It probably won’t come as a surprise that many economists are predicting a slow recovery from the Coronavirus-caused market downturn. A shifting real estate market can decimate a real estate agent’s business if they’re not prepared.
While some agents view this as an insurmountable challenge, others view the recession as an opportunity. What are the best opportunities available? Start with these five proven techniques to grow your business and double your gross commission income (GCI) in the coming recession.
1. Work With Real Estate Investors
Famous investor Warren Buffet of Berkshire Hathaway has been quoted saying, “Be fearful when others are greedy and be greedy when others are fearful.” With this philosophy in mind, some real estate investors are very active during recessionary periods.
Some may be buying undervalued properties, while others may have been caught off guard with too many properties, or even worse, overleveraged, and are now in urgent need of selling properties quickly.
How to Find Motivated Investors
The first step to working with investors is to find investors who own multiple properties. You can search for multiproperty investors yourself by searching county records. Start with a small area or ZIP code search and exclude any properties that are owner-occupied.
Next, export and sort the data by the address of the property owner. Sorting the list by the owner’s address is important because many investors hold their properties in different names but use the same mailing address.
Once sorted, narrow the list to investors who own more than three properties in the area.
If doing a county records search yourself is not your cup of tea, the website www.distressedhomesearch.com has the ability to complete this search in just a few clicks, with plans starting as low as $97 a month.
What to Say to an Investor
Here’s an easy script you can follow when doing your outreach to investors:
“Hello, my name is _______ with __________ Realty. I see that you own multiple properties in _________________. Are you considering selling any of the properties at this time?”
If they say no, follow up with this question:
“Are you interested in buying? When I come across undervalued properties, would you like me to contact you?”
It is my experience that real estate investors are either very aggressive or very conservative when it comes to a shifting market. The secret is to continue to make connections with investors until you find investors looking to make some moves.
2. Learn to Be a Home Retention Specialist
Most agents believe their job is to only help a client buy or sell a home. However, what they don’t consider is creating loyal, long-term customers by providing additional value of advice and support during difficult financial times.
One way you can do this during the downturn is by positioning yourself as a home retention specialist. A home retention specialist has the ability to guide a homeowner through the common obstacles and challenges a homeowner may face during a recession.
This may not pay you in sales commissions today, but in the big picture, you will build a loyal client base that would never consider using another agent.
What You Need to Know to Become a Home Retention Specialist
1. Learn the resources that are available nationally as well as locally for homeowners who are facing foreclosure.
2. Keep a list of local job opportunities to help them find employment.
3. Provide unemployment resources, such as your state’s unemployment office.
4. Find charitable organizations that may provide short-term financial support or help pay a missed mortgage payment to prevent foreclosure.
5. Learn additional skills to help you explain and guide a homeowner through a loan forbearance and loan modification.
3. Become a Short Sale Expert
During recessionary periods, home values may decline, leaving some homeowners underwater with their mortgage. If they must sell during this time and they don’t have the money to pay off the difference in their mortgage, they may need to request a short sale from the bank.
In basic terms, a short sale is when the mortgage holder accepts a payoff that is less than the loan balance. When property values drop as little as 5%, recent homeowners may become upside down with their mortgage. This is why mastering the short sale is crucial to surviving any recession.
Think about this: a homeowner purchased a property for $350,000 and holds a mortgage of $332,500, but due to the recession, the property is only worth $345,000. If they were to sell it at market value, after commissions, title insurance, prorations, and closing fees, the homeowner would need to bring over $12,000 to closing in order to sell.
If this homeowner is financially distressed, behind on payments, and does not have the ability to bring the money to closing, then a short sale may be the best option for them and the bank.
In this example, the bank would have to accept a payoff of $320,000, $12,500 less than what is actually owed on the mortgage. Banks may accept a short payoff because the cost for them to hire attorneys to foreclose, clear the liens, and list the property with a real estate agent would cost them more than the $12,500 that they would face as a loss in the short sale.
Each state has different rules regarding short sales, the borrower’s and the bank’s rights regarding foreclosures, and the ability for the bank to collect the deficiency on the loan.
For a comprehensive training on short sales, helping distressed homeowners and more, check out my new course: Survive and Thrive in a Shifting Real Estate Market.
4. Prospect Pre-foreclosures
Every agent knows that the secret to effective lead generation is finding motivated customers. Financial distress can be a strong motivation to sell. This may seem predatory to some agents, but in reality, you are helping your community by explaining to distressed homeowners what their options and their rights are when they’re facing foreclosure.
