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What is Next for Real Estate?

Home sales are up in many areas, but have recently slowed again from the numbers I am seeing. And although a lot of agents are doing cartwheels that good times are back, they are not back for home sellers where distressed property pricing is still what is driving most real estate markets. So prices are down, and slowing. That may be a good sign. However there are many other issues to be dealth with. A common complaint of many full time and very experienced agents I personally know...they are sharing nightmare scenarios because of very low appraisals killing the deals they are working on. That is really odd, because these agents know their markets and declines in pricing. The sales contract prices were all written well under market and yet the agreed upon sales prices are still coming in much lower. I am not blaming any appraisers for this issue. They are just trying to do their job, but there is caution on the consumer side, lending side, and pricing side. That is not helping us as an industry. I am not sure if the rising unemployment has anything to do with this, but I do know that buyers, lenders, and appraisers are proceeding very cautiously, and I cannot blame them.

That brings us where we are today in our business. How will things unfold further throughout the rest of this year for those of us that works this full time? I cannot see how many real estate agents, and their companies can survive this current market. Real estate has a tremendous overhead, and I cannot see where bulk discounting of REO listings for a flat fee of $200 is going to cover anyone's cost nor are fees from most short sales. There are items like rent, mortgages, utilities, maintenance of computers, toners, office supplies, postage, salaries, E&O insurance, taxes, advertising, and franchise fees to consider. Real estate isn't a charity, and expenses must be met. So where do you see this industry going for the next few years? I would be curious to listen to the responses.

My thoughts:

A dramatic contraction in the number of real estate agents in the next two years
Contractions and closures of real estate brokerages
Major consolidations of offices within a company
More independant mom and pop brokerages, sole proprietorships, and boutique realty firms.
Restricted hours of operations by many brokerages.
More services will be paid by agents.
There will be less offsets in brokerage incomes from affiliated services,: Law, title, lenders etc.
Commission splits in brokerages will start to return back to levels that would insure profitability.
Many companies that provide services to real estate agents will disappear (software, web etc...)

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Posted by Jim Crawford ~ Atlanta Real Estate-ABR E-PRO on 08/16/2009 11:48 PM

Comments (76)

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76 Comments on What is Next for Real Estate?

AUG

That's a pretty gloomy scenario, but I can't disagree with it with the exception of "Restricted hours of operations by many brokerages" which I see going in the other direction with agents working long hours from home.

What isn't considered in the national statistics is the loss of consumer buying power through the loss of equity, loss of retirement security, loss of capital in retirement funds and the pending reduction in benefits from Social Security and health benefits.

The government, in their rosy scenario projections is using a growth of 4% for the next fiscal year. I wonder what planet they live on.

Jim, I hope you are right and wrong at the same time. We need an adjustment but not one that costs so many jobs and business related problems...

I can agree . .as an ex-owner of a Real Estate Franchisee. .our monthly expenses were sky high . .including over $10K per month for rent alone. . this market is more appropriate for a virtual office.

Jim,

Spot on assessment, especially the part about companies moving expenses to agents.

Rich

Morning Jim,

You hit the nail square on the head. I have heard more stories of late that Brokers are passing on portions of their operating cost or decreasing the rate of compensation so as to meet their monthly obligations.

A review of our area's valuations show another 20% reduction in property values for the coming year. That will hinder pricing as well as apprasials in an already tough market.

Jim, when monkeys could sell real estate everyone was getting a license, I think your predictions about the number of agents and shops being reduced is a good thing. Only the real professionals will commit to this career, and the consumers will be better served by that eventuality as well.

Jim,

As part owner of our office, we considered closing the first of the year. After reevaluating our expenses, we moved a block (after talking the owner into lowering the rent drastically) to a better location, cut our expenses, adjusted the commissions (we raised the commissions) and now are running in the green. We are watching every penny.

While other companies around us are starting to shut their doors, our business is soaring.

You are right about the appraisals. Our area has not fallen as bad as yours, but prices are still falling. With the next wave of foreclosures coming in at the end of the year, I see prices continuing to fall, making owner occupied home prices drop along side of foreclosures and short sales.

