This abridged article first appeared in full on REB Online
The bad news is that the good times won’t last forever. The good news is that the bad times can be turned to your advantage.
Real Estate Business explains in this exclusive report. A downturn is coming. When is impossible to say. But a slump has to happen sooner or later because property prices can’t keep rising forever.
Another sad fact is that not all offices will make it through that downturn. The boom years have attracted plenty of new players who have only known good times and who may have no real plan to cope with the bad. To quote Warren Buffett, “a rising tide lifts all boats, but it’s not until the tide goes out that you realise who’s been swimming naked.”
The worst time to prepare for a downturn is when one has already started. That’s why agencies need to start preparing now – right now – for the inevitable rainy day.
“Agents need to put their operating costs under a microscope, because for the bulk of agents across Australia, their businesses aren’t set up to be run economically.”
Founder & CEO One Agency
So what steps should offices take? Real Estate Business spoke to five experts from inside and outside the industry to discover how agents and principals can future-proof their business. Their advice ranged from taking control of costs and focusing on marketing to paying greater attention to property management and learning how to price property accurately.
Paul Davies commented and this is taken as an excerpt, to read all five interviews click here:
One Agency founder Paul Davies warns that some offices have got into a bad habit during the boom years – they’ve paid attention to the wrong part of the balance sheet.
Mr Davies says some principals have become so excited by strong sales figures that they’ve lost sight of the fact business success is measured by profits, not revenues.
“For that reason, agents need to put their operating costs under a microscope, because for the bulk of agents across Australia, their businesses aren’t set up to be run economically,” he says.
“They’re set up to maximise income – of course, that’s relevant, but what’s left after you’ve paid your operating costs is the only measure of success.”
Mr Davies says one reason this problem occurs is that many people who become principals are well versed in listing and selling but lack business management experience.
The lesson for principals is to do more than just focus on where the next deal is coming from – they also need to calculate what it costs to create those deals, he says. If they discover that their margins are too small, they should consider cutting costs. That could include reducing their staffing levels or sub-leasing part of their premises.
“For any person that is a business owner that’s come into the business during a boom market, when they’re only really concerned with revenue, and when they start to run out of money they just look at creating more revenue – those sorts of businesses need to review their attitudes quickly, otherwise they will go under,” Mr Davies says.
If you'd like to find out more about running a profitable real estate business, Paul Davies has published a book on the subject - click here to order.
At One Agency we are always open for a conversation, so if you have anything to say in response or have any questions, please contact us.
T 1300 79 23 88
T +61 2 8039 2110 (International)
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