The Real Estate Market: Confronting the Realities with Strategy and Optimism
In this current housing climate, the Stockdale Paradox especially applies to real estate agents.
The Stockdale Paradox is a term coined by author Jim Collins in his book, Good to Great. It essentially goes like this:
“You must retain faith that, in the end, you will prevail, but at the same time, you must confront the most brutal facts of your current reality.”
The brutal reality is that the real estate slump is not going to get better anytime soon.
More impending layoffs, high unemployment rates, over 100,000 foreclosures expected in January alone, overbuilding over the past five years, declining home values, and tightening mortgage lending standards all point to some rough years ahead.
And there’s no question real estate agents are feeling the strain…
Lawrence Yun, a top economist with the National Association of Realtors, revealed the gross commissions for real estate agents are down 50 percent from their peak.
Not only is the real estate industry functioning with half the amount of money it did back in 2006, but the number of active real estate agents has only dropped by about 25 percent…
Between 2003 and 2007 when housing prices were skyrocketing, everyone and their mother went out to get their real estate license. Even though most fell out of the game, this gluttony of real estate agents affects commission even today.
To put this into perspective, let’s say there was $100 dollars of commission for every 100 agents at the peak. Now, there’s only $50 dollars for every 75 agents.
Interestingly, the rates of commissions paid to agents actually crept up for the fourth year in a row to an average of 5.29 percent of the sales price, according to RealTrends’ annual survey of the 500 largest brokerages.
But this means that even though real estate agents are actually working and charging more, they are still earning less.
With homes taking ten to twelve months, on average, to sell, increased expenses for web sites, home staging, and marketing, and falling home prices, the majority of real estate agents are struggling to generate enough income just to get by.
Money Out Of Mayhem
But, as the first part of the Stockdale Paradox teaches, things will eventually get better.
The question, however, is not if this present doom and gloom real estate reality will come to an end … it’s whether you can hang-on financially in the meantime.
If the housing crisis has taught anything, it’s that just relying on one-time only commission payouts to generate income is not the soundest strategy.
There’s no question that when the economy is strong, real estate commissions can be a nice payday and a handsome living.
But to secure yourself financially in any economic climate, it’s important to have more than one income source to tap in to.
Ward Johnson, a 15-year veteran of real estate sales, offers a perfect example of this.
“When the market was hot, I had more leads coming in than I knew what to do with. My office looked like a train wreck. I had boxes of business cards, sticky notes, names and numbers scribbled on cocktail napkins … it was mayhem!” laughs Ward, “But lucrative mayhem! I just thought I was disorganized and messy—which my wife has accused me of many times! Turns out, most of the agents in my office were often the same way.”
Back in 2005 Ward was so busy he barely had time to eat. He rushed from showing to showing, and open house to open house. He was making a killing financially, but the craziness was taking its toll.
Around that time Ward started looking at contact managers to help him better manage his leads and schedule. He wasn’t very savvy on the computer so he wanted something simple and user-friendly, but that would organize all his clients and prospects.
“I found one that really worked for me and it made a big difference. I was working less, earning more and building better relationships with my clients.”
Plus, the cherry on top was that the company that developed the customer relationship manager (CRM) software relied on “compensated referrals” for most of their marketing. So when Wade introduced the CRM to his fellow colleagues and they decided to take advantage of it for their own business, Wade was not only paid a small commission, but an ongoing renewal payout as well.
“I didn’t think much of it, actually,” says Wade. “It just really made a difference in how I was managing my business and it made sense to share that resource. The fact that they compensate me is wonderful, but I would have talked it up anyway. But I’ll be honest … that extra income has really helped me out during this real estate slump.”
Protecting Profits While Protecting Clients
Another pro-active agent, Jean Wellington, found inspiration for a secondary income stream from a devastating situation faced by one of her long-time clients. The clients, a married couple with two kids, were both in professional industries and had excellent credit scores. So it came as a terrible shock when they went to the bank for loan approval to build their dream home and it showed they were $375,000 in debt.
But it was not debt they had accrued. Someone had stolen their identities and had a hay day opening up accounts and racking up tremendous debt all across the US, Canada, and Mexico.
Not only did they have to delay building their dream home, but it took more than five years, time away from work, and a lot of anguish to recover their identity, and credit score. It also cost them dearly. Between attorneys’ fees and other out-of-pocket expenses, they spent over $100,000 to get their financial life back in order.
To raise awareness, Jean started talking to all her past and present clients about identity theft. More and more stories came out of the woodwork from clients and friends about their experience as an identity theft victim and the grief it caused.
What frustrated Jean is that she didn’t know what advice or solution to offer that would help. So, she started investigating.
After thoroughly evaluating all the identity theft protection services available, she decided on one that she felt was most comprehensive and that she’d feel confident offering to her real estate clients.
Selling this additional benefit strengthened her relationships with her clients because it validated that she wasn’t just concerned about a real estate transaction … She wanted to make sure her clients were protected long after they sold or purchased a home with her.
What both agents demonstrate is that opportunities are available to:
a) offer helpful resources, information and value to past, present, and future clients and
b) solidify and enhance your revenue in any economic climate
It’s important to take initiative by evaluating what would work for you, your clients and the area in which you live, and then … take action.
What are some other needs your clients may have related to buying and selling a home?
What are other real estate agents are doing to augment their income in the short and long term?