Jim, I was just thinking about where we are going in the industry and I would agree with you, we (agents) are going to be picking up more costs. The traditional office will be phased out I believe.

Ah Jim....leave it to you to "keep it real" for all of us! I'm in agreement that we have yet to really see a turn around. Until the housing market gets into 2nd or 3rd gear (let's keep it out of 5th this time!!!) I really don't see things getting much better. It's such a ripple effect if homes are not selling or being built....

I never, ever wish my life away, but I can say....I'll be glad to kiss '09 bye bye!

Hi Jim,

Your points are right on ! I'm noticing that as I am out there recruiting, that many agents are somewhat frozen right now ! Altho they know that they could make alot more $$$ with a 100% type of company they are fearful of changing anything as they attempt to hold on ! This market could put us back on track with original pre-2000 forecast of 30-50% agent reductions by end of decade !!

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate If this is the result of throwing trillions of dollars at the problems..it isn't working to well is it? Lenn the DC area is still humming when I visit my son up there, Restaurants are still open, stores are still crowded and there aren't many vacancies in commercial and retail. Take a drive through the Carolina's and Georgia and the landscape is very different. Malls are losing their anchor stores, retail strips are80% vacant and restaurants close by they week. Rentals are dropping their prices and no money down is not a problem. Unemployment is in double digits, and no one is rushing to buy a home. I don't think this is going to change for some time to come.

Paul Henderson, Realtor ® Lacey & Dupont Washington homes (RE/MAX Professionals & Four Seasons Inc.) Paul...do not confuse this with what I want the outcome to be. This is an assessment based upon current conditions I am seeing. Georgia leads the nation in bank failures.

Morning Jim, I notice many appraisers now only give a " Pass/Fail " type of value rather than the specific dollar amount I used to see. Also, your point " Commission splits in brokerages will start to return back to levels that would insure profitability." Does that mean higher or lower splits for agents ?

Fernando Herboso Real Estate Maryland, DC and Virginia (Key Realty Group-Foreclosures in Maryland,Rockville MD) I don't think I would want to be running either an independent franchise or a small traditional brokerage right now. I could understand how a mom and pop could be beneficial, but you are right. The expenses would eat you up in a market like this!

Richard Iarossi, Crofton MD Real Estate, Annapolis MD Real Estate (Long and Foster® Real Estate, Inc.) I don't see how they can afford not to pass it on if they want to survive. I know of several small local brokerages that the brokers is in personal bankruptcy.

Harold (Hal) Place (A1 Connection Realty, Inc.) Declining prices and the preponderance of sales being distressed sales and first time buyers is not a recipe to make a fortune.

Steve Loynd, Alpine Lakes Real Estate Inc., Loon Mt, NH. I agree, but in the short term I see many of the older more experienced agents as the ones that are leaving.

Kay Van Kampen, CDPE, Broker, Springfield Missouri Real Estate (RE/MAX Solutions) Kay, your company was smart and not in denial. Surviving this market is going to be a real challenge for all. Creativity, frugality, planning, budgeting and concessions will make the difference.

David O'Doherty (Coldwell Banker HPW) Well I think the traditional office will survive, but in much smaller numbers. Unfortunatley the old traditional commission structures of the past will be born again. I am also seeing many discount brokers close here because they cannot deliver the goods, but also specialty firms such as buyer agency only... bite the dust.

The Thom And Ray Team Midtown Atlanta Real Estate Thom, I felt that way about 08', and o7'! Now I view them as the good old days!

Jim, I do agree with your list of things that will change. I also agree we will see more mom and pop shops opening with agents willing give it a whirl on their own and see how it goes. One item not on your list that I think will actually be on the rise is lawsuits, thus resulting also in less agents and firms. With all the REO and short sales, I just imagine it is ripe for some sort of class-action lawsuit. IMO I for one have lost total enthusiasm for REO work, too much liability and not a practice builder.

Michael J. Perry (KELLER WILLIAMS Homes & Land Realty) It will not take that long to wash out that many agents, reality will sweep it clean a lot sooner.

