New markets require new approaches and tactics. More than 250 experts and industry leaders will take the stage at Inman Connect New York in January to help you navigate the market shift — and prepare for success in 2023. Register today.
On the off chance you have not noticed, the real estate market has changed. Significantly. Agents who want to succeed in the coming months need to understand a fundamental reality: Change now to confront the new reality or face the prospects of losing market share or, even worse, going out of business.
History informs us that when our environment is altered in any significant way, change is required to adapt to the new reality. History also reveals that those changes are resisted at first, then implemented slowly over time. The greater the event, the longer it takes to change.
If you want immediate change, however, it takes a galvanizing incident — a catastrophe of some sort — to jolt people out of complacency so they quickly make the adjustments necessary to deal with the new reality.
As we approach the 81st anniversary of the attack on Pearl Harbor, it is important to understand the attitude of most Americans at that time. World War II was in full swing in Europe and Asia and the American populace, aware that 116,516 U.S. citizens had been killed in WW1, wanted to stay as far away from the current conflict as possible.
Content with limiting their involvement to shipping much-needed materials to the front, they put up serious resistance to any idea of sending actual troops into harm’s way.
In a single, epic moment, just before 8:00 am on Sunday morning, December 7, 1941, everything changed. The horror of the surprise attack on Pearl Harbor and President Roosevelt’s galvanizing declaration, “This is a day that will live in infamy,” shook the nation out of its complacency and mobilized them to war.
With America in the conflict in both the European and Asian theaters, the Axis powers were constrained, the tide was turned, and peace was ultimately won. Ironically, an even larger number of Americans died in WWII than in the previous global conflict: When the final loss was tallied, the numbers came in at approximately 420,000.
Many believe that had the US entered the conflict much earlier, the war would have ended sooner and significant numbers of lives would have been saved. While possibly true, had the attack on Pearl Harbor not happened and had the US sent troops at the beginning of the conflict, it is possible that American involvement would have been less rigorous or transformational.
As it happened, the single event of Pearl Harbor was the catalyst required to transform the attitude of the entire country from complacency into action to mobilize the mighty war machine that ultimately shattered the Axis ambitions.
While we obviously cannot compare WWII to the current real estate market, the principles are the same. I think it is fair to say that the prosperity of the last few years has lulled many Realtors into complacency.
As it became obvious that we were entering a new reality, I began interviewing real estate agents across our region. One of the questions I asked was, “What changes are you making in your business to adapt to the new market realities?”
I was shocked to discover that the vast majority of agents interviewed had absolutely no plans for change: They were going to continue with business as usual. In fact, of the dozens of agents interviewed, only one felt that they would need to make changes and yet, even they did not know what those changes might need to be.
At the heart of the issue is resistance to change. Americans, watching the conflicts overseas, did not have the stomach to enter another war. As long as it happened on other shores, they were not motivated to make the changes necessary to engage in righting a global wrong. In the same way, many real estate agents today do not have the will or motivation required to make the changes necessary to successfully navigate their businesses through this new market.
Let’s face it: Change is hard. Jason Fried and David Heinemeier Hansson in their book, REWORK, state, “People are creatures of habit. That’s why they react to change in a negative way. They’re used to doing things a certain way and any change upsets the natural order of things. So they push back. They complain. They demand that you revert to the way things were.”
Change is required
For better or worse, change will happen in your life. We do not live in static environments. While some attempt to live with their heads buried in the sand, if we do not make necessary changes, we could actually die.
The recent pandemic is a great example: How many of us liked wearing masks and living in isolation? Yet we endured the necessary changes because the results of not changing were dire.
Another example is the rising cost of food. If we want to eat, we need to pay more than we did at this time last year. To walk into a supermarket and inform the clerk you will only pay last year’s prices for today’s food is not an effective strategy.
If you discover that your current job does not pay enough for the new higher cost of living, then you need to figure out how to generate more income to adapt to the new reality. In truth, the only certainty we have in life is that things will change.
The business landscape is full of examples of companies that did not change to meet the new emerging realities. Steven Sasson of Eastman Kodak developed the first digital camera, yet Kodak, who held the patent, failed to make the necessary changes in their business philosophy and were subsequently left in the dust as digital photography took off.
A few other epic examples were Blockbuster Video, Commodore, Radio Shack, Blackberry, Xerox, Yahoo, Compaq, MapQuest, Sears — the list of companies that failed to make the changes necessary to survive is a very long list.
Truth is, if you fail to change, changes around you will cause you to fail.
People resist change
At its core, change is about learning new habits to deal with new emerging realities. If things around us never changed, we would never need to change ourselves. It is about being educated to gain the tools necessary to move forward and succeed in a new environment.
I recently listened to a junior high teacher who helped clarify the concept of change. “This is why we put our children in school,” he stated. “As they grow older, more and more responsibility is placed on them to become productive members of society. Education is the vehicle to help children acquire the requisite tools to grow into adulthood. It forces them to change from children into grownups.”
The point my teacher friend made was this: While most children do not inherently like the challenge of growing and expanding their minds, at their core they understand that there is not just an expectation that they change, there is an actual need to change, to grow up.
They intrinsically know that their education is a process that moves them through levels of learning (change) that also has an ending point. As they migrate through the grades, they are faced with ever-increasing levels of difficulty designed to facilitate change.
Once they graduate from high school, they are then faced with the decision to continue to change (higher education) or move out into the world content with the level of education they have.
