In this episode we are breaking down the trends of the week and showing how they impact brokers and agents. Steve Murray, President of REAL Trends discusses Zillow's move into Canada, how to end the fourth quarter of 2018 and begin fiscal planning for the new year and lastly, how to prepare for tomorrow's market.
Let's jump in! Listen to the audio or continue to read below.
We've talked to a number of our friends in the brokerage industry and with realtor.ca, the Canadian national website. Obviously Zillow is causing all kinds of concern in Canada among brokers, MLSs, realtor associations and other groups. In talking with them, it's interesting to note that they have the ability to say "go to school" on what took place in the U.S., but as we have pointed out to them, Zillow is a well organized and generally well oiled machine. Most people don't know that Zillow had a very strong market share of unique visitors in the U.S., long before they had the lion share of listings. With some recent court decisions in Canada that freeze up sold data to become more available to the public, certainly Zillow will find ways to get access to that data, and if you will, prepare for Canada the first big tool they offered in the U.S., which was the Zestimate.
Confidently, one would expect their Zestimates will not be as accurate as they will one day, but nonetheless, as Zillow found in the U.S., there was a tremendous consumer following for the Zestimate, even if it wasn't accurate all the time. It was something that the consumers wanted and certainly they like it more and more over time as the Zestimate becomes better. We dare say they will launch similar tools in Canada. Secondly we know that there are some brokers, some national companies and regional brokers that are already embracing Zillow. The truth is, that once Zillow enters a market and they gain a consumer following and they have some people sending their listings and/or providing sold data, sooner or later other agents and their brokerage firms will have to follow suit in the competitive market for listings.
Further, if they build the traffic that we suspect Zillow has the potential to build in Canada as they did in the U.S., it will become a very popular place for people looking for listings of homes for sale as it has happened in the U.S. The truth is, Zillow doesn't affect the number of homes being sold, has not affected the use of agents by consumers. Our own consumer study as we reported in an earlier Real Trending episode, was 90%, the highest it's been in 17 years! Zillow does cause consternation among people because of some of their operating styles, but truly it's a good consumer tool or nobody would use it.
We wish the brokers and the industry in Canada the best of good luck in their business. Our advice to them overall is they have their own national real estate listings portal just like realtor.com existed, and our own two cents are set them free to compete with Zillow aggressively in every way, shape and form and then you'll end up with two great real estate portals.
The housing sales market is slowing down. NAR has reported that six out of seven months of this year unit sales were down from the same period a year before and it's likely that trend will continue throughout the year. Additionally, the annual increase in the price of homes being sold is calming down in most markets. So, we have this kind of soft landing in the housing market that's coming to roost now. We may well end up with a year ahead and maybe more than one year ahead where we have kind of flat housing unit sales and modest, if any, price increases. It's kind of the price you pay when your average price of what we're selling has been going up at twice to three times the rate that people's household incomes went up. Sooner or later you're going to have a slowdown due to lack of inventory and particularly because of challenges to affordability for many American families.
It's not a disaster. There have been times like these before, so let's give some insight into what brokers did 30 years ago when we had a stagnant existing home sales market and very flat pricing, the period was 1988 to 1992. What we can share with you having been through that, the brokers that later on became great success stories throughout the '90's and into the 2000's were those companies that tightened their belts in that kind of a market.
Every brokerage company, it doesn't matter what model, what brand, what location, right now should be examining not just the P&L, you gotta be looking at the general ledger. Look at every single thing you are spending money on. Every single thing in detail. If those expenditures aren't directed towards the recruiting and development of real estate agents and the closing of business or activities leading to listings and sales, then those items ought to be removed from your spending pattern. Everything that doesn't help you run that business more efficiently, whether that's software or systems should be analyzed. I remember back in those years for instance, brokers would even examine their charitable giving. They would examine their travel. They would examine their subscriptions. Every thing that is being spent should be carefully examined. Does it result in listings? Does it result in more sales? Does it result in helping recruit good people, whether you're a team or a brokerage? Anything that doesn't do that should be reduced or done away with, and sooner rather than later.