I agree with all of what you said. In terms of Lenn disagreeing on restricted hours and she may be right, I think that is a good idea. Why are we 24/7 in our promotion? Doctors, lLwyers, and CPA's have restricted hours. Maybe if we did that it would force people to work with us in set ours and our normal lives could be enhanced. I realize we can't be that restrictive, but a little sanity please.

Bill Gillhespy Fort Myers Beach Realtor (Century 21 Tripower Realty) Lower splits for agents is where this will eventually head. There is not enough turnover with real profit for brokers to pay the bills.

Mary Strang ~ Viroqua, WI Real Estate (RE/MAX Hill Country) You are right on the money. In tough times it is a known fact that lawsuits rise.

Joe Pryor.com Realtor Oklahoma Investment Properties (RE/MAX Associates) Joe I agree with Lenn because I work a virtual office. I no longer have the luxury of just working this 9-5. I also pick up the phone later at night. In traditional offices many in my area have curtailed their hours and eliminated weekends. The reason? Staff and staffing...and no traffic.

Jim - I hope the long term view of real estate is not as stark as you predict, but I have little to contradict. Certain areas of the country are somewhat insulated. I don't see real estate becoming a healthy business until unemployment moves to 6%. People buy homes when they have a job.

Its all about jobs in the overall economy. Fewer and fewer agents come to the office these days as sales have dwindled down. We have few banks and our area did not boom like Atlanta so I have not seen any banks close. I am still waiting for my first appraisal to come under the sales price. I have have been suprised when several did not. Real Estate is very local however.

A dramatic contraction in the number of real estate agents over the next two years - I wonder if they will all be full-time agents, or will they also be "part-time" agents (those who have another job to supplement their income, or their real estate practice supplements their income). As many full time agents are considering or picking up second jobs in this economic climate just to make ends meet, I would guess that those of us with dependable incomes will actually stick around for a bigger share of the pie...

I'm seeing a lot more boutique operations here in Newnan specializing in commercial, land, investors, etc.

Claude Cross Charlotte NC Real Estate (HomesByCross,Inc.) Personally I hope otherwise, but I am just calling what I see. There is no way this current market is going to fix itself this year. We all could probably agree on that. Then how will most companies cover the losses and the debt incurred during this bad time? Most will not..that will force them to reevaluate the way business is conducted.

I can agree with the 6% as long as the number is not a manipulated number.

Eric Bouler (Prudential Gardner) Jobs are key to recovery, but what happens when we relied on 60% of GDP coming from home sales and real estate? Some areas will be impacted more than others, and Atlanta area we had a lot of speculation. I personally feel recovery here will be slow.

William James Walton, Sr. Greater Waterbury Real Estate (Century21 Access America) In some of the offices I am familiar with, the agents that are surviving and doing OK are the ones that were in the business before 96. Those agents saw some real changes in the economy in the 80's and know how to cut back and change their marketing. Others that were in it during the boom times do not know what to do next. Many are getting worn out working high stressed deals of bank owned, short sales, and foreclosures. The agents I know that are doing well, do not work them. They look for business in more traditional areas and are doing very well.

Integrity Mortgage Funding It will be interesting to see how many survive. Many of these operations that I know of have already closed their doors too. There is something to be said for brand name recognition.

I recently read a book call What Would Google do? It has a section on the future of real estate and points out that we will be doing away with the present model that is being used and it suggests that we will be a menu driven industry --- where the buyer can pick and chose their services. Good post.

Lorraine and Loretta Kratz-Certified Negoitation Expert (Crescent Moon Realty, Inc. & Land N Sea Auctions.) Thanks, but that is an old idea that has been kicked around. Sellers will want someone that can get the job done. They want performance not empty promises. That points to "full service" as a better solution in this market and the coming market.

Jim

Your post is right on target, there will be a lot of changes and a new real estate model.

Good luck and success.

Lou Ludwig

Jim: It will be interesting to see if your predictions hold true. I agree its a little gloomy and don't see that happening here. Yes, things are tough but the agents left are motivated and there is activity. Although I don't look for a full recovery and subsequent boom for a few years, I do see closings up and attitudes better. Thanks!

Lou Ludwig CRB, CRS, CIPS, GRI, SRES, TRC, e-PRO, (Ludwig & Associates) Thanks Lou, I really do not see how these can be sidestepped.

