Turn Any Market into a Go

What are consumers thinking?

February 1, 2007

Admit it. You kind of hoped it would last forever: rising prices, multiple offers for every listing, selling times measured in days or even hours.

After five years of record breaking sales, today’s shifting markets may come as a relief.

But it’s also a little scary, especially for practitioners in those limited number of markets where prices are falling significantly. Let’s be clear: Most markets are a far cry from depressed, especially when compared with 1982, when the 17 plus percent rate on a 30 year fixed mortgage and a 13.8 month supply of homes combined with a slow economy to make the perfect housing storm.

Still, it’s definitely a different world. In some markets, consumers appear to be taking a momentary breather from housing while they consider the future direction of home prices and interest rates. Real estate salespeople in some parts of the country are confronting a selling environment that’s different from the one they faced even six months ago, and many aren’t sure how to shift gears.

“Now may be the best time to buy a home,” says Jim Colhoun, Prudential California Realty, Lafayette, Calif.

“There’s a whole crop of people in the industry now who’ve never experienced a normal market, let alone a down market,” says Chris Pollinger, a broker and in-house sales coach for RE/MAX Real Estate Services in Newport Beach, Calif. “They think listing a house on the MLS and selling it 48 hours later after receiving multiple offers is normal.”

“People are starting to panic a little bit because suddenly the market forces they’ve been relying on for the past few years have changed,” says Sean Conlon, founder and partner of Century 21 Sussex & Reilly in Chicago. “But there’s still business to be had out there. Salespeople just have to approach it in a different way.”

Recently REALTOR® Magazine talked to a number of salespeople who are doing just that--recognizing that every market offers opportunities. These go-getters are jumping right into the new reality; some are even having their best year ever.

Get buyers off the fence

Perhaps the most important new dynamic is the power shift that has occurred between buyers and sellers. The ramifications of this shift reverberate through almost every area of a salesperson’s business.

“Over the past few years, you didn’t worry about finding buyers. You assumed they would come if you had listings,” says Louisa Enz, ABR®, a broker with Stark Co., REALTORS®, in Madison, Wis. Today, however, it’s more of a buyer’s market. According to National Association of REALTORS® research, the monthly supply of home inventories rose from 4.9 months in October 2005 to 7.3 months in November 2006. Extensive media coverage of the housing bust has also created a wait-till-it’s-cheaper mentality among some buyers.

For buyers, of course, this is good news. “The paradox is that now may be the best time to buy a home,” says Jim Colhoun, sales associate of Prudential California Realty in Lafayette, an East Bay suburb of San Francisco; Colhoun’s 2006 sales numbers are ahead of last year’s. “The fundamentals increased inventory, more room to negotiate, low interest rates — are actually very good for buyers right now.”

NAR is getting this message out to consumers through its “Buy Now” advertising campaign, which was launched in November 2006.

So far, buyer traffic open houses, walk-ins, and ad inquiries remains down, say practitioners. But that doesn’t mean there’s no business. “You have to know your market and what’s happening there,” says Stephen Johnson, GRI, broker-owner of Dealers Real Estate and Land Office Inc. in St. Francis, Minn., a suburb of Minneapolis. “Even in a slowdown, housing in some communities sells faster than in others. You have to find those areas and focus on them.”

An active market right now is buyers who’ve been ignored or overlooked in the past few years,” says Pollinger. “For instance, first-time buyers and people who have had some credit problems in the past but have worked to overcome them are great targets. They’re ready to buy. And now you can talk frankly to sellers about making some concessions to make those deals happen.”

According to Traci Smith, president and owner of Century 21 Smith & Associates in San Antonio, “Now is a great time to call people in apartment complexes and offer to do a rent-versus-buy analysis for them.” Driven by empty nesters and Gen Y’s, apartment demand has increased steadily for the last 13 quarters (through October 2006), according to the National Multi Housing Council. Typically as demand rises so do rents. So the results of such an analysis will be more positive than any time in recent years.

If you can’t sell renters a house, maybe you can rent them their next apartment. Salesperson Marsha Cook of South Beach Investment Realty Inc. in Miami has developed a lucrative side business as a rental agent. “I rent luxury properties in the South Beach area that start at about $2,600 a month and go much higher. The commission rate is usually about 5 percent. I just picked up a commission check for $600. If you can do a couple of those deals a month, it’s a big help,” she says. Cook, who started selling real estate two years ago, says she finds rental work considerably easier than selling homes because there’s no mortgage approval step involved.

Another readily accessible pool of buyers in the current market is more experienced real estate investors. Talk of a bust has scared off the come-lately investors, but “when the market slows down,” says Smith, “it’s a spectacular opportunity to pick up discounted properties.”

The investor boom is also being driven by demographic trends. “There are a lot of baby boomers who are starting to inherit money from their parents’ estates. They want to invest it wisely, and real estate, historically, has been a very good investment,” says Pollinger.

