Podcast Episode #64 – Shift #1 – The Economic Shift

“20 Minutes of Successful Niche Secrets – EPISODE 64”,

Where I speak to you about Shift #1 – The Economic Shift

“20 Minutes of Successful Niche Secrets – EPISODE 64,”

Shift #1 – The Economic Market Shift with Glenn McQueenie

Glenn: Hi! It’s Glenn McQueenie, and welcome to my 25-minute Success Series call. We’re actually going to do something a little bit different today that I’m kind of excited about. Instead of having a guest on to talk about finding their niche market, I really want to talk about this project that I’ve been working on. I’m going to be rolling it out next year, and it’s called The Three New Shifts for 2019.

The first shift is what we call the economic market shift, and I’m really basing a lot of this around a great book called “Shift” that was written by Gary Keller. It’s called “Shift: The 12 Tactics Real Estate Agents Must Do Now to Win in a Down Market.” So I want to summarize some of those tactics, and also add just my thoughts to it.

The second shift that we’re looking at right now is what we call the technology shift, and that is I think probably the first time that many of us are ever going to really feel the true effects of what technology can do to us and our role as realtors. I think you can all agree that technology has been helping us immensely in our real estate career, from when I first started 30 years ago where we didn’t have the PC to where the PC, the hardware came in. Then we had the software on top of it. And now we’ve got the cloud. So through all the different plugin software, the way homes are searched and the way we can get our prospects signed on MLS prospect matches, and the paperwork is all really digitized now and they can sign anywhere. I think you could probably argue it’s made our job a lot quicker, simpler, and certainly faster.

The new shift that’s coming is going to be what I think is called the fight for our industry, which is, who’s going to be running it? Is it going to be a lot of the Wall Street tech firms that are investing, I think, $13 billion this year on trying to disintermediate the agent? Or is it going to be the agents at the centre of the transaction with a whole bunch of other resources around it? So I’m excited to talk about that.

And then the third one is the shift from general intelligence to more emotional intelligence. I’ve really been doing a lot of research on this lately, and it’s just fascinating to me. I always wonder, why is it that some agents are really, really successful, and other agents (who I think are way smarter and probably know the market better than most of the other agents) struggle? And it’s because they have a lot more of the IQ and are very logic-driven, where I think the game that you win this year is going to be the emotional intelligence, which is really, how can you empathize with other people? Can you place yourself in their shoes and really understand how they feel? Do you have an ability to cheer up or really calm down another person? There are a lot of things that can go wrong in a real estate transaction from the beginning to the end, so how do you react when something goes wrong? Do you have the ability, when they get angry or upset about something, to just calm them back down and get them out of high fear and panic and anxiety? I really think, what I’ve noticed in my career, is that’s what separates top agents who have growing, amazing client bases from other agents who just seem to struggle so much. I just find it fascinating. I hope if you’re listening to this today, you find it a little bit fascinating, too. We’re going to be talking a lot more about that next year.

So let’s just get to today, which is going to be part one of a three-part series. We’ll probably put a podcast out every week now for the next three weeks. It’s December 10th today, so while you’re taking some time off and resting after all of your hard work this year, if you’ve got some time and if you’re interested, you can always listen to these podcasts and see if it’s something that you want to really align with and set yourself up for success for 2019.

So the first point is we have these three shifts. We have the economic shift of a shifted market, because markets do shift – they go up and down. We have the technology shift. And I’m going to call it the emotional intelligence shift. And the first part is just recognizing that there is a changing landscape of real estate, and the goal is really to put the right systems in place and follow the right models so that you can achieve in any market. And with these three impending shifts, I think the ground’s going to get a little shaky, not only for agents, but I think for our customers. They’re going to be looking to you for guidance. What I do know to be true is in the short term, everyone in a downward-shifted economic market feels it equally, and your goal is to try to get real and get right as soon as possible. Your whole argument is, just play the hand with the cards you’re dealt, not with the cards that you wish you had. And that was a great saying by a coach of mine, Dan Sullivan. I just love that, because whatever happens – it’s okay. It’s a different hand you got dealt. We’re just going to play the game slightly differently.

