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FOR AULD LANG YARD SIGN: WHY 2008 CAN BE A HAPPY NEW YEAR IN REAL ESTATE

CRB Management Issues and Trends
A Publication of the Council of Real Estate Brokerage Managers
Winter 07-08

Experts Discuss Innovative Ways to Weather the Changing,
Challenging Market

By Chris Ryan, Coles Marketing Communications

Subprime mortgages. Massive home-loan defaults. Foreclosures.
Record bank write-offs. A glut of home inventory.

2007 was the year of real estate doom and gloom in the news. Since then, nearly everyone has become an expert at looking back at 2007, pointing to short-term numbers and a falling sky to aid their arguments about just how bad the market has become.

There is a silver lining, though. Real estate experts and successful brokers, owners and managers are looking ahead, applying lessons learned to adjust for 2008 and beyond.

“Brokers who are doing OK today are identifying opportunities through education and networking,” said Lou Ludwig, CRB, CRS, GRI, CIPS, e-PRO, founder and president of Ludwig & Associates, a real estate sales and management training and consulting firm based in Boca Raton, Fla. “They are proactive, not reactive. Unfortunately, we’re being too reactive right now. People are reading too many negative news articles.”

While there’s no question the market has been a challenge for many U.S. real estate professionals, effectively adapting remains a mystery to many. Riding out the lean times, according to Ludwig, just won’t work like it did in the past.

“I don’t think that you can, in a traditional fashion, ‘ride it out,’” he said. “A lot of the methods and techniques we’ve used in the industry over the years have changed. They will not get you where you have to go and will just create more challenges and difficulties.” Ludwig believes it’s important for brokers, owners and managers to sharpen their own skills so that they can better lead and motivate their agents.

“Education programs not only bring your education level up, they create the opportunity to talk to people who have the same issues as you across the country,” Ludwig said. “That information exchange is critical for the broker today because then the broker realizes they’re not the only one facing the issue.” In addition to the comfort that knowledge might provide, it also serves as a way to change one’s perspective on the state of the industry.

“Go to the Inman and RISmedia conferences,” said John Reinhardt, president and CEO of Fillmore Real Estate in Brooklyn, N.Y., the largest privately owned and operated real estate firm in New York City with more than 500 agents and 17 offices. “Conferences like that have helped us grow and stay on the edge and anticipate. When situations come up, we can react more intelligently to them. We are prepared, not surprised.” Even if an agent stumbles in this new posture, Reinhardt said, the educational experience is still quite valuable.

“If things you hear at a conference don’t pan out, the flow of conversation with your peers is still beneficial and extremely healthy,” he said. In addition to upping the education ante, Ludwig sees 2008 as a good time to look closely at how you conduct your business.

“What we’re facing today is opportunities disguised as challenges,” he said. “Despite the everyday issues, it’s a phenomenal time to create opportunities by adding an edge to your business practices. Look within marketplaces for what niche opportunities are available.” Nationally, Ludwig cited big opportunities with international customers looking to buy in the United States, commercial office space and the biggest: selling excess builder inventory.

“We have the resources through the MLS and networking to get those sold much quicker than the builders,” he said. Each market will come back at a different time and at a different pace, according to Ludwig, which reinforces his advocacy of “niche-ing.” On the buyers side, despite subprime woes, significant opportunities still exist.

“The market will come back by market niches, products and price points,”
he explained. “Maybe the entry-level housing market will do well [in 2008]. There’s a 50% divorce rate. People coming out of marriages are buying real estate.” In addition, Ludwig said, the Federal Housing Authority has revised its lending program. Depending on where you live in the country, the new FHA programs will allow people to get into housing who might have been in the subprime market before its problems began. “We also have a large veteran population,” he added. “Between FHA and [Veterans Administration] loans, there is a lot of financing available for a big block of people in the country today.” Another critical step for firms to take, experts like Ludwig say, is to become leaner and focus on offering agents what they most want — which isn’t always money.

“I think love goes a long way,” said Esther Muller, a 30-year broker and
co-founder and master teacher at New York’s Academy of Continuing Education (www.realestateacademy.com), one of New York’s leading continuing education programs for real estate professionals. “I used to think giving awards was nonsense, but you know something? I coach some of the top agents in [New York City]. After a while, it’s not about money for them. It’s about recognition, power and accomplishment.”

She recommends brokers, owners and managers sit down one-on-one each quarter and talk to agents to discover what it will take to keep them productive and happy. The logic, according to Muller, is simple.

“If you have happy agents, recruiting is easy,” she said. “For the new people, give them fabulous training and mentorships with top people in the company. Don’t just give them a desk and a telephone and say, ‘Go for it.’ That’s not a business.” Bill Shue, president of RealtyU Group Inc., a real estate continuing education provider in Aliso Viejo, Calif., couldn’t agree more.

