1. Due diligence disclosures have never been more important. The real estate industry is under intense public scrutiny in the existing economic climate, with politicians eager to place blame. Brokers and agents need to protect their deals and look out for their clients’ best interests by reviewing all aspects of the subject property. Opinions and concerns should be explained to the client as soon as possible. Getting information and counseling clients takes time, but better time spent during the agency than later as a defendant in a lawsuit. Silence becomes dangerously noisy in the current market environment. For the next three or four years, principals will be fast to blame any professional involved in the transaction for the effect any lack of information or oral advice may have had on their proceeding with a transaction, be it a listing, a purchase agreement, a loan, or a lease.
2. Know how the plans for a Federal bailout will affect real estate. An informed agent will be ready to adjust to the changing market environment. Watch and determine what Congress is doing for real estate, not what the market is doing for real estate. For the next three or four years, real estate will be driven by what Congress does to cover for what the Federal Reserve and US Treasury allowed to happen over the past decade. Wall Street got into real estate and the mortgage markets and fast-funded them with cheap short-term money. This may be a sound way to handle stocks and bonds, but it’s more than clear it did not work for real estate.
Congress will need to create a replica of the 1989 Resolution Trust Corporation (RTC) for the purchase of 7% of the mortgages in the US, the bad loans held by the banking industry, be they thrifts, depository banks, Wall Street bankers, or just good old local mortgage bankers. Then they will need to hire management to operate that new real estate loan empire and oversee the $700 billion in paper. This is where the next three to four years becomes interesting to all types of brokers and agents.This new RTC will be renegotiating the loan amounts owed by owners who have a job and can make payments on their loans, an arrangement not unlike the FHA Section 257 cram-down refinancing that called on lenders (pre-takeover) to renegotiate the principal amount and payment schedules on bad loans. For brokers and agents, this is an opportunity to negotiate a reduction in principal and payments on behalf of the owner in lieu of negotiating a short-sale payoff for the owner. Instead of short-selling the property for a fee, the agent re-arranges the loan for a fee.
However, most owners who have defaulted on their loans have the ability to pay, but are simply not foolish enough to pay on a mortgage when the property is worth less than the amount owed. On these loans, the federal government will moralistically refuse to rearrange the principal and foreclose on the property as non-recourse or recourse paper and take possession the property, with or without a money judgment. The government displays a lack of experience to in thinking a fast foreclosure and resale are the best loss mitigation techniques available to them.
The RTC took until mid-1992 to finally figure that one out, and it can be seen that most recently licensed sales agents have yet to figure it out. A couple of years from now, brokers and agents can start to work with investors to acquire several properties at deeply discounted prices from the new RTC, then immediately re-market them at retail prices to users who will either occupy them or hold them as long-term income property investments.
3. Use the right listing agreement. This is always a good rule of thumb, no matter what market a real estate agent or broker is practicing in. Make sure to use an exclusive listing to protect a hard-earned fee. Then, follow-up and assure payment of that fee on the close of escrow by both placing the fee provision in the buyer’s offer above the buyer’s signature in the purchase agreement and telling the escrow office to place their authority to pay the fee in the mutual instructions signed by BOTH the buyer and the seller. Avoid separate agreements with the seller which allow the seller to close the deal on the brokers and agents, who only “suddenly” discover that the irrevocable assignment of the seller’s funds do not get them paid when the seller closes escrow with instructions not to pay the brokers involved. In these shady dealings, the money is either disbursed by escrow to the seller or is retained by escrow for lack of the broker’s mutual instruction to release it to the seller. Either way, no fee is paid.
4. Consider going into property management. Property management during the off-cycle equals a recession-proof career with a steady flow of fees, month after month, which provides a financial basis for time spent on larger sales which may not materialize quickly due to recessionary market conditions and buyer knowledge that prices and terms for payment of that price may well improve – in their favor.
5. Be fierce about quality over quantity. Fire those sellers who will not follow your advice on pricing and terms to move the property within 30 days of advertising. Fire those sellers who will not invest their time and money in the inspection and investigations that produce the reports needed to fully disclose the material aspects of the property’s condition that are included in the agent’s marketing package for the property. A broker or agent putting time and effort into a marketing package must be able to use those packages as tools to create an edge up for themselves and their clients in the cutthroat market that will develop in this recession.
6. Become a broker. Agents who are organized, disciplined, and able to finance a breakaway and go into business on their own should seriously consider taking the time now, while the sales market is slow, to become a broker and control their own fees.
7. Be web savvy. Most buyers and renters start their search for real estate by turning to the web. Not only will this knowledge help real estate professionals get to them, but it will streamline work processes. Working with the computer and internet forces professionals to organize their activities and respond quickly to prospective buyers and sellers who are looking for properties.
8. Know your real estate economics. Anyone can predict the future, but part of being a good real estate professional is knowing the causes behind what’s going on in the market. Trends always exist, but they must be developed from a knowledge of relevant data covering a period of time. Draw a prophetic statement from data and develop an opinion on what is most likely to happen in the future, and then act on it. If that opinion is given to a client, then the source of the information or the data used must be passed on so they know the basis for your belief.
9. Learn about environmentally-friendly housing. Not only is it good for the planet, it saves money. Sellers can use the information to make improvements and stage their homes for conscientious buyers. Buyers will appreciate tips to keep their living costs down.
10. Keep tabs on your license. Know when your license is expiring and what you need to renew it. In a fluctuating economy, the last thing brokers and agents want to do is run into problems with their license when they need it most.