“I’ve got probably 11 investors I’m working with right now,” says Cindy Brandt-Buroker, a sales associate with Prudential One, REALTORS®, in Troy, Ohio. “Most are looking for HUD [U.S. Department of Housing and Urban Development] houses they can fix up and flip. Investors are usually much easier to deal with than regular buyers because it’s basically a numbers game. It really comes down to, ‘Here’s the house; this is what I’m going to put into it; this is what I need to get out of it; can I get it?’ ”

Pick and choose your listings

As days-on-market stats have risen, especially in some formerly hot markets, such as the East and West coasts, listings aren’t exactly hard to find today. In fact, many salespeople say they’re making some tough decisions about which listings to accept and which to pass up.

“It’s very expensive to have listings today,” says Cook. “Longer selling times mean much higher advertising costs.”

Says Johnson: “I limit the number of listings I carry to about eight today because I know what it takes in terms of time and money to market them.”

Some salespeople say they’d rather sit out the first listing round entirely. “If you don’t get a particular listing the first time because you’re honest with the seller about the price, just wait until it expires. It might be best to get it the second time around because that’s when the sellers are more realistic about price and selling time,” says Enz.

An upside to this situation is that commissions actually seem to be strengthening. “In the past few years,” says Pollinger, “salespeople often had a hard time justifying their commission because in many cases they had a listing for only two or three weeks. Now, however, commissions are going up because of the dynamics of the market.”

Use creative financing for sellers

Salespeople are also dealing with increasing numbers of “upside-down” sellers today that is, sellers who owe more on their mortgages than they can reasonably expect to make on a sale. Having the skills to make the numbers add up for a seller can get you a listing and a sales price that fits the market.

“There’s a lot of pain out there with sellers right now,” says Glenn Bill, co-owner of Century 21 at the Crossing in Indianapolis.

Sometimes the best advice a salesperson can offer an upside-down seller is, don’t move stay put for another year or so until the market recovers.

In other cases, it’s possible to balance the old sale with a new one. “What sometimes happens is that an upside-down seller will go to a builder and say, ‘I want to buy a new house, but I’m upside-down $5,000 or $6,000 on my old house,’” says Bill. “The builder then comes up with an incentive — maybe he agrees to pay the salesperson’s commission to cover the difference.”

Of course, sometimes matters have progressed beyond such relatively painless solutions to foreclosures and preforeclosures, both of which represent significant opportunities for salespeople.

There’s a crucial difference between the two: The former involves working with banks to dispose of properties they have acquired as a result of mortgage defaults. The latter involves striking a deal between a seller and a mortgage company that allows the seller to walk away from the property before foreclosure.

Brandt-Buroker had been doing foreclosure sales for a while when she decided to get more aggressive about it about a year and a half ago and hired a buyer’s agent and an REO specialist to concentrate on that segment. “It’s a steady source of listings and one of the main reasons I beat my 2005 numbers last year,” she says. With foreclosures and delinquencies on the rise, this niche will probably offer business growth opportunities during 2007.

According to the Mortgage Bankers Association, the delinquency rate for mortgage loans on one-to-four unit residential properties stood at 4.67 percent in the third quarter of 2006, up 28 basis points from the second quarter. The percentage of foreclosures in the third quarter was 1.05 percent, up six basis points from the second quarter.

Preforeclosures, or short sales, as they’re sometimes called, are somewhat more complicated. Explains Johnson, “What usually happens is that you negotiate a settlement with the mortgage holder usually a bank to prevent foreclosure.”

A typical settlement is having the house appraised and asking the bank to accept that amount, even if the seller owes more on the mortgage. Most banks agree because it saves time and money by avoiding the foreclosure process. The upside for sellers is that they walk away free and clear with their credit intact.

Because both foreclosures and preforeclosures are legal actions that require public notice, newspapers and the Internet offer easy ways to look for prospects. “I call an owner facing foreclosure and offer to help sell the house first,” explains Johnson. For both foreclosures and preforeclosures, commissions are about the same as for traditional sales. The one difference is that banks will sometimes guarantee some kind of minimum commission for low-end properties.

Johnson adds that “if you’re not teaching your salespeople how to do short sales, you’re not full service in today’s market.”

Hone your selling skills

No matter what kind of buyer or seller you’re dealing with, however, salespeople are having to dust off selling skills and tools that fell into relative disuse during the heady days of the boom.

“Correct pricing is paramount,” says Colhoun. “Two years ago, you priced something with the expectation of setting off a bidding war and possibly making a deal for $100,000 more than the asking price. Now, however, the goal is to set a realistic price that will lead to a successful negotiation with a buyer.”

Some sellers are already getting more realistic in their pricing, says Enz, and even more are willing to consider a reduction after the first 60 days if they haven’t had an offer.

