Taking Advantage of a Dry Dock Market

We are now into the second quarter of the year and as predicted some very significant changes have occurred throughout the national real estate market. In most markets MLS inventory is way up, time on market is greatly extended and the absorption rates have slowed down.

The name we choose for this situation focuses our options and affects our responses. Some call it a Down Market. Others say it is a Flat Market. A more accurate moniker is a Dry Dock Market, which offers great opportunities for savvy brokerage leaders. Although this situation is exactly what experts like NAR’s Chief Economist David Lereah predicted months ago, there is now an undeniable sense of doom and anxiety among some real estate professionals.

Those who have declared this to be a “down market” are scrambling to lower their operating profile, apparently satisfied with the thought of hunkering down and waiting for the next upswing in future months or years. This business practice can be likened to the centuries old behavior of the desert shrimp that occupy the high desert in California. They simply go dormant awaiting the spring rains when they can once again continue life as usual. Those who have designated this a “flat market” are trying to find just the right angle to make it tilt. Evidence from such formally hot market states as California and Florida suggest that at least some of the record number of rookies brought into the industry over the past three years are convinced that they can personally impact the “flat market” by having clients lower their listing price by 10 percent, a practice that raises a number of interesting professional issues.

Yet another group has decided to ignore the current market as a figment of someone's imagination, and surge ahead into the shallower water.

So why are we calling this a Dry Dock Market?
It is easy to understand if you are a fisherman, a farmer or a landscaper in the northern clines. Every year, without exception, there comes a time when the work slows down and you set about the task of catching up on the things that never seem to get done during the peak periods. This is the time to paint the hull, polish the prop, fix the tractor and sharpen the blades on the mower. It is a positive time, something that is critical to the cycle of nature and also to business.

There is no question that the current real estate market is unusual. The experts suggest that the industry can expect to sell about 6.7 million residential units in 2006 – a volume reduction from the historic market of 2005 (7.2 million units) of about 5.7 percent. Yet by volume this prediction would make 2006 the third best market in history.

Gone too, according to these same pundits, are the meteoric increases in property values, which in some markets have reached double digits over the past few years. For 2006 average appreciation is predicted to be a mere 5.8 percent. Yet some even go so far as to suggest that there is a silver lining in a market that will reduce volume by 5.7 percent and will increase values by 5.8 percent.

The real issue here is that using these market dynamics as the basis for defining the market ignores several other factors such as the general positive health of the American economy and the availability of mortgage money at historically advantageous interest rates.

All of these statistics and factors taken together strongly suggest that we are currently experiencing a “dry dock” market - a season between two booms. With this understanding we empower ourselves to move forward over the next several months with taking care of all those chores that have gone undone.

On the positive side the industry has demonstrated that during a boom it can process transactions and recruit agents in record numbers. On the not so positive side, the industry has demonstrated that under the traditional business model high volumes do not translate into either high brokerage profits or happy customers (happy being the definitive term rather than satisfied.)

During the next several months, as things slow down, the industry will take a look back over the last boom and find that high volumes taxed its ability to manage and police itself. A record number of ongoing investigations into matters regarding title and mortgage relationships in 2005 have gone largely unnoticed in the rush. The industry may also find that mortgage fraud became an epidemic during the last boom. Finally it will become more than evident that the current agent training system failed to create an optimum level of competence during the last boom. Issues such as these should be our focus during this “dry dock” market.

Of course, these observations are taken from an industry wide perspective. They do not take into consideration what has happened within individual firms over the past three years. Your firm may have other chores to complete while part of your fleet is on dry dock. Lest you are tempted to put off these chores, recognize that your time is limited.

The stage is already being set for the next boom.
The buying and selling pipeline is full. Recent reports suggest that up to half of all seniors are anticipating a move in the near future. The rapidly growing immigrant population is demanding its version of the American dream. Record numbers of Boomers are looking for the perfect second home. And millions of “X’er” and “Y” generation households will be reaching that magic home buying moment in the immediate future.

This is the perfect opportunity for brokerages, their managers and executives to take advantage of the lull to repair the damage caused by the past three year's of hot markets and to effect those modifications that will bring an unheralded level of profitability during the next boom.

Start by initiating a dialogue within the company relative to what worked and what didn't during the last boom. What and who performed and what and who didn’t? What objectives were reached and what goals went unmet? Stimulate the discussion by considering what outcome you would like to see out of the next boom. Rather than taking time to set up goals and objectives for the off season, move directly to what has to be done in order for your team to perform well leading up to the next real estate Olympics.

Take a close look at systems in the areas of finance, transaction management, budget, technology and communications. Look hard at the “soft” areas such as agent relationships and customer value and experiences. How well did your management team perform and what can be done better next time to manage success rather than just survive it.

Keep in mind that for many brokers the next boom will be the “last boom” of their career. Now is the time to consider in what configuration you want to be. Will you use the next boom to rake in profits, configure your firm for a sale, or both?

Don’t miss the ultimate opportunities of a “dry dock” market. Now is the time to take a careful look at your firm, its condition, its potential and its destiny. This is not the time for a long winter’s nap or an extended leave. It is the time to work on your firm, when you are not too busy working in it.

When the wind once again fills our sails, the fishing season returns, the crops begin to grow and the grass once again needs cutting, be sure that your assets will perform optimally, that your warehouse will grow full, and your studied goals will be met.

Copyright (Reprint Terms)
Copyright© 2006, Jeremy Conaway. All right reserved. For information contact FrogPond at email susie@FrogPond.com.