So moving into 2019, let’s look at the band of real estate agents – the whole width of it. We have some agents who are just a complete failure, can’t seem to get off the ground. And at the other spectrum, we’ve got agents who are a massive success. Most agents are in the middle, so the question today is, how do you get out of being stuck in the middle? First of all, as I said earlier, you’ve got to get real and get right. Just understand things have changed. Know that in your market, when the real estate market shifts from a seller’s market to a buyer’s market, it’s very dramatic. From a buyer’s market moving into a seller’s, it’s a long, long build. It actually might take three, four, seven, 10 years. But when it shifts, it goes really suddenly, and that’s just because real estate is a cyclical business. What goes up must come down. Shifts are never unexpected, but they’re rarely predictable. You kind of know one is coming; you just don’t know when. It’s funny – each time a shift occurs, we act surprised, as if it’s never happened before. And then once the shift is over, we go on to act as if the shift will never happen again.

So let’s look at the anatomy of a shift. Shifts occur whenever supply and demand move out of balance. When a seller supply exceeds buyer demand, it’s a buyer’s market. And when buyer demand exceeds seller supply, it’s a seller’s market. A balanced market occurs during the transition between these two markets, but a balanced market rarely lasts very long. So my first question is, why do you think a shift to a buyer’s market can cause so much pain? I guess my answer to that would be because it’s dramatic, and it’s really fast. If we look at the U.S. market in 2005, 2006, 2007, and 2008, you can actually see that it was very dramatic, and it was very, very fast.

So let’s define them. We have three types of markets. A buyer’s market is typically 5-7 months of listing inventory. A transitional market is 4-5, and the seller’s market is when you have usually under three months of inventory. In a seller’s market, there’s just a high turnover of listings, which means your listings sell really quickly. The whole key in that market is that proper pricing and marketing of the listing is what matters less, because in a rising market, you can almost be wrong on your price, and the market will catch up to you. You’re also going to find that commissions will be challenged, because if someone is listing their property and you sell it in two days, and they’re paying $10,000 – $100,000 commission, a lot of people get a little bit weird about that. It was interesting – last week or a week and a half ago, I was teaching in Montreal one day and then Newfoundland the next day, and the third day I was teaching in the Niagara Falls area in Canada. I came right from the airport to the hotel and checked in and went down to the bar to grab something to eat before going to my room. I was the only one in the bar and of course the bartender was chatty and she said, “Oh, do you stay at the hotel?” And I said no. And she said, “Oh, what are you doing here?” And I said, “Oh, I’m just teaching tomorrow.” And she said, “Oh, Keller Williams is here tomorrow.” And I said, “Yeah, I’m just teaching a class called the Business Planning Clinic.” And she goes, “Oh. Let me ask you something.” Right away, that was our conversation. She said, “I listed and sold my house a couple weeks ago, and we had to pay our agent $40,000, and the house sold in two days. And I’ve just got to tell you, Glenn, that’s exactly what I make in a year.” Think about that! That’s a lot of money, right? That’s a lot of money that people are looking at when you’re in a rising market. It sells quick. They don’t know the opposite of when we’re in a slow market, when it takes forever. All they really care about is themselves and what happened to them. They don’t really care about any other kind of context.

Anyway, in a seller’s market, prospecting is still a should-do activity. Lead generation is marketing-based and prospecting enhanced. You can market more, get the calls, and then follow up prospecting. Buyer counselling becomes a lot more important in a seller’s market, because they’re going to be losing on multiple offers. Sometimes the sellers think they can do it themselves, so they don’t think they need us as much. Market data becomes less important, and in that market, it’s easier for you to increase your sales volume, but it’s really hard for you to increase your market share.

