Tuesday’s question of the day at the 2022 Gathering of Eagles conference was, “Where is the industry headed?” After two years of never-before-seen housing market conditions, markets across the country are starting to slowdown. And while the general consensus seems to have deemed this a cyclical shift, returning the market to more “normal” conditions, a lot of uncertainty remains — not only about the market, but about the future of commissions, as well as how homes will be bought and sold.
Two industry executives, Glenn Sanford of eXp Realty and Christy Budnick of Berkshire Hathaway Home Services, shared their thoughts on the future of the industry. Marc King of Keller Williams, had been slated to present, but he was unable to attend as the result of flight issues. However, he shared his outlook during a phone interview with RealTrends.
All three executives acknowledged market changes and challenges for real estate professionals.
“I think everyone in this room has felt it, the market is shifting,” Budnick said as she addressed the crowd in the Broadmoor Hotel’s International Center. “I think despite that, we are on track to have our second best year since 2007. Volume will probably be off just slightly because of price appreciation.”
King shared a similar sentiment: “There is a lot of fear mongering happening right now, but if we go back to the data, I am optimistic because I don’t see a giant crash in housing prices coming. I think we are going to see things trending toward somewhere between a 10% to 15% drop in units, but if we had a 10% drop in units it would still be the fourth best year in real estate history.”
And while Sanford generally agreed the slow down contains different variables than in 2008, he also warned attendees to be cautious.
“We don’t know what is going to happen and we don’t want to bank on it being temporary,” Sanford said. “Back in 2008, people kept saying that it would turn around, and look what happened.”
Agent and broker preparedness will be key to whether individual agents, brokerages and franchises sink or swim during the next few years, all three experts said.
“We have to prepare for this slow down,” Sanford said. “Some of us have more variable cost structures than others, but I seriously suggest: Don’t renew leases if you don’t have to.”
According to Sanford, the two biggest liabilities for brokerages are too much debt and too many fixed expenses, particularly one of the largest expenses: rent on a brick-and-mortar office space. Sanford and eXp have eliminated that cost by building a cloud-based brokerage. Looking ahead, some brokerages may be forced to shut their offices to save on expenses, and Sanford believes his firm’s strong grounding in its virtual model will help the brokerage continue to grow.
“We are always focused on making our model more appealing to agents,” Sanford said. “As a virtual model, ours is already stable and that may be even more appealing to other agents if their brokerages are forced to close physical offices and have to find a way to operate virtually.”
Cost cutting was also something Budnick touched on.
“We need to be prepared right now,” she said. “It is really important for brokers to look at their budgets and see where they can cut things that won’t be felt too deeply.”
But King warned: “The mistake that I see both brokerages and agents make in times like this is they cut expenses on the things that are driving business to them or the things that are helping them grow their business.”
Although cost cutting was one option discussed by the executives, Budnick and King also stressed the importance of education and coaching for agents as they work to continue building their business, despite an overall market slow down.
“For the individual real estate agent, the market really doesn’t matter,” King said. “It comes back to the education, the training and what you are doing to increase your skill base. Right now, we are leaving a speed-based market and entering into a skill-based market, so coaching and training are massively important right now.”
At Berkshire Hathaway, for Budnick, this means focusing education efforts on those middle producing agents, who do not need the same hand-holding as the newer agents and who do not have the high commission splits of the top producers.
“We have developed a coaching program for those two- to four-year-in agents and we are using it improve the stickiness of our middle performers,” Budnick said.
Budnick and King both stressed the importance of making sure agents know how to properly price homes and can comfortably discuss price reductions with their clients, as well as the wide variety of mortgage products available.
“They need to be knowledgeable about creative financing and I am wondering how many agents in the industry right now are aware of the different financing options and how higher interest rates impact what types of financing buyers may want to use,” King said. “But agents in the industry today haven’t had to use these products so they don’t know about them.”
For Budnick, greater agent education is also a chance for agents, especially buyers’ agents, to show homebuyers their value.
“Buyers are becoming more savvy,” Budnick said. “Make it known what you are doing and what services you provide and be professional. And do these things before the decision in the buyers’ agent commission class action lawsuit comes out.”
While there is little certainty over the longterm direction of the housing market, no matter how well prepared agents and brokers are, the three executives agree some chaos will remain.
Sanford’s advice: “Embrace the chaos. Use it to enhance the innovation mindset and build your business.”