So what if the housing market takes another turn for the worse? Markets go up, markets go down. Unless you’re ready to quit selling real estate, what matters isn’t the market but your strategy. Here’s why.
What do WalMart, Nordstroms and Mercedes-Benz have in common today? They are all increasing profits during the recession. Each company touches a different segment of the market: bargain hunters, brand shoppers, prestige buyers. And each proves again and again that what matters isn’t whether the market dips or rises.
What matters is your business strategy.
In business, there is only one fundamental business decision to make. You either plan to make money, or you plan to lose money. But you cannot plan what market you get to work in. One strategy requires serious standards of performance, while the other usually indicates a lack of standards.
Either have a plan, or you go with the flow. If the flow is downward, so too your profits.
Which is why talk about a “double dip” in the housing market are irrelevant. REALTORS should have a business strategy capable of making money in whatever market they find themselves in. There’s too much hand-wringing in the housing industry about things they cannot control: unemployment, interest rates, global competitiveness.
But what about the things REALTORS can control?
Only a serious business plan with strict standards of profit and performance can keep real estate professionals from spinning out of control these days. If other businesses in economic segments at higher risk to consumer discretionary spending can turn a profit, real estate agents should be able to do the same. What matters is how serious they are about doing good business, regardless of the market. And that means focusing on the things that REALTORS can control:
- If it’s non-performing, eliminate it. Just how long does your business plan permit you to lose money? Three months? Six? A year? Whether it’s a non-performing listing or a non-performing agent, your business plan should have clear guidelines on when to move on. Not every deal – client or contractor- is a good one.
- If the numbers don’t prove it, move on. The most expensive cost in real estate is marketing. Business plans must actively measure and monitor the results of the marketing plan or risk simply wasting money. It’s not a question of “newspaper vs social media” but a question of provable, measurable results. REALTORS must stop operating according to fuzzy perceptions of what sellers want and start performing according to provable numbers. Recessions don’t care about egos.
- If you don’t know the margin, you’re probably going broke. We’ll lose money on every deal, but make it up in volume. This is the most common brokerage compensation-plan for agents and agents’ own lowering-their-commission excuse with clients. Either deciding how much to charge is part of a measurable profit margin, or it’s not. Only companies who can compute, in real time, their profit margin per deal will survive.
- If you play by the averages, you will be. Competitive companies don’t put too much stock in competitors’ averages. The real estate industry is dominated by averages. Listing price, days on market, commissions. Maybe that’s why most agents and companies only generate average incomes or returns – which was only $35,000 for agents last year. If you want more, then forget what the average competitor is doing. Charge more, cost less, do it faster, whatever: but when the average is failing, it’s time to decouple your strategy.
Cars, clothes or college supplies, there are plenty of companies who know how to make a profit in any market. Rarely do these organizations worry about forces beyond their control. Instead, they focus on everything within their control and relentlessly improve its performance. Maybe that’s why we see some companies increasing activity during the housing recession, while others are closing shop.
It’s time for the industry to stop talking about where the market is going and start focusing on where they are going. As WalMart, Fedex, Nordstroms and Mercedes-Benz prove, focus on the strategy, not the market, and the profits will follow along.