Adapt Your Business During the Coronavirus Crisis
As more and more people become infected with Covid-19, and we see more deaths, there will be more restrictions on operating as real estate agents. More importantly, we’re going to see fewer clients or prospective clients show interest in listing their homes. Fewer buyers will want to see properties at all. It doesn’t mean we shouldn’t be trying. We just need to adapt our business practices according to situation in our community. Just as important, now is the time as a Realtor to manage your expenses in the coronavirus crisis.
Yes, you should be working.
We should always be generating leads and putting ourselves out there. Certainly, if you’re in an area that will permit you to operate your business and you feel comfortable and the client feels comfortable, you should always be trying to get business queued up in your pipeline.
Regardless, now is the time to generate leads that you can work and nurture until they are ready to conduct business and list their properties, or look at properties, after this pandemic has ended. When buyers and sellers can stick their heads outside again, we’ll be there, so we want to foster that relationship during this time.
Something that we’re working on with our clients here at Icenhower Coaching and Consulting is holding them accountable and helping them with different ways to add value and be leaders in their communities. We need to come from a place of contribution, support people, and be positive during this time of need. Through service and support, we maintain that mindshare. That being said, we also have to face some sort of reality with our business and economic planning.
The economic reality and necessity to manage expenses.
There is a chance that if this pandemic goes longer and longer, we are going to see a decrease in total sales volume as agents, even though housing prices may not affect it. In fact, a shortage of supply might even send prices up higher, as many economists are now starting to predict.
As fewer people want to sell their houses, supply will decrease, and that could send prices up. However, your sales volume can also go down even though prices go up. You may only sell one or two houses in an area at a higher price, because there aren’t many homes available. Since it’s a higher priced home, the comp in that neighborhood and prices go up, yet your sales volume may not increase as much. This chain of events can cause prices to continue to rise, yet still force you into a position where you need to manage expenses.
Fewer commission means you need to manage your expenses.
There’s less commission income out there available to agents, and as a result, sales volume can go down. Commission comes down so we must not only focus on offense, we also have to look at defense too. We must watch our bottom line and ensure that we’re doing everything we can to get through this time period.
Based on what I’ve seen and what I know, we are looking at a two- to five-month time period before things start to get back to normal, where people are comfortable again with showing properties, listing properties, and so on.
What should you cut?
Here’s a little exercise we’re doing with our clients to make sure they are economically sound for the next five months, and it helps with making financial decisions in the meantime. We as Realtors need to manage our expenses during the coronavirus crisis. We hear it all the time – we have agents that ask, “Should I cut my marketing?” “Should I cut my online leads?” “Should I cut back on my mailers?” “Should I cut my expenditures?” “Should I let my assistant go?”
We all have these different costs that we’re a little bit nervous about, and we’re worried about cutting them. Should we or should we not? And these are tough decisions in and of themselves if we look at them isolated, outside of this health crisis.
A profit and loss statement will help you manage expenses in the coronavirus crisis. We instruct all of our clients to keep an updated profit and loss statement. If you do, you will know your total expenses and what that number should be in relation to your gross commission income. This is a good start.
What are your operating expenses?
If you don’t have an updated profit and loss statement, here’s what you need to know. You need to know all of your total operating expenses per month. How much do you have to pay out to keep you and possibly your whole household alive? If you have a pass-through corporation like an LLC or an S Corp, I would just look at your whole household expenses. What are your household expenses and business expenses combined? This will help you figure out what it takes to operate if you have no income.
Let’s assume you don’t receive any commission checks going forward, for the sake of preparing for the worst. Before we do so, I want to say that I don’t think that’s going to happen. I would look at recorders offices and things like that as essential services that would really do great harm to the economy if our government let them close. So much worse than the stock market. They’re putting trillions of dollars into the stock market to keep it going, so why would we let the entire housing industry fall because no one can conduct business? That would do a lot of damage to banks, builders, Realtors, etc. I don’t see that happening. I do believe we’re going to be able to close transactions.
Figure out your worst-case scenario.
So, let’s consider the worst-case scenario. Let’s say your monthly expense is $10,000. That might be a little light, but for the sake of keeping it to a nice round number, we’ll go with it as an example. It’s $10,000 to run your business, keep the lights on at your house, pay for your internet, groceries, etc. If it’s $10,000 per month, then just to be safe I would go out five months and now we’ve got $50,000. That means if we don’t get any more income, we need $50,000 in the bank to get through this period.
Now, I would also look at your pending and under contract transactions. One thing we are seeing at all of our brokerages and with all of our clients across the country is that most of these transactions are holding together. When people get in the mindset to move, they want to hurry up and move, so there isn’t a lot of fallout right now. So, to be safe, I would calculate maybe a 10 percent fallout rate.
If you have $50,000 in commissions that are under contract waiting to close right now, I might take $5,000 of that (10 percent) out for that fallout. I would take that $45,000, or whatever you have that is under contract, that you have pending and ready to close soon, and I would add that to your money in the bank. Take a good solid look at whether you have enough money in the bank with those pending commissions included to get you through five months.
Cut fat, not muscle to manage expenses.