Jim,

We are seeing consolidation of real estate offices in our town.

Paul McFadden Mortgage Loan Officer Bellevue Washington Home Loans (The Legacy Group) Take out your magnifying glass and look at your local statistics. Yes sales are up, prices are off, total dollar volume is eroding further, LP/SP ratios are off over 5% and since most of the sales are not traditional sales with full commissions the real estate brokers are in a hospice situation. More numbers does not mean better days ahead if all we do is count the units sold. Cheap mortgage money is great but if you cannot qualify for it, what good is it? It is like the butcher running a sale on chopped meat for .69 cents a pound, but the butcher doesn't have any!

What is selling?
Why is it selling?
How long is it taking?
How many concessions have to be made to sell the home?
What commission is it paying?
What price is it selling at?
What was the acquisition cost of the property sold?
What is the dollar loss per property?
Is mortgage money accessible?
Will the home sale appraise?
How can the agent pay their broker?
Is the income in real estate enough in real estate to sustain life?

Mike Frazier, Dyersburg Tn Real Estate (Carousel Realty of Dyer County) It is happening here in Atlanta, but slower than I would have guessed. I think a lot more will take place in the last quarter this yer.

I agree with a lot of what you say. Our area has a lot of discounters driving down commissions. Since most lean heavily on the full -service brokerages to do their leg-work its maddening. It adds work to OUR side of the deal while hacking away at commissions. A quick look at my brokerage's stats indicate that the 80/20 rule is in full effect. It's pretty much on the nose. Happily, I'm in that 20% range this year. BUT - only 7% are making what I would consider a viable income. Increasing commission rates back to a more sustainable level would allow about 16% to make viable incomes. Also, if those who were not making viable incomes would leave - the slice would get considerably bigger for each agent. However, things being as they are - that's a VERY small number of agents. This would restrict consumer choice tremendously. In some ways, the lowered commissions are creating fewer options for consumers as more agents are forced out of the business. Only "tippy-top producers" would be viable if that trend continues. Also, what happens to customer service? If agents are forced to pack in more clients just to make ends meet, it WILL affect service.

Hi Jim, It seems we are in an ever changing market. And, adjusting our business model is necessary on an ongoing basis. We have seen agents leaving the business and we have seen real estate offices closing. Many agents have moved to work out of their homes. Yes, I agree the shift has started and it is inevitable that it continues.

Jim,

I concur with your thoughts, analyses, and predictions...! What has happened, I believe, is the bubble burst first, and now we're seeing prices and values 'erode'...how low they go only time will tell...!!! Thanks, Fran

Hello Jim, we've been seeing much of what you've delineated happening in our area. A few local-branded firms are recruiting heavily touting greatly reduced fees to the agent; while at least one of the franchise brands is now getting tagged as loading up on junk fees. I tend to think both models will exist for the next few years, and will be watching the results. You've probably already touched on the diminished role of the local newspaper's classified section for real estate -- our local paper cut back on their publication of the classified and raised their fee -- brilliant combination (in my opinion!). Thanks! John

Jim,

The market mood - for mortgage lenders, appraisers, buyers - has swung completely to the other side, from the recent bubble euphoria to excessive caution. It'll be a while before we return to normal.

Ruthmarie Hicks (Keller Williams Realty) If an agent has to market longer, negotiate harder, give more knowledge, and use more connections to get the deal to close...is that worth less? Only if a person is a loser. If I were selling my home right now..I would not worry what I am paying my agent, I want the highest possible price, but I'd want the job done! I have the experience to deliver, but most agent have no track record except empty promises.

Sandy Shores, Melbourne/Palm Bay FL, Brevard County Real Estate & Investing (Florida's Space Coast / M & M Real Estate Inc. ) Shift happens! We must accommodate change or else we are the players that Darwin talks about!

Fran 'The Title Man' Gaspari Title Insurance-PA & NJ (Patriot Land Transfer, Inc.) I agree, the bubble has burst, and reality is slowly sinking in.

Esko Kiuru - Las Vegas NV Mortgage Consultant (Mortgage Consultant) I cannot blame the mortgage side either. Caution must rule the day, and that is key to survival!

