There are three things in real estate we can count on – a headwind, a tailwind and no wind.
We’ve just come off the biggest tailwind I’ve seen in my 30 years in real estate and, without a doubt, we’re transitioning into a headwind. You can feel the winds of change in the air.
And while we don’t have to deal with it right now, we’re likely facing a market with no wind, and no growth, sometime in the future.
But for now, principals, directors, sales managers, and team leaders face the challenge of coaching your agents through what could be their first headwind.
At The Agency, we started planning for this day about six months ago. We knew change was on its way, and we wanted to be ready.
Now, you can’t turn back time to prepare early, but you can start now, and I’m going to break down what you need to monitor and act on to see your agents and your business through the headwind.
Days on market
One of the first statistics to analyse is days on market as it is usually one of the first indicators the market is shifting.
Days on market blowout when a market softens. What was once a 28-day auction marketing campaign with a 42-day settlement might now mean a property passes in and then takes a further six weeks to sell.
Why is this important? It all comes down to cash flow in your business. Longer days on market mean it takes longer for your income to hit your bank account.
If you have a strong rent roll, this may not be as pertinent to you, but if you’re a strong sales business and rely on that income, you’ll need to have a contingency plan.
In a softer market, clearance rates will drop, and there are two reasons why.
- Fewer buyers. We’re coming out of a market where we averaged about five active bidders per auction, but some had up to 12.
With interest rates rising and buyers’ borrowing capacity falling, there might only be one or two bidders at auction.
- More properties. Now that market conditions are changing, vendors sitting on the fence will likely decide to list now, before the market falls more.
More listings equal less competition and, usually, lower prices.
As a leader, it’s your job to help your agents navigate the choppier waters and connect with buyers and sellers with the right dialogue and empathy for their current situation.
The good news is there’s always going to be someone that needs to sell and that needs to put a roof over their heads.
There will still be many sales done; the only question is how many of them will be yours?
A falling market is a perfect time to build market share. So now is the time to cut dead overheads and put that money into staff and marketing because the more staff you have, the more market share you can take.
Agents who don’t understand a tight or falling market will start putting off staff.
But if you’re there and have doubled down on your marketing, social media, and team numbers, you’ll be the most visible.
Owners look for who is making the most noise in a market that’s coming back. They don’t list with someone silent.
Invariably, you’ll face a few objections from vendors and buyers in a falling market, so knowing what to say and do in those situations is critical.
Price and timing
When a vendor decides to sell, it’s usually after thinking about it for six months. The trouble with this is, that’s when they do all of their research, including what other comparable homes sold for.
That means the data they have in their minds and what they think their own home is worth are outdated.
So you need to arm your agents with the knowledge and dialogue to coach and reeducate their vendors that while the market is not as heated as it was six months ago, there are still good prices today that might not be there tomorrow.
I coach our agents to use the analogy of an escalator in a shopping centre travelling from level 2 down to level 1.
A vendor gets on the escalator when they think about selling, but by the time they’re ready to list their home, the price they could have gotten six months earlier has now moved halfway down the escalator.
You need to explain that they don’t want to chase the escalator, the market or the price down any further.
Two price strategy
One way to tackle the price problem is to coach your agents to provide their would-be vendors with two prices.
What their home is worth now, based on data from the last month or two (but no longer than three months), and what their home will likely be worth in a few months.
What I’m guiding my agents to say is, “We think we can get you $1 million today, and here’s the evidence why. But, if you wait and interest rates keep going up, you might need to consider somewhere between $900,000 and $950,000”.
A personal approach
The final thing we’re coaching our teams on right now is taking an in-depth look at their lives outside of work.
When the market is hot and you’re in the midst of a super run, you might extend yourself and buy an extra car, take a family holiday or buy a jet ski.
But in a market that’s slowing, it’s better to invest in staff to grab more market share.
It’s more important to have two co-agents than two jet skis.