To price it right, consider not only recent comps but also the direction the market is moving and how quickly the seller needs to dispose of a home. “Instead of doing one market analysis when you first list the home, you may have to go back to the seller every two or three weeks and say, ‘I know we priced your home at this much, but the market is changing. If you want to be competitive, we have to be more realistic about the price,’” says Smith.

And once you price it right, you’ll have to do a lot more to get buyers through the door. “During the past few years, many salespeople got lazy when it came to marketing,” Pollinger says. “After all, when there are only six houses on the MLS in your price range, you don’t have to be a genius to get traffic through a listing. But it’s a different story when there are 600.”

One tactic that’s suddenly back in full force is incentives. Partly this is an attempt to avoid price reductions (compounding the problem of pricing it right). Partly it’s about distinguishing your listing from all others in the area.

“Everybody’s trying something different,” says Cook. “I’ve got a seller who’s offering two years of free condo maintenance. Since the monthly fee is $500, it’s actually a pretty substantial incentive.”

“We’re seeing everything from a new Ferrari at the very top end to a plasma TV at the lower end,” says Pollinger. “When you do the math, it’s still cheaper than dropping the price 5 percent.”

The current shift is also highlighting the primacy of the Internet as a marketing tool. “Print advertising is something I’m dubious about right now,” says Colhoun. “In my area, it’s priced out of proportion to its benefit. All my customers use the Internet, and that’s where I’m directing more of my marketing efforts today.”

“One of the things I do regularly is check out where my listings come up on the MLS,” says Johnson. “If there are three pages of houses priced at $269,000 and I’m on page three, I may ask the seller to let me change the price to $267,000. Then the property will come up first in that price range.”

Another way to get your listing noticed is to be sure your description is complete, adds Johnson. For example, if your listing is near a big employer or a great school, be sure to mention it in a way that sets the home apart.

Targeting also becomes more critical in a shift, says Smith. She uses direct mail over newspaper ads because it can be focused more closely on one group. But you can’t just mail one postcard; you have to send seven or eight mailings to have an effect, says Colhoun.

Whatever niche or strategy you choose, the most important thing to remember is that “you can’t panic about a slowdown,” Colhoun says. “You have to have a plan in place and stick with it. Stay in touch with your clients. Make sure you’re the first person they think of when it comes to serving their real estate needs.”

Sidebar: A little perspective

It’s hardly news to anyone who’s been in the field for a while that real estate is a cyclical business. In fact, if you review the history of the industry since the 1970s, a slowdown every 10 years or so is more or less the norm.

“When I started in the business in 1991,” says Stephen Johnson, GRI, broker-owner of Dealers Real Estate and Land Office Inc. in St. Francis, Minn., “the interest rate was 11 percent, and if you listed a house and it sold within six months, you felt as if you had done a good job.” That’s why Johnson doesn’t view current market shifts with much trepidation. In fact, his past experience gives him a head start this time around. “I’m returning to some of the same methods that worked for me last time, like intensifying my marketing with more frequent direct mailings,” he says.

The worst period in modern memory was undoubtedly the late 1970s and early 1980s, when interest rates soared to 17 percent and an overall economic recession gripped the country. After a record 3.986 million units sold in 1978, sales didn’t reach that level again until 1996.

“The early 1980s were the toughest period I’ve seen,” says David Short, a salesperson with Century 21 at the Crossing in Indianapolis, who began selling real estate in 1974. “We did FHA loans at 17.5 percent, but we didn’t do very many of them.”

In an effort to neutralize the higher rates, Short and many other salespeople relied on “creative financing techniques.” One of the most popular was the land contract, whereby the seller essentially carries the financing and retains title to the house until the mortgage is paid or refinanced when rates fall. Today’s relatively low interest rates don’t require such extreme measures, but working with sellers to sweeten the deal with better terms or giveaways taps into the same set of techniques.

Another problem of two decades ago was limited financing options. “In the early 1980s, there were three basic financing options: 10 percent down, 20 percent down, or cash. Today there are hundreds of different loan programs that make housing more affordable even with today’s higher prices,” says Sandy McReynolds, a broker-associate with RE/MAX Executives Plus in Decatur, Ill., who began selling real estate in 1973.

And while the number of sales associates might have been lower (NAR’s membership in the mid-1970s was some 400,000, compared with 1.3 million today), so were the housing inventories.

“In those days, housing was scarce. If you had five or six listings, you had a boatload,” recalls Short.

With a perspective only time can bring, these experienced REALTORS® see current shifts with the exception of a few hard-hit areas as manageable by comparison.

“It’s just not as bad today,” says Bonnie Clement, a broker-associate with Realty USA in Williamsville, N.Y., who started selling real estate in 1978. “Good houses still sell, and the ones that are priced right sell immediately.”

Robert Sharoff is an architectural writer for The New York Times, Washington Post, Chicago Tribune, and Chicago Magazine. With photographer William Zbaren, he has produced books highlighting the architecture of Detroit and St. Louis. He is a former senior editor with REALTOR® Magazine.