I've heard that there has been a huge number of agents who got out of the business and some of the big name traditional brokers in Atlanta have lost 50% of their agents.

I guess that's good for the rest of us who can remain standing.

I think I'm living in my own little bubble. I just had an intown buyer who had a $270,000 contract price get appraised for $290,000. We had a $415,000 listing in East Cobb sell for $390,000 in two weeks. Several of my buyers are getting beat out of homes that they are interested in. They are getting frustrated about not being able to buy a home at a big discount.

Tim Maitski "Video Agent Guy" (HomeAtlanta.com) According to GAMLS today there are still 33152 so as far as active agents we have only dropped about 12-13K from the peak. That translates into a little over 25%. If you consider that in 2003 we only had 13500 agents in Atlanta we still have about 20,000 agents too many. In the late 1990's in FMLS we only had 8500 agents. We are still saturated with way too many agents, and too few sales to pay the bills. Everyone assumes they will be the ones to survive, but only God knows how this will all play out.

If you consider sales of single family Atlanta homes in June of 2005 were 6253, and in June 2009 they were 4105 for single family detached homes that is a 34% decrease in units sold, and yet during the same time the numbers of agents rose by over 200% the math cannot ever work, and someone has to be a loser in the musical chair game.

If we look at current sales and compare them to the peak in the market about 5 years ago...we are off almost 50% in sales. North Fulton areas 13, 14 are off almost 58% in monthly sales. Another very misleading factor in Atlanta is that the Pending sales has a very large number of Lease Purchase sales that will close in 2010 or in 2012. It will be interesting to see how many of them actually close at all.

Area 121 had 30 sales in June 2009 Single Family Detached homes AVG Sales price $ 413K VS $471K in June of 2005 that is about a 12 % drop in sales price and in June of 2005 thre were 65 sales. So in Area 121 sales are off over 50% from the same time period.

Area 113 Sandy Springs average sales price in June of 2005 was $653,145 and in June of 2009 it was $413,263 a drop of 37% in average sales price, andyet sales increase from 21 sales in 2005 to 32 in 2009. So yes sales are up, but I would not want to be a seller selling a home at a 40% loss or a bank holding the loan. Also many of the sales are bank properties that are paying only flat fees on the listing side. So perhaps less than 50% of the former commission is being generated today in sales transactions as it was a few years ago and with the enormous amount of agents we still have showing active something has to give. The math is broken and no one wants to look at it. It is a industry in denial.

Jim, great crystal ball thoughts as always. I have seen many ten person shops close and RE/MAX offices with high desk fees begging for agents. Many agents going solo too. It is definitely going to be a different landscape in about two years.

Jim I know your right and it is difficult to swollow as a new agent. I will hang on and ride it out. If I have to get another job to supplement then be it, but being a Realtor is where it is at for me and I am here to stay.

Gary Woltal - REALTOR® Dallas Ft. Worth (Keller Williams Realty) I think you're right. The iceberg has alrady been hit. Some folks think help is on the way, another group that have not witnessed a recession before are thinking it will quickly pass, and others think there are plenty of lifeboats to go around. There aren't. No one can hide the numbers or pretend they do not exist. The bottom line tells all...profit or loss!

Triple Play in Atlantic City NJ is the annual Realtor convention of Realtors in NY, NJ and PA. Last year it seemed slightly deserted. I expect the trend to continue this December.

Tim Krueger (Corona del Mar Properties) I think it is a good time to join the business. My own son is in the process of getting his license right now, and I encouraged him to do it. If you are successful now, the rest of your career will be a breeze.

Moshe Cohen That is because I was not invited to speak there! LOL! It is always interesting how many will attend these events.

I go to triple play every year.... and skipped last year because I was tightening my belt for 2009.

I just ran stats for 1/1-7/31 in my part of Rural Pennsylvania.

From 2008 we are down 20% in number of sales, and 33% from 2007

We are down 37% in sales volume (dollars). Yet we are not down 20 or 30% in number of agents

It has to happen. Period.

It will be interesting to see how the market responds to this ongoing crisis over the next several years.

