The Paradigm Shift: Making the Most of a Changing Market

Real estate is a zero sum game. There are only so many homes bought and sold each year. And while the market is undergoing a fundamental shift, one thing holds true: 20% of the agents still do 80% of the business.

As the market continues to adjust and the real estate recovery slows, the number of available deals and qualified buyers will continue to shrink. It is an unintended consequence of this particular real estate cycle.

And with the dearth of first-time buyers looming, this slowdown may take even a greater toll on agents who are new to the business or those who treat real estate as a "second career."

In its latest report, the National Association of Realtors® said that total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent to a seasonally adjusted annual rate of 5.15 million in July from a slight downwardly-revised 5.03 million in June.

While sales are at the highest pace of 2014 and have risen four consecutive months, they remain 4.3 percent below the 5.38 million-unit level from last July, which was the peak of 2013.

Lawrence Yun, NAR chief economist, said he believes sales momentum is slowly building. "The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market," he said. "More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise."

However, Yun does warn that affordability is likely to decline in upcoming years. "Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy," he said.

Monetary policy that has led to falling real wages and a huge jump in under-employment is adding to the gap between potential buyers and appreciating properties. With banks relying on stated-income loans, the amount needed for a down payment has been soaring.

As you can see from the real estate cycle, we are in Phase 2 of the recovery and should be headed into Phase 3. However, this recovery is facing challenges. Instead of a jump in first-time buyers and a boom in new home construction, we instead are seeing higher prices, declining affordability, fewer qualified buyers and a drop in new home construction.

And with a new wave of HELOC loans coming due, look for foreclosures to begin to increase again.

While NAR remains upbeat, agents in the know can see the market changes already beginning. Marty Rodriguez of CENTURY 21 Marty Rodriguez in Glendora, CA, is the all-time Team Sales leader in the history of CENTURY 21 and a member of the Hall of Fame.

"The market is crazy right now, Rodriguez said. "It is so hyper-local with multiple offers in some markets and homes sitting on the market in others. It is a time when experience and local market knowledge is critical."

Rodriguez – who has been through a number of downturns during her distinguished career -- said many of today's agents aren't prepared to deal with the complicated conditions and the structuring of transactions.

"I just had a deal last night with an offer that was so poorly written, I had to take the agent aside and asked her to let me assist her so we could get the deal done. Fortunately, she was willing to listen. I pride myself on never letting a transaction get away."

As the market changes, agents have to be ready to adjust. Unfortunately, by the time the market changes, it's too late for many agents. Here are Marty's tips for agents who are to survive in this changing real estate market.

• Get Back to the Basics – There is no replacement for hard work. You have to put in the face time. Walk the walk. Know your market better than the people who live there. It's the little things that count.
• Lead Management – Our team prides itself on following up on every lead through every resource we have in place... and we have many websites. We stay with them until they buy or die. Seriously, these days every lead is critical. And response time is key."
• Increase Targeted Marketing – When the market is uncertain, the tendency is to pull back and cut spending. However, marketing is more important than ever and you can get great buys during these periods. As usual, tracking is key.
• Know Your Clients – Today's mortgage marketplace is all about pre-qualification and earnings ratios. Your relationship with your lenders is critical during this cycle.
• Find a Mentor – Having an experienced colleague to lean on is a tremendous resource. You don't know what you don't know. Work out an agreement that is fair to both.
• Systems and People – You are only as good as the service you provide. Having the proper people and systems in place is critical when things get crazy.
• Closing The Deal – Never let a deal die due to a poorly structured contract or mistakes by an inexperienced agent. Use your knowledge and negotiating skills to create contracts that will be approved.

If you are looking for additional support, NAR has a complete section of surviving in a slow market FREE for members, including handouts for consumers, articles, tips for buyers and a series of articles featuring real estate leaders explaining how they manage during the upswings so they can better withstand the inevitable downturns.

All of the aforementioned suggestions and ideas need to be looked at when sitting down to create your marketing plan. Each plan should be a reflection of you and your business model, whatever it might be. Remember, this is only a beginning and these are just the fundamentals and a place to start.

The key is staying one step ahead of the curve.

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