Now, if we look at the opposite, which is a buyer’s market, we have a low turnover of listings, and properly priced and marketing listings really matter. It’s all about getting the right price, because if you don’t price it at the market, you will be chasing the market. I always think our job as agents is to sell the property before the seller hates you. In my experience, it’s usually about three weeks that you’ve got until they really start hating you and questioning, do we have the right person here? What you’re going to find in a buyer’s market is prospecting is a must-do activity, so more of your lead generation is prospecting-based and then marketing enhanced. You’re going to have a lot more time that you’re going to spend counselling your sellers. Buyer urgency becomes an issue, because if they start to see prices go down, they want to look more and wait longer, and I’ll tell you, in this market, market data becomes very important. You just have to become a student of the market, and you have to know the days on market. You have to know the listing inventory, where the average price is going, the percentage of asking that homes are selling for. This is where we add the most value. In this market, it’s harder for you to make volume gains because the overall volume drops about 20-40%, but if you can maintain your volume, you actually gain market share.

So let’s look at some of the seller’s challenges in a shift. I think the seller has unrealistic expectations and values. The days on market or marketing. The seller has a fear of selling at the wrong time. The seller is afraid to disclose their motivation. The seller is possibly unable to sell because they don’t have enough money to bring to closing. That’s going to happen. The seller may want to refinance, not sell, and buy low. The seller may be unwilling to bring the property up to standards because they just don’t have all the equity that they used to have. And they can also ask you to reduce your commission to help compensate them for the market shift, right?

Let’s go back to the buyer’s market. What happens when we move to a buyer’s market is the sellers go through what we call the five stages of grief, which are denial, anger, bargaining, depression, and acceptance. Your job, as an agent, is to add as much value as you can at this point. It’s also where the emotional intelligence comes in. I think we add value to our customers when we actually provide leadership to them and say, “You know, this is kind of a complex situation, but I’ve done this before and I know how to do it.” We’re going to have to let them go through denial – “I can’t believe my house has dropped $50,000 or $100,000” and they’re angry about it. And then they’re going to bargain with it – “Well I’m sure we can just wait and find someone who’s going to overpay.” But eventually, they get to acceptance, and that’s where we need to be. I think in that market, also, you really have to start looking at who you want to work with. Do you want to work with the seller, who is anyone who could sell their home, or a seller seller, which is, to me, someone who has to sell their home? I would just tell you to focus on the latter.

In a buyer’s market, when you’re trying to sell your property, you have to price ahead of the market. The best price you’re going to get is today, and if we wait until next week, the price you’re going to get is going to be much lower. You have to be able to really stand out from the competition. You really have to stage your property to be what we call the best in class – the best home on the market. It’s kind of like a dog show or a beauty contest where there’s only one winner. Where, in a seller’s market, everything that gets listed will sell, so you really have to be best of class. In any neighbourhood, sometimes only one property is going to sell that month, and it’s the one that’s priced the best and shows the best and is marketed the best, right?

The other problem we have is with buyers in this shift, which is more a fear of the future, and a fear that property values will continue to go down. That they might buy a home and lose their job if it’s an economic shift. They also believe that they have all the time in the world to look into buying, so they’re not as motivated as they are in a rising market. I think buyers also believe, “Hey, I can make any offer I want and people will have to accept it,” which we know isn’t true. I think the biggest thing most buyers don’t understand is it’s called a buyer’s market for a reason. It really says that it is the best time to buy, and I’m not being cavalier when I say that. I want you to ask yourself, if you bought one property a year for the last 15 years (and let’s just say you bought the worst property in your area, and you bought 15 of them), are you going to be worse off or better off today? I think you’re going to say you’re going to be way better off, because you’ve been able to pay them down, over time they appreciate, and if you actually look at most markets, prices of homes double every 10 years. The way you can call me on this or check it out is go onto your MLS sales and just do the tracking. You’re going to see that about every 10 years, properties double in value. So it’s really a question for buyers in that market. If you’re thinking about buying a home for a year or two and then moving out of the city, I think as a great consultant you’d say, “You know what? You’re probably better to rent right now because the market seems a bit unstable.” Whereas, if they’re going to be there for five, seven or 10 years, then of course it’s a great time to buy. We’ve got record low interest rates right now. The amount of interest you’re going to pay the bank is ridiculously low compared to the normal economic shifts we’ve had, which were usually triggered by inflation and high interest rates. They might have bought at the bottom of the market, but let me tell you, a $200,000 mortgage at 15% is probably $2,600 a month, whereas today’s numbers, between 3-4%, you’re at about $950 or $1,000 a month. I mean, it’s ridiculous how cheap it is right now to own. Plus you don’t have to pay as much interest because rates are lower, so you just get to the principal a lot quicker.