The problem is, children accept change more readily than adults. Their minds are more elastic and formative and they adapt to change more readily. Many adults, in contrast, after completing school and securing a job, no longer feel the need to continue to change. They may be required to do some on-the-job training, but once they have been in their position for six months or so, the perceived need to change goes out the window; they no longer need to change if they do not wish to.
Many take the habits of learning they endured while in school and consciously move on. They stop reading books. They stop learning. They enter purposeful stagnation. Many, in fact, sit in front of their TV for hours on end, bragging that they no longer need to learn.
While this may be OK if you choose to live the remainder of your life in your current situation, many are discovering that as they age, job security wanes. Change is necessary, like it or not. This is especially true if you are self-employed and own your own business.
Fast forward to Realtors in today’s receding market: Unless a real estate agent has the necessary cash reserves to make it through the impending recession, they will either need to make substantial changes to their business plan or plan to go out of business.
The problem here is simple: Based on my recent conversations with agents facing the new realities, most believe they will make it through without having to make any changes in their business practices. They do not see the next few years for what they really represent — the potential end of their business.
To succeed in the new reality, significant changes need to be made now. In fact, for some, it may already be too late. Here are three key steps:
1. Admit that change is necessary
This first step is critical. If your business projections are built on revenue models from before May 1, 2022, you are in for a shock in the coming months. We are seeing numbers from across the country of sales volume running at 50 percent or less than sales in 2021.
Additionally, some are projecting a decrease in sales of approximately 33 percent over the next 12 months. As confirmation, reports we have received from seasoned agents across the country indicate that many just went through the worst October they have had in over a decade.
If October was any indicator, then we are in for a long road ahead. In a recent conversation, Ben Kinney stated words to the effect of, “Plan on your worst month for profit over the last two to three years becoming the average profit going forward if you don’t make massive changes right now.” To stay alive and in the black, many agents are going to have to make some fundamental changes in the days and months that lie ahead.
2. Get help
In talking to agents, another discovery was that most do not have a cohesive game plan, do not know where the majority of their leads come from, did not know their transaction totals from the previous year, could not state where they were YTD and had no idea what they actually earn.
Most did not have a bookkeeper, did not produce a monthly profit and loss statement and, instead, relied on the numbers that showed up on their tax returns to tell them what they actually made in any given year. There was no monthly monitoring of expenses, no detailed cost analysis and no connection between the money they were paying for lead generation and the actual revenue generated by their lead sources.
When questioned about coaching or ongoing training, the answers were consistently the same: “We’ve thought about coaching, but cannot afford it right now.” That is comparable to driving a car for years without routine servicing because “it costs too much.”
Without professional help, many agents are doomed to repeat the mistakes they have been making for years. Some agents stated that they had attended seminars and training events. While this was good to hear, I happen to know something about the commitments that are made while sitting in a chair in a convention hall. The vast majority of those plans to change do not get off the plane with agents when they arrive home.
Well-intentioned, emotionally based plans are typically forgotten once the first crisis emerges and agents settle back into their established patterns of behavior. The books get parked on the shelf and begin gathering dust.
Rather than attending another conference, perhaps the better approach would be to use the funds expended on travel and accommodation to hire a competent coach that would analyze your business, recommend necessary changes and then hold you accountable to ensure the recommendations actually occur.
Once the changes begin to take effect, you might end up with the funds to not only continue with the coaching but attend the next conference, as well.
It would also be a good idea to hire a bookkeeper to keep your books up to date, produce monthly financial statements so you can accurately understand the state of your business and even receive recommendations on trimming expenses and maximizing your cashflow. A good place to start would be companies such as Streamlined Business Solutions.
3. Change now
If agents choose to blindly proceed as they have in the past, their expenditures will soon (if they haven’t already) outpace their income. As an example, those agents who have relied heavily on costly lead generation methods (Zillow leads, printed marketing flyers, etc.) may discover in the coming months that the revenue produced from those lead sources no longer justifies the high cost of securing the leads.
Teams that have large administrative staffs may also discover that their payroll expenditures can no longer be maintained. If you are doubting whether reductions are necessary, keep in mind that every major real estate company out there is busy laying off staff and slashing expenses. These companies are run by some very smart people and it would be prudent for solo agents and teams alike to pay attention to what is currently going on.
Additionally, with the number of transactions projected to be lower in the coming months, there will be more competition for fewer listings. If you are content to simply continue the behaviors that brought you transactions in 2021, you will be sorely disappointed in the coming year. In reality, you will need to double your behaviors to achieve half the results.
You will also need to switch to lead generation tactics that are high yield/low cost. As an example, over 50 percent of our transactions year-over-year come directly out of our database (sphere of influence or SOI). When comparing the cost of securing transactions from our database versus the price of Zillow leads, the difference is astronomical. For those agents who say, “Cold calling and knocking on doors just isn’t me,” maybe real estate in 2023 isn’t you, either.
Going back to the agents I surveyed, many did not have an active database. The few that did had, on average, fewer than 50 contacts total and the majority had no active plan to work or grow their SOI. With the industry baseline for an effective SOI at 200 contacts, these agents have some serious work ahead of them to catch up.
If a database of 200 worked for you last year, then you could anticipate that to get the same results this coming year, your database would need, at a minimum, 400 contacts.
As we are preparing to enter what many are projecting to be the worst year in decades, there is no better time to get ready than right now. Even as we are heading into the holiday season where many agents are going to be focusing on turkey and pumpkin pie, what better way to gain a competitive edge than to place your focus on the changes necessary to set the stage for running lean and mean in 2023.
While change is seldom easy, it is always necessary. In the current season, I would even elevate it to critical.
Carl Medford is CEO of The Medford Team.
