000 $700,000 $900,000 5,500 4,000 6,000 $750,000 4,500credit bubble, which led to the rest of the distortions, we feel that the $800,000 $650,000 $850,000 5,000 3,500 5,500 $700,000 4,000market would have started to crest in 2005, started to come down $750,000 $600,000 $800,000 4,500 3,000 5,000 $650,000 3,500in 2006, and come down more gradually from 2006 through 2011 or $700,000 $550,000 $750,000 $600,000 4,000 2,500 4,500 3,000 $650,000 3,500so (a five year period comparable to the 1989-1994 period of the last $500,000 $700,000 $550,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2,000 4,000 2011 2012 2,500 $600,000 3,000cycle). That’s why this market felt different – because it WAS different. $650,000 $500,000 3,500 2,000 $550,000 2002 2003 2004 2005 2006 $600,000 2007 2008 2009 2010 2,500 2011 2012 3,000 Transactions TransactionsFor another view of this dynamic, take a look at the graphs on the right $500,000 $550,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2,000 2011 2012 2,500 Transactions Transactionsfor each of the primary markets we service: Westchester, Rockland, $500,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2,000Orange, and Passaic Counties (we do not yet have historical data for Transactions TransactionsBergen). What the graphs shows are the sales and average prices for Rockland Transactions Year Transactions Rolling TransactionsWestchester and the Hudson Valley over the last decade or so. They and Prices 2002-Presentare interesting to look at for two reasons. First, because they show Rockland Rolling Year Transactions $600,000 2,500the interplay in each region of sales and prices during the height of the $570,000 Rockland Prices 2002-Present and Rolling Year Transactions 2,250Seller’s Market, through the transitional Correction, on to the Buyer’s $600,000 $540,000 Rockland Prices 2002-Present and Rolling Year Transactions 2,500 2,000Market, and then to what we believe is the Recovery. Second, these $570,000 $600,000 $510,000 and Prices 2002-Present 2,250 2,500 1,750 $540,000 2,000graphs also clearly show the impact of the three market distortions. $570,000 $480,000 $600,000 2,250 1,500 2,500 $510,000 1,750 $540,000 $450,000 $570,000 2,000 1,250 2,250In each case, what you see is a clear demonstration of the latter part of $480,000 $510,000 $420,000 $540,000 1,500 1,750 1,000 2,000the most recent market cycle, and how that cycle was distorted from $450,000 $480,000 $390,000 $510,000 1,250 1,500 750 1,7502005-2010. In particular, review the following parts of those graphs: $420,000 1,000 $450,000 $360,000 $480,000 1,250 500 1,500 $390,000 750 $420,000 $330,000 $450,000 1,000 250 1,250 • Credit Bubble. You can see how prices continued to $360,000 $390,000 $300,000 500 0 750 $420,000 2002 2003 1,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 250 appreciate in 2005-07 even though transactions were $330,000 $360,000 $390,000 500 750 falling, because of the credit bubble that propped prices $300,000 $330,000 2002 2003 $360,000 2004 2005 2006 2007 2008 2009 2010 0 250 2011 2012 500 Transactions Transactions up even when they should have started to fall. $300,000 $330,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 2011 2012 250 $300,000 Transactions Transactions 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 • Financial Crisis. You can see how prices in each of those Transactions Transactions markets basically fell off a cliff in 2009, giving back years Orange Rolling Year Transactions Transactions Transactions of appreciation in just a one- or two-year period. andRolling Year Transactions Prices 2002-Present Orange 450,000 4500 • Tax Credit. How transactions spiked in 2010 because of the tax and Prices 2002-Present Orange Rolling Year Transactions 405,000 4050 credit. Indeed, in Westchester, the transactional surge actually 450,000 360,000 Orange Rolling Year Transactions and Prices 2002-Present 4500 3600 was enough to temporarily drive up the average sales price. 405,000 450,000 315,000 and Prices 2002-Present 4050 4500 3150 360,000 3600 405,000 270,000 450,000 4050 2700 4500 315,000 3150 360,000 3600This graph shows the impact of the three distortions beautifully. The 225,000 405,000 270,000 2250 4050 2700 315,000 180,000 3150 1800point is simple: the market evolves in a very predictable cycle, and 360,000 225,000 3600 2250 270,000 135,000 315,000 2700 1350 3150even extreme situations like the ones we experienced during the latter 180,000 1800 225,000 90,000 270,000 2250 900 2700half of the last decade do not change the cycle – they only distort it. 135,000 180,000 1350 1800 45,000 225,000 450 2250 90,000 900 135,000 1350The graphs are also helpful, of course, because they point the way 0 180,000 