“Profiting When the Market Turns South “

October 15, 2006 — Leave a comment

by Bernice Ross, MCC

Are you ready to cope with more competition for fewer transactions? Shifting your strategy now can keep you in cash while your competition scrounges for pennies.

Like the stock market, real estate is cyclical. Given the costs of the war with Iraq, there is a high probability the government will finance part of its cost through increased borrowing in the form of government bonds and Treasury securities. While this is great news if you have money in the bank, it may be very bad news for those of us in the real estate industry. If the government competes for a limited amount of investment money, this normally drives up interest rates. I’ve personally experienced the real estate crashes in 1980 and 1990, and each time, as rates increased, we shifted from being in strong seller’s market to very difficult buyers’ market. In case you’re not familiar with what this will do to your business, here’s a brief synopsis.

The best of all markets is a flat or even market. Here you have a balance between available listings and available buyers. Prices are stable. A seller’s market occurs when you have too many buyers and not enough inventory. This drives prices up. In contrast, a buyer’s market is the hardest type of market in which to make money because there are too many listings and too few buyers. This causes downward pressure on the prices. Given the current state of affairs, there is a high probability many places in the country will soon be experiencing a strong buyer’s market.

Instead of being ambushed by an unexpected change, here are several strategic adjustments to make to keep you profitable when the market turns south.

 

  • Master market statistics. Are prices in your marketplace going up or down? How many months of inventory are currently on the market in each of your service areas? Commercial brokers can clearly describe exactly how many months of inventory are on the market, price per foot statistics, as well as what percentage prices have increased or decreased in the last 6-12 months. Unfortunately, most residential agents simply are unable to calculate and use these numbers to obtain realistic listing prices. Being able to explain “what the numbers mean” to your buyers and sellers is the most critical skill needed to survive during a changing or down market.
  • Back to Basics! I made great money in the 1991-92 down turn because I developed a niche representing foreclosure properties and could clearly show sellers how much they were losing each month by holding on to their property. In a down market, knowing the fundamentals is critical to survival.
  • Upgrade your technology skills. Like it or not, organizations like Yahoo, MSN, and other web based real estate companies are whittling away at the market share of “traditional” agents. Couple this with a market downturn, there will be even fewer opportunities for “traditional transactions.” If you haven’t implemented call capture technology in your advertising, a web site that actually generates leads, or joined a web referral service such as www.Homegain.com, you may have significantly fewer closed transactions in 2003 than you did in 2001 and 2002.
  • Be willing to quickly adapt as the market changes. For example, if you’ve been in a Sellers’ market and listings stop selling, stop prospecting for new listings. Instead, focus on obtaining buyers by holding more open houses, working with people or companies who are relocating, and working with a “niche” such as “newly married” (or going through a divorce.) The objective is to work with individuals who have the highest probability of buying.
  • Prospect for first time buyers. In most down markets, the last segment to feel the impact is the first time buyer market. The best way to locate first time buyers is to prospect high-end rental apartments and rented houses for potential buyers. These individuals have nothing to sell and hence, are easier to “take to the bank.”
  • Watch the sales board. If a certain area in your marketplace is significantly more active than others, prospect for listings and hold open houses (even if they aren’t your listings) in that area. The goal is to focus your efforts on areas experiencing the greatest number of closed transactions.
  • Be even more diligent in working your sphere of influence. Since solid referrals are more difficult to obtain, regular contact with your sphere maximizes the probability you’ll receive the referral rather than someone else.
  • Be a fanatic about lead follow-up. When market conditions are lousy, you can’t afford to let viable leads slip through your fingers.

 

 

Remember, the key to surviving a down market is to carefully choose where you spend your time and money. By watching what’s selling, shifting your strategy as needed, and remembering to keep focused on the fundamentals, you’ll keep your income steady and strong no matter what the market does.

If you’re having a challenge in this area, please Email us at coach@RealEstateCoach.com to arrange for a complimentary coaching appointment with our wonderful team of coaches.

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