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Stefan Swanepoel: A Broad Look at 2012

Feb 9, 2012

Posted by

Frank Cook

Frank Cook is publisher of ALQ/Real Estate Intelligence Report a residential real estate newsletter focusing on the cutting edge of the industry and author of "21 Things I Wish My Broker Had Told Me Read more

The Real Estate Professional recently asked Stefan Swanepoel “10 easy questions” about what would (and what could) happen in 2012.  His responses are reported below.

 

Stefan, The Real Estate Professional would like you to look into your crystal ball and tell us what you see for 2012.  From years of experience, we know you’re not shy about putting your opinions on the line and your predictions are usually bold, insightful and, historically, pretty accurate.

Here’s what we’d like to know:

Q.)  For the past few years, we’ve seen a roller coaster in home sales and home prices -- up one month, down another -- while overall sales seem to be lackluster. What about 2012:  Are sales going to be up, down or flat?  The same question about prices …up, down or flat?

Stefan:  The real estate roller coaster ride has already had the largest and longest drop of the current real estate ride and we are heading back to the home stretch.  That said, the ride isn’t quite over and we still have a few twists and turns left.  There are always last-minute surprises so don’t become too over-confident, too quickly.  The good news is that, if you survived the ride so far, you have done well and should start to plan on increasing your market share while you have less competitors in the market who are as serious about the business as you are.

Q.)  Everywhere you go these days people talk about the “shadow inventory” like the housing bogeyman.  What’s the truth?  Are the banks going to start dumping their REOs on the market in 2012?

Stefan:  Starting to dump “shadow inventory” in 2012 will not just have an impact next year but, as we don’t really know what the real number is of all the bank-owned homes and seriously delinquent homeowners, the problem has more long term consequences.  Some speculate this number could be as high as 10 million.  Wow! … large enough to  haunt the housing industry for at least another three to four years.

Q.)  As we know, before a house becomes an REO it has to go through foreclosure, and at the moment the lenders seem to be moving at a glacial pace.  Some pundits say the banks don’t want to take too many homes too fast; others say -- given their level of competence (robo signing scandal) -- they are moving as fast as they can.  What do you see for foreclosures next year?

Stefan:  I am not sure it is “don’t want to” rather than their inability to handle large portfolios of transactions and their gun-shyness for new business.  Selling a foreclosure is currently a flawed, unjust, terribly messy, regulation-saturated and inflexible process.

What do we see for foreclosures for next year?… a continued mess that will see-saw quarterly as banks search for the millions of properties neatly tucked away on their balance sheets, simply waiting for banks to file proceedings at their discretion.

If these properties are flooded onto the market in any significant quantities at the same time, we will have a depressed housing market for many years to come.

Q.)  If housing continues a downward slide, it is going to be tougher and tougher to make a living in real estate.  At its highest a couple of years ago, the National Association of REALTORS® (NAR) membership was about 1.35 million.  It’s now down to about 1.05 million and may drop below 1 million in 2012.  Is having fewer agents good for the industry or bad?  And what will the impact be on NAR’s services?  At the current level of business, what number would signify a healthy industry?

Stefan:  1.35 million or 1.05 million … that number is really of little importance because we have so many people who are part-time real estate agents and I don’t think anyone knows the real number of full-time, active, “earning a decent living” REALTORS® left in the industry.

Various different surveys, and MLS organization research, say that 50 percent of all their members haven’t had a listing or a sale in 12 months, while others say that as many as 60 percent have one or less listing or sale.  So based on that number we may only have 400,000 “real” real estate agents.

So the question, is having fewer agents a good thing?  Depends from whose point of view you are looking.  From the licensing authorities, Associations, MLS organizations, service providers and schools -- no, fewer is bad and more is better.  They make money from selling to, teaching or servicing more people.

From a REALTOR’s® point of view, most would probably say less is better, as that leaves more potential market share for them and less part-timers and/or unprofessionals who could tarnish the industry.

From the consumer’s point of view -- why would they care?  A consumer needs only one agent at any given time, and as long as the real estate agent servicing them is professional, knows what he or she is doing, and gets the job done as requested, the consumer will be happy.  Number of agents doesn’t matter.

Q.)  OK, Stefan, down to the nitty gritty.  If you are a typical broker-owner out there looking down your list of sales associates -- whether that list contains five names, 10, 100 or 1,000 -- what kind of balance do you see?  What percentage of aging (and expensive) “top producers,” what percentage of untested (but cheap) “newbies,” and what percentage of “ready to make it big” agents are on your list?  And what percentage is dead-weight -- and what are you going to do with them?

Stefan:  What balance do I see, or would I like to see? … there is a difference, a big one!