2002 2003 2004 2005 2006 45,000 2007 2008 2009 2010 0 1800 2011 2012 450 90,000 900forward. If you look at each of them, what you’ll see is that prices 135,000 0 1350 0 45,000 2002 2003 2004 2005 2006 90,000 2007 2008 2009 2010 450 2011 2012 900have deteriorated a bit but that transactions are starting to come Transactions Transactions 0 0back. That’s a good indication that buyer demand is increasing, 45,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 450 0 Transactions Transactions 0which supports the view that we are starting to look at a market 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Transactions Transactionsthat is moving into Recovery and eventually into a Seller’s Market. Transactions Transactions Passaic County Rolling Year Transactions Conclusion and Prices 2002-Present Passaic County Rolling Year Transactions 4500 $450,000 and Prices 2002-Present Passaic County Rolling Year Transactions The purpose of this part of the Forum was to make one thing $420,000 4065 clear: the market is clearly moving in the right direction. $450,000 $390,000 Passaic County Rolling Year Transactions and Prices 2002-Present 4500 3630 Sales are going up, and we can expect that sales will continue $420,000 $450,000 $360,000 and Prices 2002-Present 4065 4500 3195 $390,000 3630 $420,000 4065 2760 to rise year after year for the next several years as buyer $330,000 $450,000 $360,000 4500 3195 $390,000 $300,000 3630 2325 4065 demand continues to increase. And we can also expect that $420,000 $330,000 2760 $360,000 $270,000 $390,000 3195 1890 3630 at some point in the next few years, this increased buyer $300,000 2325 $330,000 $240,000 $360,000 2760 1455 3195 demand is invariably going to lead to price appreciation. $270,000 $300,000 1890 2325 $210,000 $330,000 1020 2760 $240,000 1455 $270,000 $180,000 $300,000 1890 585 2325 All this brings us to the next question: how will market change $210,000 $240,000 $150,000 1020 1455 150 1890 $270,000 affect our business? $180,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 585 $210,000 $240,000 1020 1455 $150,000 150 $180,000 2002 2003 $210,000 2004 2005 2006 2007 2008 2009 2010 585 2011 2012 1020 Transactions Transactions $150,000 150 $180,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 585 $150,000 Transactions Transactions 150 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Transactions Transactions
Question #2: How Will Market Change Affect Our Business?The biggest difference between the agent forums we held in average sales prices, increasing units, and rising revenue – brings2005 and 2012 was the attitude and spirit that agents brought with it a brand new set of challenges and difficulties. After all,to this year’s discussions. Agents were much more hopeful and agents in 2003 didn’t skip around the office singing happy tunesoptimistic about the market that is coming now than the market because the business was so easy back then. Rather, they justthat they were dreading back in 2005. Why? Because in seller’s had a different set of complaints based on the types of problemsmarket, we’re likely to see increasing units and appreciating that we are likely to see come back into the market.sales prices, which means that we will have more revenue beinggenerated throughout the industry. To illustrate this, we set up a simple table to identify aspects of the market that will be changing, how they would be changing,But that doesn’t mean that everything’s going to be easy. and how those changes would affect the business. Here’s thatIndeed, one of the main themes that developed during this year’s chart.forum was a reminder that a stronger market – one with rising
Factors that will Increase in the New Market How is Category The Market How will it impact the business? Changing Sales will rise, which is good for revenue purposes, but it also means that agents will have to Unit Count Increasing handle a larger number of transactions at a time. This will put some stress on them. Prices will be going up, which again is good for revenue. It also means, of course, that we are Sales Price Increasing going to see even more problems with appraisals that are going to come in low when they’re based on six month old comps that sold in a market that has since appreciated. Multiple With increased buyer demand comes an increase in the number of multiple offer situations, Increasing Offers which are always very stressful and distressing to buyers, particularly those who lose out. With more money in the market comes more competition. Listings are going to be in high Listing Increasing demand, which means that more agents will be chasing fewer listings and increasing the Competition difficulty of getting them. With increased