Because of the current problem being experienced with sub-prime mortgages, the credit-crunch and the general instability of the financial markets, the real estate industry is experiencing a period of decline, with property prices falling. Furthermore, it appears that this position is unlikely to improve in the short term. This situation will have a significant influence upon the real estate market and it is likely to trigger a number of property foreclosures and real estate business failures. Within this article, we take a brief look at how the homeowner and real estate business can survive such a period of deflation.
HOMEOWNER
For the homeowner, surviving the real estate deflation can seem daunting. This is particularly true if you have borrowed heavily against your property, either to fund the original purchase or to use it as collateral for another major purchase. Real estate deflation can affect the homeowner in two ways. Firstly, it may depreciate the value of their home and secondly, as the financial markets become increasingly concerned about the levels of lending and the issue of bad debt, this can start to place financial pressures on the homeowner.
In respect of the property value, movement on this in a deflationary period will have no effect unless the owner wishes to sell. It this is the case however, it is important that the maximum effort is put into making the property as perfectly presented as possible. All areas of the house and garden should be inspected and, where they might look tired or shabby, remedial action should be taken to give them a new brightness and life. A tin of paint costs little but, in difficult times, it can make quite an impact upon the price you get for your property, which is important when every penny counts.
With regard to financial pressures, if you as a homeowner find these are becoming a problem the last thing you should do it to try to forget about them because they will not go away. If you do not take immediate action, matters will only get worse. Should you find yourself having a problem discuss it with your lender immediately and see if you can work out an amicable solution that will relieve the pressure from you and at the same time forestall any unwelcome action from the lender.
Additionally, the homeowner should review all of their finances to ascertain if there is any areas where savings can be made that will help to relieve the immediate issues. It is better to change from a high monthly costing car to one that is half the cost than to lose the house and, even worse, find yourself in a position where your financial and foreclosure record means you will find it difficult to return to the property ladder.
In most cases, providing the homeowner has not pushed themselves to the absolute limit in order to acquire the house in the first place, the only effect that a real estate deflationary period will have is to make the home worth less and potentially delay any decision about a sale.
REAL ESTATE BUSINESS
Is it possible for a real estate business to survive this deflationary period? The answer is yes, but it will take a lot of hard work and a revision of the current business strategy.
The first and most important rule for survival is to ensure the business only takes on properties that are realistically priced for the current market conditions. Although a large stock of properties available may look good in the window, these are not money in the bank until they are sold. It is pointless expending a considerable amount of effort and promotional funds on property that you know will not sell. Concentrate your efforts on properties and owners that are facing reality in their expectations, providing your business with more realistically priced and saleable stock.
Secondly, a real estate operation must ensure that they are price competitive in terms of the commissions charged. 4% of $200,000 is still nothing if the seller can put their property in the hands of a real estate business that is currently charging 2%. This suggestion does not mean that the business should start a commission’s price war, just that realistic expectations must be maintained to survive.
Another aspect of the commission’s element is to strive for added value. It will be necessary to look at ways of improving the services provided, or adding extra services. Adding extra quality of service will give your business a competitive advantage over other local real estate organisations and may pay dividends in the short and long term.
Next, it is important to work closely with the seller to make sure the property is promotionally attractive. A property that is designed for sale, with that including freshness of decoration and other low cost improvements, will stand out from the crowd and therefore be more likely to attract a buyer.
In a deflationary period, the organisation will also need to adopt a low cost approach. Much as it might be painful to fire employees, any cost that is surplus to the needs of the business in the current climate have to be jettisoned. However, you also must take the same approach with other cost centres. For example, think about whether you need the large luxury car when a small economy model will perform the same task.
Opportunities for diversification should also be considered. The most obvious of these would be to increase the property rental side of the business, particularly as this is a related activity and, furthermore, one that is set to expand as the difficulties of ownership become more pronounced. In addition, and providing the business has been frugal during the good times, there is an opportunity to expand into the property investment business, which again would secure revenue and profitability.
SUMMARY
Surviving a deflationary period can bring difficulties for both the homeowner and the real estate business. The purpose of this article has been to provide some advice as to how each sector can survive the deflationary storm. As has been seen, whichever side of the fence you sre on it will take hard work and dedication.