In my opinion, any increase in real estate sales will be slow and over a long period of time. It is a time for Realtors to reflect, be budget-conscious, perhaps have second jobs as well, and mostly hold on for a wild ride!

Erica Ramus, Broker / Realty Executives / 570-622-6006 You are fortunate enough to be able to see it for what it is. As I mentioned earlier, this is an industry in denial. Most do not want to get it.

Emily Lowe - Nashville, TN Realtor (The Lipman Group / Sotheby's International Realty) I agree witht he wild ride, but I am a fan of the full time agent. I still think there will be plenty of money to be made in real estate for those that know what to look for.

Just like travel agencies and gas stations allowed most to chose to save money by do-it-yourself while retaining a few full service companies, i think residential real estate is goind the same way. Real Estate commissions have just been propped up by the monopolistic ways of the mls just being accessed by realtors, but now more is available to the public and most are demanding lower transaction costs and thus reducing realtor commissions. There are all kinds of discounters out there and their % of market continues to grow. There will always be a place for the traditional full service model. Commercial is going through the same thing. Don't feel bad as the same thing is happening with mortgage brokers, attorneys, etc.

All businesses are getting more competitive and margins continue to shrink. Real estate rode the big money train wave in 2003-2006 and now will struggle in the 2008- ? implosion.

Jim, There will be fewer full service real estate firms that do "adult daycare" as well ! : )

Everyone had to pull their wieght or get let go...

Phil- You hit on a very valid point. The 'free desk' so to speak disappears in a bad market. Back in the late 80's I remember agents that were not producing..they were asked to leave offices. The borkers were not even placing these non-performers at a shared desk. Production was the key to being affiliated with even a traditional company.

I am surprised that we have not seen a consolidation of large brokerages yet, as we have with the banks. I have to imagine that may not be too far away.

Mark MacKenzie Real Estate Planning I think in the later part of this year we will.

Wow not much can be added to that. Take out the foreclosures here and we are down over 50%.

Charles Stallions Real Estate 800-309-3414 Pensacola, Fl. Exactly. I have a friend of mine that specials-es in foreclosures. He declared bankruptcy, lost his own home etc. He shared that he only gets a flat fee. That explains customer no service.

AUG

I hate to admit this, but "massaging" appraisals is a good portion of my job these days. What I mean by "massaging" is not anything illegal or unethical. I communicate with the Appraiser or Agent (in the case of a BPO) and make sure they have all the comps.

If I have executed contracts waiting to close which are comps, I make them available to the Appraiser (in our system, they are not published until closing). Any problems and issues the property may have are also brought to the Appraiser's attention. Many times I meet with the Appraiser to make sure he/she takes not of any and all issues/problems the property may have which will lower its price. I am vigilant over my market.

Recently an agent entered a foreclosure in one of the neighborhoods I service as a 3 BR home, when it was only a 2BR home. I brought it to her attention and ensured that she changed it in the MLS. I watch for erroneous size entries also. I don't want anything messing up my comps and artificially lowering the prices.

I've streamlined our operation and expanded the advertising. We have a huge thrust toward technology. Training is also very significant. The Agents have to be on top of all the latest developments within our industry. Knowledge, Technology and Marketing will continue to keep our firm alive and well.

We also do not do any "volunteer work" ($200 REO's). We now charge a higher percentage for our services and we actually get it because we deliver the goods. "Do you want to List, or do you want to Sell?" becomes a key question...

Jim: Great discussion here! This is now featured on the Optimist Group, not necessarily because it's an Optimistic blog, but because it's a Realistic one!

Agree with much of what you wrote Jim as far as the future goes. RE/MAX is in a great position for the coming years.

Mirela Monte, Your Myrtle Beach Real Estate Connection You will survive because you are proactive. There is a major difference. Thanks for the featured status.

Bill Gassett Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) I agree with you about REMAX, but I hope they can keep many offices open. I don't think we've bottomed yet.

SEP

Jim, While this crisis is uncharted territory in recent history I believe these times can have positive results for those who are willing to adjust. No matter what it's a good time to increase operation efficiencies and reduce costs.

SEP

Chain Real Estate Investment & Mortgage I totally agree.

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