There has been a lot of change that we all have experienced in the last few years. While change is a constant, the depth and breadth of the change has been historic. With all the change and challenge, foundational truths still apply in the real estate business.
Sales is an odds-based business
I realize that many agents don’t view themselves as a salesperson. If you want to replace service or professional representation service for the word sales, OK. There are odds in any business. The odds for some buyers has become extremely low in today’s market. Buyers who need closing costs from the seller, who have low money down or who have zero dollars they can allocate for appraisal gap coverage are having a tough time. You are investing your time, effort, energy and expertise in a buyer client whereby presently, the odds might be heavily stacked against them. I am not advocating to not work with them. I am advocating monitoring your buyer pool to make sure all your clients don’t occupy this category.
Wants and needs don’t change the odds
Just because your client wants it or needs it doesn’t change the odds of them securing it. There are untold buyers currently struggling to move to the new market realities. They want to buy their home at the pricing of 6 to 12 months ago. They think if they just wait, diligently look and are patient, they will find the “proverbial” needle-in-the-haystack home.
We need to select our clients with a heart of service, as well as a head for business. We are in a service-based business. The purpose of a service-based business is to provide outstanding service for compensation. The second part at times is omitted. The “for compensation” is important. The two are linked together and occur in proportionality to the odds of the marketplace and the buyer. With a buyer that has low odds due to marketplace conditions and their individual buyer conditions (low down, type of loan, no appraisal gap funds, etc.), your earning compensation is equal to or worse than their individual odds. The odds must be evaluated logically with our head while we serve them with our heart.
Client selection plays a more important role in achieving success in today’s marketplace. It does pain me to write that, because I wish for all that want to become homeowners to become so. Due to the nature of the present real estate marketplace, low inventory conditions, escalating prices and, now, interest rate increases, the field of successful homebuyers has narrowed. As we all know, our income is attached to their successful outcome. As a businessperson, I have to use my head and my heart at all times with prospects and clients.
Murphy’s law will always get a portion of your output
Murphy’s law — whatever can go wrong will go wrong — is alive and well in the world today. Plan for Murphy to take a portion of your business. Not to think of that as fact is to be naïve. The sales ratios in the real estate business have changed. Historically, if you wanted three buyer-pending transactions each month, you would need to be working with about six active, motivated, ready-to-buy clients. About 50% of your buyers would find what they wanted in 30 to 45 days in a normal inventory market.
In today’s market that timeframe for some is longer. That has caused the ratios of 2:1 to increase to 3:1, maybe even 4:1 or 5:1 in most markets. That requires us to alter our formulas. You might need nine buyers or even 12 active buyers to secure three pended deals a month. The sales ratios have changed, so we must adapt to the new ones if we are to achieve successful outcomes for our clients and ourselves.
The more challenging the market conditions, the more truth is revealed if we are observant
Market difficulties shrink the allowable margins to success, narrowing the lane of opportunity. Disruptions in the market don’t remove opportunity; they just narrow the variables and tighten the shoulders of the road. For example, if you are inconsistent or non-existent in lead generation activities in your business, today’s more challenging market conditions will reveal that a lot sooner. We must be observant and strategic to marketplace changes, conditions and prospects’ and clients’ odds of success. The market demands improvement of our business, skills and strategies and habits.
Dirk Zeller is the CEO of Real Estate Champions.