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RSS FeedThe Housing Market Is Not Broken |
Posted at Matthew Ferrara & Company by Matthew Ferrara
Mar. 28, 2008
It's easy for the media to point out how the housing market is "failing" - even if most of it is slanted coverage of a very narrow set of problems - or the wrong problems altogether. Certainly, prices have fallen - but so what? Nobody seems to complain when the price of other commodities falls - gasoline, computers, prescription drugs - so why bring out the Cassandras now? Mostly, because they can - because "sad sells" and that's the name of the game in news media. Nobody mentions that 2 out of 3 home owners doesn't even have a mortgage; and of the 47 million mortgages, less than 5% are "distressed" at this time: most ARMs are resetting to much lower rates than if the borrowers had chosen fixed rates 5 years ago. Little is mentioned about what a wonderful time it is for the "first time" buyers who don't have to pay inflated prices for their first homes and can build real equity as they choose "real" loans (where they pay both interest and principle). And only once, in the Wall Street Journal, have I seen an analysis indicating that the majority of sub prime borrowers who are in distress had credit scores above 650; which means they weren't "sub prime" borrowers, just greedy speculators - who happened to lose their gambles.
REALTORS, of course, don't know these facts either. Maybe they don't read; or maybe they don't have time - considering so many are still consumed with sending out postcards with their high-school pictures on them or building a website that nobody is every going to find because they can't possibly afford to compete in the pay-per-click space. It's a lot of sound and fury, mostly signifying nothing. Yet if they really wanted to, they could turn this market around in a jiffy.
Here are three simple ways:
1. Manage inventory. This is the key to any commodity market: ensure the right supply, at the right price, under the right conditions and you'll have plenty of buyers without either creating price inflation or depressing inventory gluts. How do we manage all of this? Well, we do what any retailer or commodity trader knows. First, we only offer inventory that people actually want. Did you know that 60% of buyers didn't have children living with them last year, or that 20% of them were over the age of 55? Of course you didn't - and you wouldn't, if you looked at all the 4-bedroom, 3-bathroom McMansions that builders are putting up and REALTORS are listing willy-nilly. Oh, sure, there were lots of condos built, too, perhaps appealing to those buyers, except they were in places like Pensacola Florida, where they still think they can charge $650/sq foot, as if it were the "good ol' days". So both the type of inventory and the price of inventory right now is appealing to at least 1/3rd less buyers than it did two years ago. People aren't waiting on their purchase just because they're waiting for prices to bottom out; they are waiting because they don't like the offered inventory - and they certainly don't like the inflated prices. They aren't waiting for the "bottom" - but they are waiting for the right model at the right price. Of course, that's what consumers do.
REALTORS need to walk away from a lot of sellers. Every listing overpriced by 10% should be immediately cancelled by the Brokers. Who cares if another listing agency picks it up; they won't be able to sell it either! But when they get desperate enough - having to carry the cost of marketing it for 8, 9, or 12 months - they'll be desperate to take any offer - like the one you'll bring from the buyer you find. And you'll maybe make a profit rather than a loss on an overpriced listing. And every new listing appointment, where the seller is clearly insane in their price expectations should be gently declined, too. REALTORS can not only heal their selves; but they can heal the market, too.
2. Stop the Insanity. REALTORS aren't selling homes because, well, the majority of they don't know how. Remember that 50% of the existing sales force in the industry entered in the last 5 years. They don't know how to sell because they never needed to know how. They were never taught to prospect, build relationships or sell, because the hot market didn't require such skills. A pulse, a license and an overpriced-bidding-form was all they needed. Proof? How many "so called" sales professionals were "wildly successful" in their first year? Ridiculous; anomolous; and farcical. And that's why they are struggling today. They can't sell homes because they don't know what to do. Go to an open house these days: Hardly any of the agents knows how to greet people, present the home's features and benefits to the buyers, help them compare it to other homes using their at-hand laptop and apply for financing through its internet connection right at the kitchen table. Nope: Just "have a cookie and show yourself around" is what you get these days.... Selling? Impossible.
Even those who are "trying" to do something are just trotting out the certifiably dysfunctional tools of the 1970s: postcards and abbreviation-and-photo-less newspaper ads and even billboards. What are you - a carpet cleaner? Postcards have a known return rate of 1%. Let me remind you that any activity with a known 99% failure rate is not something to trott out again when you need a sales boost! That isn't prospecting, anyway; it's looking busy rather than generating business. If you can't pick up the phone or take a prospect to lunch or shake hands with people at open houses, then just pack it in. You're not a sales person. If you think labels and mailings and newspaper ads and waiting around for phone calls is sales, well, get ready for the bread line.