If you help just a few homeowners in your community from foreclosing, you’re not only helping each homeowner, you’re helping retain property values for the community as well.
If you want to work with preforeclosures successfully, you need to think of yourself as a contributor rather than a salesperson. If you were a tow truck driver, you wouldn’t pass someone in distress in a car with a flat tire, would you? People in foreclosure are no different—they are in distress. I believe it is our duty to be proactive and to ask them if they have their situation under control or if we can offer them assistance or guidance.
In the middle of the last recession, I met a 70-year-old homeowner who had just received the notice that his bank was foreclosing. He thought that this meant that he had to move out immediately, and he was terrified! He and his wife fell behind on payments because she had lost her job and they could no longer afford the payments on just his Social Security income. They had equity and wanted to downsize to a smaller and more affordable home. I offered them my services.
I explained to them that their best option was to sell the property and to rent until their credit recovers, then they could purchase a home that they could afford. I guided him through the sale.
A year later, I received an email from him that they had moved to upstate New York to be near their children, and were able to buy a home. He explained that with the equity from the sale here, they could afford the payments on their retirement income alone. If they had allowed the home to foreclose, they would not have had the credit or down payment to buy another home so quickly.
I think of this story when I am prospecting preforeclosures to keep me focused on the positive impact I am making.
How to Start Prospecting Preforeclosures Today
Begin by learning about the home retention options we provided in the home retention specialist portion of this article.
Next, learn the ins and outs of your state’s foreclosure process and timeline. Your state’s timeline is crucial for you to learn to ensure you have time to sell the property before the foreclosure is final.
In some states, like Colorado, the homeowner is required to provide notice to the state if they intend to redeem or sell the property. This is an important step—and an opportunity for you to show your expertise. Missing that one step could force a homeowner to foreclose.
In most states, the foreclosure process begins with some type of public notice. Many data providers, like REDX, can supply you with a list of addresses of homes that are in foreclosure, complete with the owner’s contact information.
Once you have the list, start by contacting the distressed homeowners by offering your knowledge and guidance regarding the foreclosure process. Unfortunately, when homeowners are in financial distress, they tend to shut down and put their head in the sand. While it’s easy to mail or call them, they may be avoiding unsolicited calls and mail from bill collectors.
The Most Effective Way to Contact Preforeclosures
Your number one goal is to make contact with the homeowner and begin to build a relationship. The best way to do this is to meet them face to face by going directly to the house and knocking on the front door. Focus on providing them the home retention options we discussed before and listen with a nonjudgmental ear.
Historically, homeowners who fall behind in payments have a difficult time recovering. Over time, they find that selling the property is a better option than foreclosing. By showing them that you are a caring expert who has shared all their options with them, you will make a lasting impact on them and your community.
Learn more about the seven options for sellers facing foreclosure and how to talk to these homeowners here.
5. Maintain & Grow Your Sphere of Influence Marketing
Like all businesses, real estate agents are also under pressure to reduce expenses when the market shifts during recessionary times. This may include reducing or discontinuing the marketing to your sphere of influence (SOI). Don’t do it! This common mistake will cost you tens of thousands of lost sales, and can even ruin your career in a recession.
The biggest reason you shouldn’t cut your SOI marketing during a recession is that your sphere will generally offer the best return on investment for lead generation because you have already overcome the number one objective of marketing: building trust.
Continue an SOI marketing plan that includes low-cost monthly mailers, a quarterly newsletter, and four to five small client happy hours each year.
In 2008, prior to the the Great Recession, my SOI database included more than 750 former clients. By 2015, the database had shrunk to less than 300 clients. The reason for this was I had stopped my SOI marketing plan to save money. Not communicating that I care and that I was knowledgeable about how to help them during a shifting housing market resulted in some of my past clients selling their homes with other real estate agents and others losing their homes to foreclosure, not knowing they may have had other options.
Maintaining your sphere of influence marketing in a recession is so important that I tell my coaching clients:
“Continue to pay for your SOI marketing before you pay your house payment! Because, if you don’t, you won’t have the money to make your future house payments.”
If you’re not already marketing to your SOI, I have provided my low-cost SOI marketing plan here to keep top of mind, so you don’t end up losing clients like I did in 2009.
For a simple and easy-to-follow SOI marketing plan, see my relationship management calendar exercise:
Visit www.loveleadgeneration.com to download the exercise worksheets.
Over to You
What did you think of our five underrated strategies to double your GCI during a downturn? Know a great strategy that we forgot? Let us know in the comments below.