agent demand for listings, companies and agents will be tempted to dropCommission their commission – particularly if they think they can get homes sold very quickly and with a Increasing Pressure minimal marketing investment. We saw this type of commission pressure in the 2001-2005 market, and it’s going to come back. We’re going to see the return of alternative business models, like low-service realty companies that will offer reduced service or a menu of offerings for reduced commission (i.e., Alternative Increasing put a home on the MLS for $500). We need to be ready to respond by showing how we can Models provide a much more effective marketing and service experience, and ultimately bring sellers a better price for their home. Buyers will become very anxious and urgent in the new market. They won’t be able to take their time looking at homes, because well-priced properties are going to move quickly. ThisBuyer Urgency Increasing means that buyers are going to require lots of quick attention and handholding. It will be very difficult to keep them happy, particularly those that want to go see every house the minute it hits the market, and blame you when they lose out on bidding wars. As it becomes easier to sell a home, more homeowners will be tempted to sell it on their own, FSBOs Increasing putting more pressure on commissions but also providing new prospecting opportunities for aggressive agents. As the industry starts to generate higher levels of revenue, we’re going to see a lot of new agents entering the business. This not only means more competition, but more stress onAgent Count Increasing seasoned agents who will have to handle both sides of the transaction when dealing with neophyte agents who don’t know what they’re doing. Appraisal If you think we have appraisal problems now, imagine what it’s like in a rising market, where Increasing Problems the six-month old comps are 4-5% below where the current market is.
Factors that will be Declining in the New Market How is Category The Market How will it impact the business? Changing As more listings sell, inventory will dwindle. This will put added pressure on price, as Listing well as fuel the urgency that most buyers will feel. Well-priced properties will move very Decreasing Inventory quickly once they hit the market. We have gotten used to working with sellers for a long period of time. That’s going to change as homes sell more quickly, which means that it will be easier to deliver anListing Time on exceptional client experience to sellers – you can cram seven or eight months worth Decreasing Market of service offerings into a six week period. It’s helpful that we’ve developed a series of service initiatives designed to cover the long haul, because they will be that much more effective in the short term. We are going to start seeing brokers skimp on buyer side commissions. In some cases, they will be internet brokers who get a minimum fee to put listings in the MLS but Buyer Side make no offer or a limited offer to buyer agents. In other cases, even traditional service Decreasing Commission brokers will be cutting their commission, and putting the burden on the buyer agents. Agents will need to protect themselves by signing exclusive buyer agreements to ensure they can get paid. In a buyer’s market, agents work with clients for a long time: sellers whose homes take Client Service a while to sell, and buyers who take a long time looking. That’s going to change. You will Decreasing Time find yourself working with more clients, but for a shorter period of time. The challenge will be getting those clients, and keeping them happy when they want to move quickly. In the new market, it will not take a long to put together deals. Sellers and buyers will be Deal Making Decreasing moving quickly. The challenge will be managing an increasing number of transactions at Time one time. Sellers will not have the same urgency that they’ve had during a buyer’s market. They’ll be able to, for example, start looking for a new home even when they haven’t sold theirSeller Urgency Decreasing old home, something we discouraged in the buyer’s market. You won’t need to maintain long-term relationships with sellers, because their homes will sell more quickly. Sellers will not have to discount their homes as severely. We will start seeing more near-Seller Discounts Decreasing price, full-price, and even above-asking offers. We will start seeing fewer expired listings hit the market, and the ones that do will likely have severe problems that kept them from selling. If you prospect expireds, it will be Expireds Decreasing slim pickings, and you might want to turn your attention to FSBOs, which will be increas- ing.