3. Stop preventing business. Believe it or not, the reason REALTORS aren't doing more business is because they are throwing it away. They have all the tools they need, but they simply avoid using them. It's not even funny - it's sad. They have websites where they can load 25 photos per listing, but they "only" put in 6 because that's "what the MLS requires." Hello??? Ever wonder what the seller requires? How many photos do they put online? Check out some of the for-sale-by-owner sites and see how many photos the sellers take on their own. And why are photos so important? Well, because that's what the buyers want to see. If REALTORS want to generate buyer prospects, then listen to Sam Walton: Give the people what they want. If they want photos, put 100 of them online (check out www.zappos.com to see how many photos there are for a pair of shoes). Do they want video tours? You bet - but less than 5% of listings online have them. Why? They're hard to do - waaaaah! Really? First, they could pay for them - which would certainly be a better approach than those expensive, useless postcards. Or try using a free piece of software, like Microsoft Photo Story - which creates narrated photo-tours and turns then into video clips - oh, for FREE.
But it's not just the photo thing - although I can't stop laughing at the multi-million dollar listings on REALTOR.COM with "No Photo" placeholders. Those REALTORS should just be fired - and fast. No wonder inventory isn't selling - the REALTORS aren't really marketing it!
It gets worse, though. For the last decade, brokers have poured millions into new leads management systems. Sure, they get email inquiries to their agents, fast. Wonderful. And some of those agents even call the consumers back - fast. Even better. What is killing the market, however, is that the agents aren't even trying to convert or incubate those inquiries into down-stream deals. Their "hot market diva mentality" makes them think that, if the consumer doesn't reply to their email "right away" or if they "left a couple of messages" they can throw those leads away. Hmmm. Any reason why a consumer might not return a REALTOR's call? Could they be out of town for a week? Or have a bad cold? Or their computer is down so they can't return the email? Well, that's life. And in sales, that's normal life. Except that the boom market created a generation of REALTORS who fully expect the business to come to them; not to have to chase it! Combined with the previous generation of REALTORS who are still hanging around but refuse to buy a Blackberry, so they could possibly correspond with buyers by email faster than if they sent a letter Pony Express, and you've got the heart of the real estate industry's problem. Nobody's selling anything because - well - nobody's trying to.
Why is it that some homes are selling, and some agents are succeeding? Simple: They know how to control the inventory; they know how to effectively prospect and they take advantage of the tools their brokers have laid in front of them, almost always for free. Every problem in the marketplace falls into these three categories. Listings on the market for 12 months? A pricing problem indicating an inability of the REALTOR to position the proper inventory and the proper market prices. No new listing appointments? What 45-year old sane seller is going to pick up your junk-mail postcard with high-school photo on it and yell, "Honey, quick! Grab the phone! Let's list with this gal today!"? No buyers inquiring on your listings? Well, frankly, I don't believe it. How many leads did you throw away the last 5 weeks - by phone or email or open house - because the consumer was just browsing or only provided an email address or - gasp! - didn't call you back?
Fixing this market isn't hard. Proof? Those few agents who are still quite successful this year prove that the market is working just fine. Things just aren't going to get better until the only people who can - the REALTORS - figure out what's really broken.
REALTORS, of course, don't know these facts either. Maybe they don't read; or maybe they don't have time - considering so many are still consumed with sending out postcards with their high-school pictures on them or building a website that nobody is every going to find because they can't possibly afford to compete in the pay-per-click space. It's a lot of sound and fury, mostly signifying nothing. Yet if they really wanted to, they could turn this market around in a jiffy.
Here are three simple ways:
1. Manage inventory. This is the key to any commodity market: ensure the right supply, at the right price, under the right conditions and you'll have plenty of buyers without either creating price inflation or depressing inventory gluts. How do we manage all of this? Well, we do what any retailer or commodity trader knows. First, we only offer inventory that people actually want. Did you know that 60% of buyers didn't have children living with them last year, or that 20% of them were over the age of 55? Of course you didn't - and you wouldn't, if you looked at all the 4-bedroom, 3-bathroom McMansions that builders are putting up and REALTORS are listing willy-nilly. Oh, sure, there were lots of condos built, too, perhaps appealing to those buyers, except they were in places like Pensacola Florida, where they still think they can charge $650/sq foot, as if it were the "good ol' days". So both the type of inventory and the price of inventory right now is appealing to at least 1/3rd less buyers than it did two years ago. People aren't waiting on their purchase just because they're waiting for prices to bottom out; they are waiting because they don't like the offered inventory - and they certainly don't like the inflated prices. They aren't waiting for the "bottom" - but they are waiting for the right model at the right price. Of course, that's what consumers do.
REALTORS need to walk away from a lot of sellers. Every listing overpriced by 10% should be immediately cancelled by the Brokers. Who cares if another listing agency picks it up; they won't be able to sell it either! But when they get desperate enough - having to carry the cost of marketing it for 8, 9, or 12 months - they'll be desperate to take any offer - like the one you'll bring from the buyer you find. And you'll maybe make a profit rather than a loss on an overpriced listing. And every new listing appointment, where the seller is clearly insane in their price expectations should be gently declined, too. REALTORS can not only heal their selves; but they can heal the market, too.