And then if we’re in a transitional market, which is that middle market, you just have to shift really quickly with the market. We’ve found that nationally, transitions are very slow, but locally, transitions are very fast. You really have to watch your local market stats for the direction and the speed of this shift. I would tell you, in this niche environment, what you do is you start directing all of your efforts to the part of the market that won’t change, that won’t be affected by the shift. You pick a group right now that will benefit most from the shift, and that’s where you focus all of your energies. I would argue right now that it’s a lot cheaper to move up in a down market than it is to move up within an up market in almost any city anywhere that you study. So it’s a great time to actually make that move, and if you focus on the move-up buyers, you’re going to probably be able to do a lot better than if you’re just going to be staying with the first-time buyers – and a lot better than if you’re dealing with a downsizing market. They’ll usually tend to wait these things out, because they don’t have to do anything and they really only have one chance to maximize the value. If you’re coming out of a buyer’s market, it’s just a full court press on your listing and lead generation to grab market share. It’s an opportunity to make major gains in market share and volume. Whereas, if you’re coming out of a seller’s market, where a lot of markets are now, you really have to ramp up your buyer prospecting and buyer lead conversion. Be sure to focus on protecting what you have, which is your market share, your volume, and your profit. And also, in this, there’s the Theory of Equilibrium. Markets move back and forth, so whenever a market moves, there will be a bunch of benefiters and there’ll be a bunch of losers. What you have to do is, whenever a market backs off, you become a market maker, and you press on. This is when you actually work harder, because maintaining sales volume net income is actually a massive increase in business relative to the market. I remember when I started in 1989, 30 years ago, the first year was a real booming market, and then the Toronto market collapsed. We were in a down market for six years until prices stabilized. It probably took 10 years to get back to where we were, so that would be probably about 2000, but the gift for me is I just didn’t know any better, and I just kept working, where I started seeing a lot of the top agents at the time and top companies just go into denial about it. With a lot of our trade industries, a lot of times they’re there to cheer up the public instead of really face the reality that we’re in a shift. They kept on saying, “Oh, looks like it’s going to turn around” when it didn’t. And all you can do is just play the game with the hand you’re dealt. That’s the bottom line. You’ve just got to go play that game, because that’s the one that matters the most to you. Just play the game with the cards you’re dealt.

