I've heard a lot of people saying they can't wait until the market hits the bottom so they can buy some properties. While this sounds like smart thinking......is it? If everyone is waiting for home prices to hit rock bottom before they buy, what happens when everyone starts buying? When home inventories get low - prices get high. Remember that old thing called "supply and demand"? So, looking at the market now and keeping the supply vs. demand idea in mind, would it be smarter to buy later....or now?
No one knows for sure what the market will do. The current predictions show 2008 as another slow year. With more of the ARM (adjustable rate mortgage) notes becoming eligible for a rate hike and borrowers not being able to afford it, the foreclosure rate is estimated to be near 1 million. More "good" news: Under 5 million resale homes in 2008 (down from 7 million in 2005) and new home construction down 50%. Home prices may continue to drop even in 2009. 1/3 of real estate agents will turn in their licenses (current new licenses are down 50%).
Is this better for buyers or sellers? The immediate benefit is for buyers. Great pricing on properties with a huge inventory to choose from. Sellers will benefit with reduced commission due to real estate companies competing for their business. The traditional business model will be drastically modified. Sellers want to save as much as possible when selling their home. Have you noticed the increase in FSBOs? How many print ads do you see compared to the rising number of internet ads for homes?
The companies that are charging near 7% to sell a home will suffer the most. They must charge so much due to their costly overhead - paying for huge offices that rarely have more than a few agents in them at one time. Usually, the agent is there doing "floor time" answering calls from other agents and companies. Wouldn't it make since to have another agent call the listing agent directly to schedule a showing? Isn't that a perfect time to pass on important info about the property? A buyer doesn't care how big or fancy your office is - they will probably never even see it! Gone is the time of buyers needing to come in and have you show them listings in the most "current" monthly books. The internet is their most up-to-date 24-7 resource for home searching. Do sellers need to visit an office? Can you sign the listing paperwork while at their home? When it is time for the closing - most title/closing companies I know have office spaces available. Does your current office have a conference room that is seldom used? I'm sure the seller is happy that they are helping pay for the empty space.
With the overhead costs gone, how much more could we help the consumers save? Is this just helping the seller save? Not at all! The seller is paying a lower commission and can reduce the asking price of the property. We all know price is what moves the property. I know there are agents reading this and thinking "how will we make money by reducing commission?" Are you making any money by charging 7% and not selling the property? The more property you sell, the more you could make. A win-win would be to save consumers money and still move property.
Still thinking you must have an office monument....oops, I mean office, to get work done? Do you have a mobile phone, computer and a printer at home? What do you use at the office that you don't already have at home? When you are doing "floor time" and a customer calls, can you leave the office to show the property? If your "office" is wherever you are at the moment, you may have the opportunity to go show it. With a few of the software programs available for PDA/phones and smart phones, you can view property info directly from your MLS anywhere and anytime!
There are many emerging real estate companies that offer reduced fees for reduced services. Why not offer full service for reduced fees? Is charging a seller just to put a sign in their yard going to make the home sell? Does it usually work for FSBOs? Our overhead is gone - not the profession! Consumers still deserve full representation and due diligence. OK..time to toot the horn at my company! The only difference in my company and the competition is the "monument" their agents are in. My office is wherever I am at that time. I have my home office equipment and my mobile phone. I can be anywhere and pull info from the MLS and schedule showings.
We let the seller pick the commission they want to pay to sell their home. They are informed that a higher commission usually results in more agents wanting to show their property. I am quick to point out that it is typically a home buyer that contacts their agent and tells them of properties they want to see. Most of our plans have us giving the buyer's agent the 2/3 of the commission for bringing the buyer. I even reduce the rate if I represent both sides of the deal (I don't recommend this due to Dual Agency --a total different blog posting needed just for that).
The future market will reveal just how low commission rates will go. With consumers able to do most of the research for themselves, sellers will demand reduced commission costs. Large offices will be monuments of the past. Those agents that are able to think outside the box will be the ones that survive. If we keep doing the same thing - we will keep getting the same result. If I've sparked your interest in this business model - let me know.
I started off writing about buyers being in or ahead of the herd and ended up talking about agents. Looks like we are all in the same situation. We can choose to be ahead of the pack and choose our direction, or join the herd and follow the rest.