2. Stop the Insanity. REALTORS aren't selling homes because, well, the majority of they don't know how. Remember that 50% of the existing sales force in the industry entered in the last 5 years. They don't know how to sell because they never needed to know how. They were never taught to prospect, build relationships or sell, because the hot market didn't require such skills. A pulse, a license and an overpriced-bidding-form was all they needed. Proof? How many "so called" sales professionals were "wildly successful" in their first year? Ridiculous; anomolous; and farcical. And that's why they are struggling today. They can't sell homes because they don't know what to do. Go to an open house these days: Hardly any of the agents knows how to greet people, present the home's features and benefits to the buyers, help them compare it to other homes using their at-hand laptop and apply for financing through its internet connection right at the kitchen table. Nope: Just "have a cookie and show yourself around" is what you get these days.... Selling? Impossible.
Even those who are "trying" to do something are just trotting out the certifiably dysfunctional tools of the 1970s: postcards and abbreviation-and-photo-less newspaper ads and even billboards. What are you - a carpet cleaner? Postcards have a known return rate of 1%. Let me remind you that any activity with a known 99% failure rate is not something to trott out again when you need a sales boost! That isn't prospecting, anyway; it's looking busy rather than generating business. If you can't pick up the phone or take a prospect to lunch or shake hands with people at open houses, then just pack it in. You're not a sales person. If you think labels and mailings and newspaper ads and waiting around for phone calls is sales, well, get ready for the bread line.
3. Stop preventing business. Believe it or not, the reason REALTORS aren't doing more business is because they are throwing it away. They have all the tools they need, but they simply avoid using them. It's not even funny - it's sad. They have websites where they can load 25 photos per listing, but they "only" put in 6 because that's "what the MLS requires." Hello??? Ever wonder what the seller requires? How many photos do they put online? Check out some of the for-sale-by-owner sites and see how many photos the sellers take on their own. And why are photos so important? Well, because that's what the buyers want to see. If REALTORS want to generate buyer prospects, then listen to Sam Walton: Give the people what they want. If they want photos, put 100 of them online (check out www.zappos.com to see how many photos there are for a pair of shoes). Do they want video tours? You bet - but less than 5% of listings online have them. Why? They're hard to do - waaaaah! Really? First, they could pay for them - which would certainly be a better approach than those expensive, useless postcards. Or try using a free piece of software, like Microsoft Photo Story - which creates narrated photo-tours and turns then into video clips - oh, for FREE.
But it's not just the photo thing - although I can't stop laughing at the multi-million dollar listings on REALTOR.COM with "No Photo" placeholders. Those REALTORS should just be fired - and fast. No wonder inventory isn't selling - the REALTORS aren't really marketing it!
It gets worse, though. For the last decade, brokers have poured millions into new leads management systems. Sure, they get email inquiries to their agents, fast. Wonderful. And some of those agents even call the consumers back - fast. Even better. What is killing the market, however, is that the agents aren't even trying to convert or incubate those inquiries into down-stream deals. Their "hot market diva mentality" makes them think that, if the consumer doesn't reply to their email "right away" or if they "left a couple of messages" they can throw those leads away. Hmmm. Any reason why a consumer might not return a REALTOR's call? Could they be out of town for a week? Or have a bad cold? Or their computer is down so they can't return the email? Well, that's life. And in sales, that's normal life. Except that the boom market created a generation of REALTORS who fully expect the business to come to them; not to have to chase it! Combined with the previous generation of REALTORS who are still hanging around but refuse to buy a Blackberry, so they could possibly correspond with buyers by email faster than if they sent a letter Pony Express, and you've got the heart of the real estate industry's problem. Nobody's selling anything because - well - nobody's trying to.
Why is it that some homes are selling, and some agents are succeeding? Simple: They know how to control the inventory; they know how to effectively prospect and they take advantage of the tools their brokers have laid in front of them, almost always for free. Every problem in the marketplace falls into these three categories. Listings on the market for 12 months? A pricing problem indicating an inability of the REALTOR to position the proper inventory and the proper market prices. No new listing appointments? What 45-year old sane seller is going to pick up your junk-mail postcard with high-school photo on it and yell, "Honey, quick! Grab the phone! Let's list with this gal today!"? No buyers inquiring on your listings? Well, frankly, I don't believe it. How many leads did you throw away the last 5 weeks - by phone or email or open house - because the consumer was just browsing or only provided an email address or - gasp! - didn't call you back?
Fixing this market isn't hard. Proof? Those few agents who are still quite successful this year prove that the market is working just fine. Things just aren't going to get better until the only people who can - the REALTORS - figure out what's really broken.
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