In our previous segment we talked about the cost side of thing, because that's something everybody should get right on right away and something that every broker large or small, and every team and every agent can do right away. We have seen this before. Let me add one more cautionary note as we talk about preparing for the future. I commented about that period of time of 1988 to 1992 with stagnant markets. I talked about how some of the great brokers of the following 20 years cut costs and got very efficient, they invested wisely. I will also comment that there were large brokerage companies that did not take those steps in that period of time, and as a cautionary note preparing for tomorrow's market, five of the twenty largest residential brokers at the time in 1988 did not see 1994 because they did not cut costs. They did not get efficient. Keep that in mind.
So, let's talk about preparing for tomorrow's market. Let's assume that what we think may happen, does happen. That we're ending up in a flat market for unit sales and a modest price increase marketplace. With the types of competition there is out there right now for producing agents, it's going to be a real Donnybrook. It's going to be a real competitive marketplace. So, how do you prepare for that kind of a marketplace?
We've already talked about the cost side. We don't need to dwell on it any further. Let's talk about how you're going to actually grow your business. We covered the story for instance, of 16 companies that actually grew their business from 2004 to 2013. Can you imagine that? Through that recession that ended up having a firm with more agents who were more productive and had greater profitability even after having gone through a deep housing recession of 2006 to 2010?
If you think you're close to your people now, get closer. Find ways for the leadership and the management of your firm to spend more time with your agents. Perhaps put together accountability groups or masterminds groups or encouragement groups because this is hard on everybody, not just the broker owner or the owner of a team. Get closer to your people. I can go into a lot of examples from our little book called Against All Odds. If you'd like to see that book you can email SMurray@RealTrends.com. I'll be glad to send you a PDF copy of it.
There were a number of brokers for example when we talk about thinking strategically, they saw the downturn coming, they felt the increase in distressed properties so they jumped right on retraining all of their agents in how to handle distressed property sales. They got in touch with local financial institutions. Outward reaching for those opportunities for business. I don't know that we'll have a lot of distressed properties in this coming market, but the point is they retrained their whole sales force to deal with the market that was coming and not the market that was. There's no point spending time looking in the rear view mirror remembering 2011 to 2017.
By the way, a friend told me recently there is a reason why the rear view mirror is a little one and the windshield is big. Look forward. Learn from the past but look forward. So, firms that talked about strategically had precious capital to spend but they had noticed that more people, to find more affordable housing, were moving a little bit further outside even the suburban areas, to somewhat rural areas. Strategically they established relationships with little brokers in those markets. Sometimes they were just three person or four person firms or a top team, a husband and wife team. They affiliated with them under their companies brand and their services. They got through the downturn, and of course that's where the growth took place in the last seven or eight years. Think strategically.
Make sure anything you're spending money on is related to listings and sales and productivity and for brokerage companies, recruiting and developing great sales people.
Another thing to do is make sure preparing for tomorrow's market, once you've got your costs and once you've got your focus, is start thinking about right away preserving cash because in that kind of a market that may happen, having cash, being liquid, having a clean balance sheet are all going to matter greatly.
If you don't have a dashboard already built with key market and business indicators, it'd be a good time to get one assembled and make sure you review those key data religiously.
Key business metrics that as the owner of a brokerage you need to stay on top of. In terms of the market stats, the same goes for agents and teams. You gotta keep it simple, but a dashboard that you review at least monthly to make sure you're up to date of what's going on both in the market and with your company is vitally important. Remember what we said earlier, watch those costs.
Learn more about industry trends, marketing and technology strategies as well as listen to past Real Trending episodes on our website. One additional thing, you need to go check out our new podcast channel called Meet The Influencers. You want to hear what some of the bright, young, aggressive leaders of tomorrow are doing right now, go to REAL Trends: Meet The Influencers Podcast channel.
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