How is the Industry Changing?These market changes might all seem very familiar to many of This also means a raising of the bar for the competitive challengeyou who have been in the business for more than ten years, that you’re going to face. You’d better take advantage of thatbecause you’ve all seen a market like this before. What we’ve technology, or you’re going to start losing listings to the peopledescribed above is simply the predictable impact of a seller’s who do. You know that we’ve been preaching for years themarket, just like the one we experienced prior to 2006: an importance of doing outstanding listing marketing as a serviceincrease in competition, downward pressure on commissions, a to your seller clients, which remains true. But in the comingrise in transactional load, and higher levels of buyer stress and market, providing an amazing market experience is no longerurgency. In some ways, we just need to re-learn the lessons that going to be as necessary to SELL the listing, but it’s going towe learned in that last seller’s market, and adjust our business to be crucial to GET the listing. If you can’t show a seller how wellaccommodate these changes. you can market a listing online by taking advantage of all these new technologies, you’re going to lose that listing to alternativeBut the market is not the only thing that’s changing – we’re also brokers who do nothing but put a listing online with a bunchgoing to start seeing changes in the industry, especially those of photos and a rudimentary video. After all, why should asparked by technological innovation over the past ten years. seller pay you 6% when an online broker pretty much does theAfter all, the last time we saw a seller’s market like the one same thing for $500? The key to the listing presentations ofthat’s coming, we were living in a different world, one without the next few years will be your ability to show sellers how wellsmartphones and Facebook and Yelp and video and all sorts of you market listings online, literally by pulling out a laptop ortechnical innovations that are going to make the new market very tablet and showing them your current or recently sold listingsdifferent from the old one. and comparing them to how the competition markets their properties. That’s what’s going to get you -- or cost you – listings in the new competitive environment.The point is that it would be foolish to think that all you needto do to be successful is to go back to doing business the wayyou did in 2004. The industry has changed, the technologyhas changed, and even the consumer has changed. And those 2. Communication Technologychanges require you to make some changes of your own. Going back ten years, it was unusual for agents and clients to communicate by mobile phone: clients still called you onLet’s think about those industry changes, and how they might your office phone and waited for you to get a chance to returnimpact our business in the next several years: their call when you got back to your office. One study in March 2002 showed that only 62% of Americans owned a cell phone. Moreover, do you remember how different cell phone usage was1. Industry Marketing Technology back then? You probably had a limited data plan where you wouldThink about how marketing technology has changed in the last wait until 7PM to make a call because you didn’t want to useten years. During the last seller’s market, brokers were still your “daytime minutes.” You could only use it in your home area,doing full-page ads in the newspaper, lots of classified ads, and not anywhere in the country, and you couldn’t even call longrelatively few brokers even had websites. Even if the brokers had distance without incurring additional charges. More importantly,websites, they probably had a handful of pictures, no video, no it was just a phone. You made calls on it. You didn’t send textmapping, and no other bells and whistles. Now, virtually all major messages, you didn’t check your email, you didn’t surf the web.brokers have full-featured websites, allowing for multiple high-resolution photos, mapping, video, school reports, and everything Compare that to today: according to Pew Research, 85% ofelse. And major listing aggregators like Trulia, Zillow, and Realtor. Americans have a cell phone, and they use them withoutcom amplify the kind of online marketing that agents do for their limitation because they probably have unlimited talk minutessellers. throughout the country. Indeed, fully 45% of Americans even have a smartphone -- little mini-computers that they carry aroundWhat does this mean to you? Most importantly, it means that with them and get phone calls, text messages, emails, and evengood agents can really differentiate themselves from mediocre now video conferencing abilities.and poor agents by making full use of modern marketingtechnology. In other words, the old technology leveled the In other words, people have so many more ways to get in touchplaying field between good and bad agents, because all you had with you than they did even five years ago. Now, you might haveto do to market a listing was write a short classified ad, take a already adapted to the new realities of these communicationfew pictures, and load them into the website. You didn’t have a technologies. After all, you have a smartphone, you know howlot of opportunity to differentiate yourself in your marketing – to check your email every day, and you’re even using textafter all, how many different ways are there to write a four-line messaging to communicate with clients. That’s great. But here’sclassified and take a low-resolution photo of the front of the the new challenge – you’ve been using those communicationhouse? But now, marketing requires you to have a number of technologies in a market that has not had a high level of urgency.high-level skills: the ability to take good photos, to write good You’ve been dealing with sellers who had no expectations thatadvertising copy for your online description, and even make video you would be selling their home in a matter of days or weeks, andpresentations. Moreover, your implementation of those skills will with buyers who were confident that they could take their timebe amplified – the results of your marketing will be on display and wait for the right home to hit the market.24/7 not only on our site, but on all the competing broker sites,and on the aggregator sites. If you’re not good at marketing, But think about how these changes in communication technologythere’s no way to hide. People will know. are going to impact your life when you’re dealing with a seller’s