See that image at the beginning of this post? That is exactly what many real estate agents do when the market shifts. They exit the business, because the low hanging fruit is gone. What are you going to do to prepare for the next shift in real estate, so you aren’t heading for the exit as well? Are you going to bury your head in the sand and pretend it’s not happening? Are you going to bitch, piss, and moan that it’s “too hard” to sell homes in this kind of market? Or are you going to be a student of the game, sharpen your skills, cut back inflated expenses, so that your net profit stays steady…and grow.
Yes, I said it, GROW.
From 2007-2011 we saw one of the biggest real estate crashes in history. Many agents were wiped out completely. Some went back to their previous careers before becoming an agent. Others just found whatever job they could to hold them over. However, there was a group of agents that did something a bit different. They grew. They grew in volume, income, and talent on their teams. They grew in knowledge, skill set, and fortitude, as well.
In 2009, Gary Keller wrote the definitive book on how to handle the changing market. Shift: How Top Real Estate Agents Tackle Tough Times, not only became a best seller, but the advice that was put into play back then, is going to come back into play during our next market downturn. Make no mistake, the next shift is coming. At this year’s Family Reunion, the international conference for Keller Williams Real Estate, Keller was again began to warn us of the upcoming shift that will take place. All the key indicators are beginning to show once again. Keller told KW agents back in 2003-2005 that we needed to prepare, that the market was going to fall out from under us. The agents that took him seriously are some of the top agents in the industry today. Most of the rest make one hell of a latte at Starbucks. We are most likely 6-12 (some say 18) months away from the next real estate game changer. Will it be a correction? Will it be a mini bubble burst? Will it be another crash like we saw a few years back…or worse? Unfortunately, it is too early to tell, but one thing is certain, we need to be ready for the next real estate shift.
In his book, Gary Keller begins by talking about market shifts and then goes through the 12 tactics all of us should implement, especially when the market changes gears on us. Today we will talk about the shifts in real estate, and in parts 2 and 3 of this post we will cover those 12 tactics.
Gary Keller begins by explaining that while shifts are rarely predictable, they are never unexpected. Real estate is a cyclical business, with constant up and down markets, spattered by a few neutral markets as well. So since we know when prices are increasing, and demand is outpacing supply, we can be certain of one fact: sooner or later, it’s going to reverse course.
Keller goes on to say that we should not be surprised that shifts happen. In fact, they happen all the time in many markets in a more subtle way, known as seasonality. In many markets, there are certain months of the year where we tend to see stronger markets than other months. For us hear in the North East, our Spring Market tends to be the hottest market of the year, the time we make the most money. In contrast, our Winter Market is typically our slowest market, and smart agents budget their cash flow accordingly. These season cycles happen every year.
Economic shifts, on the other hand, happen over several years, according to Shift. So you feel your season cycle over a period of months, while you feel the economic shifts over a period of years. The seasonal cycle everyone has become accustomed to, and recognizes it as business as usual. While the economic shifts feel completely unnatural, and can feel very overwhelming. Part of the reason for this, is shifts in the national markets are misleading. They seem to happen gradually, over time. In sharp contrast, local shifts tend to happen very suddenly and dramatically.
What are some of the factors that can cause a shift?
Globally, currency exchange rates and political climates are usually the key culprits, according to Keller, while on a national level, it is usually interest rates and inflation. Shift goes on to point out that population, jobs, and household income are the main factors at the city level, while neighborhood dynamics and housing prices are what hits us at the very local level.
The Law Of Equilibrium
Keller goes on to say that agents have to overcome the fear of shift in order to pull ahead. He states that we are in an equal opportunity, unequal reward business, that 20% of the agents will get 80% of the business. (Note: From my personal, local perspective, I believe this has shifted even wider, and that 5-10% of the agents are, or will be, getting 90-95% of the business through this next shift and beyond). Keller states that agents have to beat two tests in a shift…first they have to survive (overcome the fear) and then they need to thrive.
According to Shift, once the Law of Equilibrium kicks in, it becomes opportunity time. So what exactly is this law? Well, simply stated, the available income in a market dictates the number of agents in that market. So when the market is hot, and everyone is buying homes, more “agents” flock to the market because of the perceived easy money. On the flip side, when things dry up, and competition stiffens, many of those agents leave in a hurry. Keller goes on to explain that perception tends to trail reality, and this causes an income lag, well two income lags to be precise. The first happens as the market dries up and there are more agents still chasing less income. They haven’t figured it out yet, that the market has tightened on them. the opposite lag is the up-lag. By now, most of these opportunistic agents have taken to becoming top rate baristas, as the market shifts and transactions increase, there is now the least amount of agents chasing the most amount of income. Thus, if you can survive the down lag, while most agents are getting out of the business, (the first test), you have a tremendous opportunity to thrive (the 2nd test) when the market turns and there are still a low amount of agents chasing much more business.
So why do so many agents have some of their best years during a market downshift? Because they are able to shift gears ahead of the market, and do not wait for the shift to happen to them. They adapt to new markets quickly, and thus are able to not only survive, but to get ahead of the market and when the up shift comes, as it always will, they are able to thrive. Resiliency is the key here.
I will leave you with this quote from the book: “Most people fear a shift because they don’t understand the Law Of Equilibrium. They can’t shift their thinking, so they can’t shift their tactics.” Now that you understand the need to view a shift from a strategic business perspective, we can focus next week’s post on the tactics you will want to employ.