There are a couple of forces that cause a shift. We have the seasonal cycle. This is December when I’m recording this, so depending on what part of North America you’re in, you’re either going to be entering your busy period, or you’re going to be in your slow period (especially if you’re in the northern part of North America). It’s traditionally a low time, low volume. If you’re in the southern states you’re going to, I think, get more high volume. You also have to watch the economic trajectory. What is the overall annual direction, up or down, of your local market? And how is that being affected by employment, cost of living, housing affordability, population growth, demographic trends, layoffs, new technologies, and mismatched job markets? You have to be watching these kinds of numbers. And then what we’re going to be talking about in a few minutes is the second shift, which is really more about what we call the technology shift. We call it prof tech, and it’s basically just the use of technology in the real estate industry to make transactions more efficient. So if you can imagine, in a down market, you just have to build a fortress around what you have. As the market falls, your whole job is just to hold onto your numbers, to keep your volume the same, because everyone else will be dropping 20%, 40%, 60%. If we look at the Toronto market, which has really been an up market since 1996 (so that’s almost 22 years of an up market), over the last two years, we have seen a 40% reduction in sales volume. And remember, you always have to watch volume, because volume is the leading indicator of a shift up or down. In a down market, the volume has to kick up first in order to stop prices from falling, and then it stabilizes prices. The volume goes way up but the prices don’t rise. But then eventually, as the volume’s increasing, all of a sudden you’re going to see those prices go back up. It’s the same thing going from a seller’s market to a buyer’s market. First the volume drops and no one really notices it, and prices don’t seem to go down that much, but you’ll really notice that the further away you get from the core or the high-volume areas, you’ll start to notice that shift will just magnify and accelerate. And then when the next up shift comes, you explode, because you’ve been able to maintain your share of the market, and because the market increases, you go up at the same level of that. So the issue’s really not so much about the shift, but how long the lag continues before equilibrium is hit and the market goes back up by itself. So until that equilibrium hits, it’s really all hands on deck. We’ve got to ride this thing out, and it’s not about just sitting back and being passive. It’s like, “Let’s go!” Now we have to go, because no one really knows how long it’s going to be, so you just have to go and get after it.

To be able to get after it, you have to have three abilities. First of all, you have to be able. You have to have the ability to master the skills, install key systems and have the right people in your business. You also have to be ready, which is about getting your mindset shifted. Have the right people, understand the situation, and see the opportunity. And also get the right coaching that’s required, because when a market shifts, it’s not the same old, same old; it’s more different techniques. It’s better and different strategies. And I have to tell you that the mindset that’s required to do 25 deals is different than the one to do 50 deals or 100 deals. So it’s about sharpening your saw. It’s about getting the right coach and mentor. And also, it’s about having a plan. What’s your motivation? What’s your plan? You’ve got to accept the risk of this market, take action, just go out there and do it, and then stay the course. The way we have to do that is you have to just become proactive. The moment your market flattens, you have to take a defensive posture. And if it goes back up, it won’t hurt you – it’ll clearly help you. And if it continues to trend down, you’ll already be in the middle of making the right moves. This is really how you become more proactive instead of reactive. You have to take the defensive posture, start cutting your expenses – playing red light, green light with your expenses. Red light: hold every expense to account. If it’s not making you money, you have to cut it. Green light is when you have the expense that’s actually not really an expense; it’s more of an investment, which means it’s giving you a 4:1 or even an 8:1 return. Take a look at what you are doing in lead generation right now. What are you doing with Facebook targeted ads? What are you doing in your farm area? What are you doing in your niche markets? Hold your money accountable.

Remember that we also have three non-economic issues that really affect our market. One is the affordability (which is economic, in a way) but it’s really, if prices get too far ahead of the median income or the average of everyone’s income, there’s just fewer buyers that are able to actually buy. When the buyers stop buying on the low end, it cascades up the whole home-buying pyramid. The other thing is mortgage rates. You have to watch what the central bank is going to do or the fed’s going to do. What are they looking at right now? What’s the conversation they’re having? They have a huge impact on whether or not we get out of a market. And you’ll see that in the peak seller’s market, they’ll start to tighten all the lending rules, and then when we get back into a buyer’s market, they start to slowly loosen them. But they’re always a lag – they’re always a couple months or a couple years behind where they should be.

And then the third thing, really, is what we call government policy, or your Board policy. What is your provincial or state or municipal government doing right now that’s affecting real estate? Are they limiting supply of land? Are they putting more zoning rules in? Are they trying to tighten lending rules? What are they doing right now that will really have a major effect on you? We’re the end of the food chain here. We really don’t have a lot of power at the upper levels to dictate how this market’s going to go. So I think this is just a time I really wanted to talk about in Episode 1. Here are the three shifts that are coming. I’m going to get more into details in Episode 2 about the technology shift, and I’m also going to give you a lot more tactics on how to deal in an economic shift.

Thanks for listening! I hope you enjoyed the podcast, and if you have any questions, feel free to email me at glenn@glennmcqueenie.com.

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