“Brokers need to look at expenses,” he said. “They’re all looking at cost-cutting. They need to get their profit and loss statements and general ledgers out and really analyze them.” Getting rid of “deadwood agents,” Shue said, is important in challenging times but much different than cutting back on education for agents who just might need a little extra help adapting to some of real estate’s new realities.

“It goes back to a few core issues,” Ludwig said of brokers, owners of managers. “The size of their offices today, the number of associates they have and what they are doing to educate their associates.” Many agents,
he said, entered the business in the last few years when the market was especially strong.

“The requirements for success and expectations were much different,”
he said. Simply put, brokers are going to have to offer more education to
their associates and be much more selective about who they recruit to work for them.

“You have to create the belief systems of success,” he explained. “You
have to mentor, train and teach success. You can’t let them just run loose
on their own.”

Fillmore Real Estate, Reinhardt’s company, recently acquired the listings of bankrupt discount broker Foxtons, which will expand Fillmore’s presence beyond Brooklyn and into other boroughs in New York City, lending credence to his belief that a challenging market is the perfect time to sit down and re-evaluate everything. “This is a great time to go from ‘inks’ to ‘links’ — to move from newspaper advertising to the Internet,” Reinhardt said, adding that many brokers face the significant obstacle of agents who say they still “need” newspaper advertising.

“They don’t,” he said flatly. “Newspapers aren’t attracting as many people.” He advises brokers, owners and managers to redirect their marketing dollars to less expensive and more effective Internet marketing using sites such as www.trulia.com. Continuing education and training are also critical in this changing market where customers have full access to much of the same information as agents.

“A lot of agents have been in the business only a short period of time,” Reinhardt said. “These people have to be taught the basics; they have to be made aware of what is happening and how to adjust their business practices accordingly. There are a whole bunch of education programs tailored to that.” Shue, the educator, agrees.

“A broker’s No. 1 asset is agents,” he said. “Invest in them.” “The smarter you become and the more professional you are, the more money you’ll make,” Muller said. It takes top training, education and persistence to become a business-minded person who is sensitive to all of the skills needed from that first sit-down to closing the transaction and beyond.

“The average transaction takes nine months. Even giving birth is easier than giving birth to that first transaction,” Muller said, laughing. Though difficult, she said, working in real estate can be extremely rewarding and profitable if an agent spends the years, learns the skills and surrounds him- or herself with top-producing people.

“Don’t work alone,” Muller recommends. “Find a mentor and work with them. Network. Build relationships with other brokers, owners and managers.
Read about each other, talk to each other, network among each other. Continuously stay in the network.” The most critical component to training and retaining top-producing agents, according to Ludwig, is to properly manage expectations when recruiting.

“A lot of [agents] came in with the wrong idea, thinking, ‘I don’t have to do much.’ By telling them what they have to do in the first few years to be successful, they will be,” he said. According to Muller, unrealistic expectations can be an issue for both recruiter and recruitee.

“We allow people to come into this business too easily,” she said. “If you spent 45 hours with me, you could become a real estate professional. You get your license, become affiliated and get 50% of the deal. That’s not realistic.” A lot of agents, according to Shue, just don’t have the skills they need to succeed in a more difficult market.

“The order-taking days are over,” he said. When doing their business plans, brokers need to find and allocate the dollars to train their agents, regardless of the office’s size, whether it’s five agents or 1,000. To do that, Ludwig and others say, brokers, owners and managers must forge a strong connection with their sales teams, which will directly and positively affect retention.
“If you were to ask me three years ago what the hot button was from an agent’s perspective, I would have said favorable commission plans,” Shue said. Today, the top wish-list items are back office and administrative support, lead-generation programs, education and professional development, he said.

“Brokers have historically shied away from the education component because of turnover,” Shue added. “Today, that’s not true. There is more of a loyalty factor: ‘If you help develop me, I’m more inclined to stay.’” If brokers can deliver training in a cost-effective way through a third party, he said, they can avoid putting a drag on their own productivity.

“You’re never fully trained,” Shue added. “If you can continue to
convince your agents that training will help them bring in more money,
they won’t leave.”

Outside the office walls, this changing market has also given rise to the confident seller, who is convinced it doesn’t take all that much to list, show and sell a house independently. That’s where another form of education becomes critically important, according to Reinhardt.

“People say they’re going to save on a broker’s fee [by listing it themselves] and end up losing their shirt.” That presents an opportunity, he said. “It’s not only about educating the consumer; it’s educating the agent to educate the consumer.”

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