We have long joked that a third of all real estate agents are coming (in the first years of having entered the industry), one third are leaving (doing well or okay, but have retirement already in their sights), and a third don’t know what they are doing (dead- weight as you called them).  Chances are this is what I’d probably see -- what most broker-owners would also see.

What are you going to do with the dead-weight? you ask.  Well, the industry should get rid of them, terminate their licenses, do not let them practice -- but we won’t.  Local politicians will continue to run interference and block significant change in different parts of the country while nationally we have no oversight, legal Act or body that can enforce raising the bar significantly in a short period of time.

Real estate brokerage will, on the whole, and for the foreseeable future, remain a product and sales-driven occupation rather than a knowledge and skill-based profession.

Q.)  Again, looking across your office at the skills of your own people, what’s missing?  What course or designation should real estate professionals have available to them that they don’t have now?

Stefan:  That’s an easy one, but the answer may surprise you.

What’s generally missing is a mindset.  The average baby boomer is an immigrant to technology -- they were alive, in business, maybe even in real estate before personal computers, mobile phones, the Internet and before social media existed.

Boomers have learned to use technology but don’t “live” in technology.  They did not, like the next generations, whether gen X or Y, grow up with technology already being a part of their everyday life.  Today’s younger generations not only use technology, they breathe technology.  They fully grasp the application and potential of how technology can be used in everyday life and in business.

NAR has some of the very best designations available in the real estate industry and I strongly support advanced education and/or mandatory continuing education (MCE). However, I often feel that a very large portion of agents take designation courses for the sake of writing letters behind their name and MCE only for the credits.  And although I clearly see that “value,” that’s not what it’s really about.  It’s about gaining additional knowledge and skills so that you may better service consumers.  And from that point of view, there are way too many agents who do not have a strong enough desire to improve their knowledge and skill set.  As long as we continue to have low barriers to becoming a licensed agent, we will continue to have an eclectic array of agents -- great ones and awful ones.  And some in between.

To answer your question more directly -- agents should make sure that they are better qualified than the other agents in their market and know how to handle any specialist market or niche that they serve -- especially foreclosures, short sales, luxury homes, green housing and internet marketing issues.

Q.)  Commissions:  The media always throws around “six percent” as the commission rate for most real estate transactions, even though it’s probably closer to five and a half.  Where are commissions going in 2012?  Do you see any wind behind the fee-for-service brokers or discounters?

Stefan:  We have see-sawed between five and six percent for decades and it has shown us that it really doesn’t have any significant impact on the industry or homebuyers … so the question, “Where we are going to be in 2012?” is probably not really a significant question.

The bigger question here is how long homebuyers and sellers will still accept a percentage structure as the method to compensate real estate agents compared to a fee-for-service structure, similar to most professions.

Fee-for-service is, however, not new, neither is discounting commissions and I have found no solid indication at this stage that either will gain significantly more traction in 2012.

Q.)  Going green.  There seems to be a government, builder and consumer push to reduce energy consumption.  Yet, real estate brokers and agents don’t seem to have ramped up accordingly.  (There are maybe 5,000 holders of NAR’s “Green” designation, and about the same number of “EcoBrokers.”)  Will “going green” catch on among the brokers and agents this year?

Stefan:  Nope, agents are way too busy “staying alive” in this tough economy to really become too excited about catching the green wave.  In my opinion, the “talk” has not yet converted into the “walk.”

Q.)  Good or bad, what is the most likely outside force that will “blindside” the real estate industry in 2012?  Perhaps lack of stabilization in Europe?  Or an economic plunge in China?  An unforeseen surge in interest rates?  A terrorist attack?

Stefan:  A terrorist attack would be devastating ... it would plummet us deeper into uncertainty and an unemployment conundrum.  Let’s pray and hope that this will, however, not happen.  It is true that we have become a global village and that economic activities from one region such as Europe or China will impact on more than just their region; however, I think there is something that will have a much larger global impact that anything else.

And that is the explosive and now almost universal usage of a single device -- the mobile phone.  Never before have we seen almost global saturation of one product.  Yet we are close to that now.  Of the seven billion people in the world, more than five and a half billion have a mobile phone.  Some three and a half billion of these mobile phones have cameras and are connected to the internet.

Almost a billion are on facebook, can connect from anywhere at anytime -- and take pictures, post, text and share with the world.  We have eyes and ears now almost everywhere.  Fascinating!  Lifestyle altering.

And that will be the biggest “blindside” in the foreseeable future.

Q.)  What would it take for Stefan Swanepoel to shave his mustache?

Stefan:  A grandchild, an Oscar nomination or a request from my wife.

Thank you Stefan.  We appreciate your insightful views and likewise appreciate the time you took from your extremely busy schedule for us.