If you can get through five months with that amount of money, you’re in good shape. You may not need to cut anything. The last thing you want to do is cut “muscle.” It’s okay to cut “fat” things that aren’t working for you. But if you are cutting muscle, the things that do work for you, that can hurt you now and in the long term.
It’s important that you’re not cutting those essential things that are part of your business generation, marketing, or advertising, or you’re really hurting yourself in the long run. Knowing that you have enough in reserve should ease your anxiety and your stress. So one way realtors can manage expenses in the coronavirus crisis is by determining what are essential business expenses, and which are your “fatty” expenses that you can live without.
If you need to, reach out for help.
If you don’t have enough in reserve, then we need to start looking at different options. Do you have close family members that you can rely on if need be, if your commission income stops. Do you have a home equity line of credit? Any type of line of credit – bank loans, hard money loans from people that you know, just in case you get in a bind … from a father, a brother, a rich uncle. Let them know, “Hey I don’t think I’ll need to, but if I’m no longer able to generate business, can you help me? What would that look like if I absolutely needed it?”
Do your due diligence as a business person and start securing worst-case financing. It’s really important that you do that because otherwise you’re going to be living with the stress and anxiety of that uncertainty. You may make a lot of bad business decisions while under this extra stress. You’re trapped at home with your family right now and you may be treating them poorly, too, because of it.
There’s a lot of good that can come out at this time with your family, and you don’t need to be even more stressed during this time. You need to be there, living in the moment. You need to be present. You need to get your family through this crisis. Alleviate that stress of not knowing if you’ll make it through financially by planning ahead and asking for help if you need it. Preparedness is a key way realtors can manage expense in the coronavirus crisis.
How can the Disaster Unemployment Assistance Program help Realtors during Covid-19?
There is also a program called the Disaster Unemployment Assistance Program that Realtors should know about. The DUA helps independent contractors almost like unemployment insurance for independent contractors. It’s a federal program and it provides financial assistance to jobless workers and the self-employed – the independent contractors of the world. You can apply for this aid when you are unable to make a living because of some sort of major natural disaster. It’s been around for a long time, but agents are starting to take advantage of that now.
This isn’t something you have to pay back. It’s not like deferring a mortgage or deferring a payment or getting a Small Business Association (SBA) loans that you must pay back. This is a grant. I really don’t know why all real estate agents don’t apply for it, because now is the time. For more information, the phone number for the DUA is 1-800-300-5616. It works the same way unemployment works. The weekly payment amount is based on a period of your earnings. This is available for agents that can show that their earnings are being decreased.
Circle up the wagons.
I know this isn’t a cheery topic. But these are some things you can do to manage expenses, cutting where you can, to prepare for the worst case scenario. I would recommend circling up the wagons with any type of vacations you’ve got later in the year that aren’t business productive. Any unnecessary expenses you’ve got coming up, put a pin in them. If you’re thinking about buying a new car, probably hold off on that. Keep it tight right now.
Spend your time wisely.
Right now, we are going through uncertain times, so we need to double down and hedge our bets and spend a lot more time trying to generate business. We need to shift our mindset, because that’s something we can control at a very high level. This is the time to work. Work-life balance, of course, is something we work on with our coaching clients. And now that most of us are conducting our work from home and spending time with our families in the same venue, keeping a healthy work-life balance is just as important.
When times are tough, Realtors go to work.
When times are tough in the real estate industry, that’s when we go to work. This is the time when we get out there when we really focus and put a lot into the work because we’ve got to fight through this one. We need to double down.
Now is the time to get your sphere of influence together. Now is your time to reach out to people and make contacts and pipeline business for down the road. Now is the time get on our Real Estate Agent Round Table Facebook group and look at all the different ways you can do that all. We have lead generation techniques that we’re teaching right now that you can use during this crisis. There are a lot of ways we can get out there and help and really increase our efforts.
This is not a time to sit idle and be depressed. Being productive right now is a very good idea both financially and mentally. So get to the Real Estate Agent Round Table and check out our motivational ideas and network with other people you know in the industry. Stay up-to-date and collaborate with your peers that are also like-minded and want to continue to see their business prosper through this time.
Other resources to help.
Additionally, you can go to The Real Estate Trainer, our website, and sign up for our newsletter. You will get our emails, and right now they’re going out almost every other day with tips and updates on how to get through this coronavirus crisis in our industry. We put out a lot of content on how to generate business, manage expenses in the coronavirus crisis, and how to explain the market to your clients – your sellers and your buyers. And we also educate you on what’s being impacted in the economy. We provide you with scripts and talking points, lead generation strategies, and shareable content.
We want to help you through this time, so please connect with us. Topics like this are a little bit dismal – cutting expenses and disaster unemployment assistance – but we must be prudent right now and frugal with our business expenses. You’ll see that if you spend the time to total your operating expenses for five months and total your pending income, look at your bank statements, and see if you’ve got enough to get you through these next five months of no income, you will see your anxiety starts to go down. You’ll be able to make the most of this time with less stress.
Think ahead and use your time wisely. It’s important to know what your worst case scenario looks like. But remember, we’re Realtors and we’ve got this.