Are Realtors Preparing for a Potential Recession Followed by a Flood of Short Sales?
A new RealEstateBees.com survey of over 5,000 active real estate agents found that 56.6% of realtors don’t believe that a potential economic recession will result in as high numbers of short sales like during the Great Recession of 2008.
Only 15.1% of respondents said they didn’t believe a recession is coming. 28.8% said they would consider incorporating a streamlined short sale closing process to protect their business from a potential recession.
As The National Bureau of Economic Research announced in June 2020 regarding the U.S. economic downturn lasting since February, “…unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession…”.
The main cause of this recession is the COVID-19 pandemic. However, even before its start, the National Association for Business Economics had announced the results of a survey according to which the U.S economy was about to enter a recession for other reasons:
“The panel is split regarding when the next recession will begin,” said Survey Chair Eugenio Aleman, economist from Wells Fargo Bank. “Respondents believe the odds that GDP will first turn downward by mid-2020 are about one out of five, but indicate there is a one-third chance that the downturn will not begin until the second half of 2021 or later.”
But what will a potential recession mean for the real estate industry? Let’s take a look at what happened to the housing market last time — during the Great Recession of 2008.
According to Zillow 2009 research, 17.6% of all mortgages across the US were underwater due to the 2008 Great Recession. About $3.3 trillion in home equity was erased in 2008, with more than $6 trillion in value lost since the market peaked in 2005.
This resulted in a large number of short sales throughout the United States. Many agents had to learn a new skill of processing short sale transactions to stay in the business.
We at Real Estate Bees decided to conduct our own survey by asking licensed real estate agents about how prepared they are for a potential recession and whether or not they believe it’s coming.
Do you think in the potential recession we will see a similar influx of short sales to the one caused by the recession of 2008?
If history is to repeat itself, are you prepared to do short sales full time to stay in business?
Knowing that the 2008 Great Recession resulted in millions of underwater properties forcing thousands of realtors out of business, what would you do to prepare yourself this time around?
What do you currently do when you come across a home seller needing to short sell their home?
What is the most important benefit of closing short sales as a realtor?
What is the most important drawback of closing short sales as a realtor?
What Measures Can Agents Take to Survive the Upcoming Recession and Perhaps Even Benefit from It?
Study and Incorporate Closing Short Sales in Your Business Model
Denise Madan, Keller Williams Realty
Please get the proper training. Go to your local Board or take advantage of classes that are offered to train you on the short sale process. Many agents work with a local attorney who handles the negotiations with the lender because in the beginning it is a process.
Agents need to get special forms to their clients to fill out and then submit to the lender. Basically, the homeowner is giving the agent authorization to work on their behalf during the negotiations.
Preparation is the name of the game. Before the last recession, financial experts were predicting short sales were coming. There were many classes and designations being offered to agents to be prepared. I immediately jumped into the classes and earned the designation CDPE (Certified Distressed Property Expert).
It was great training on all the nuances a homeowner can expect if they are facing hard times and must short sale their home. I closed on a short sale yesterday. It took nine months.
Dohn Thornton, HB Funding
I survived the Great Recession of 2008. Indeed, short sales flooded the market in my area at that time. Realtors didn’t have much choice but to start doing short sales. Those who didn’t know how to and weren’t willing to learn would go out of business. A handful of those who did capitalized on the opportunity and prospered.
I had to learn the importance of this skill the hard way, unfortunately. But once I did, I saw an important benefit in these time-consuming deals. As most realtors avoid them, being experienced in short sales gives you an advantage over your competition.
When you have many short sales in the pipeline, the length of the transaction no longer plays an important role: you close multiple deals each month. Ideally, you should have someone else handle the negotiation process for you — either hire a negotiator in-house or partner with one.
After the recession, I created a company helping agents do just that. We partner with realtors nationwide and process their short sales for free. They get short sale education, build pipelines to consistently close multiple deals per month, get far ahead of their competitors and never worry about becoming a victim of a crisis similar to the one of 2008.
I talk about how we help realtors to take advantage of short sales in more detail on this page.
Leanne Black, The Danberry Company
If the market changes, you must change with it. I do think that change is coming. There are several classes and accreditations that agents can do now in preparation of a recession.
NAR, for example, offers a one-day short sales and foreclosures course that agents can take for an SFR designation. Educate yourself now, so you are ready when it happens.
Jeffrey Collins, Keller Williams Premier Katy
There is a NAR certification course for short sale and REO properties. That is a good start. Partnering with another agent to reduce workload and share leads that come from those opportunities is a good idea as well.
Streamlining your process is essential: cut ALL non-vital expenses or services, and manage your day with a calendar. If it’s not on your calendar, it doesn’t exist!
Matt Harnick, The Matt Harnick Team powered by Keller Williams Real Estate
Having represented buyers on short sale purchases, I would say that too often, the listing agent attempts to manage the short sale process, which in my opinion is just not possible.
I have a full-time short sale negotiator on my team which makes the process infinitely more streamlined for my sellers and even for my buyers. We can bring my negotiator into the process and let him work the same way he would for my seller clients. This makes us a tour de force when it comes to short sales.
Terese Brittingham, Keller Williams Realty Group
Education is key. Sharpen your skills in the area of accurate pricing of a property, the steps of a short sale, and stay tuned into any shift in the market. The key is to be prepared and ready. Be proactive, not reactive.
At this time agents should focus on the basics. Now is the time to sure up systems and cultivate your database. Plan three hours of lead generation and database management every day, as doing this will build a pipeline to sustain you through whatever market comes our way.
A shift creates a great opportunity if you are ready for it. Be prepared.
Brandi Wyne, Berkshire Hathaway Homeservices Professional Realty
A way that agents can prepare themselves for a recession is to familiarize themselves with the short sale process and how to help buyers benefit the most when buying.
Reach Out to Distressed Homeowners and Offer Help
Danielle Connolly, Star Properties Real Estate
Get your name out there now and start researching homes in NAR RPR that are currently distressed. Reach out to these homeowners before they have the bureaucratic issues involved with a short sale or foreclosure. Offer them a third option: to sell while the market is still somewhat stable.
Our market is actually still a sellers market, with low inventory but plenty of buyers looking to take advantage of low interest rates.
Kelly Gebler, Keller Williams Realty Portland Elite
Many homeowners are embarrassed to admit they are behind on payments and/or just assume if they ignore the notices from the bank, it will all just go away.
- First, educate yourself regarding short sales and why they are far better for a homeowner than a foreclosure.
- Second, share that knowledge with your database.
Short sales are not something all agents should strive to do. Find an agent that excels in them and refer them out if they are not your forte.
Denise Graves, The Graves Group / SA Portfolio Real Estate KW
Dive deep into your database and stay in touch with past clients. See what their needs and perspectives are and help them achieve their goals.
Some people may be in a short sale situation and they will benefit from a realtor that can help them through the process and attract buyers that can outwait the process to get a great deal. I think there are a lot of real estate investors poised and able to help people underwater navigate this uncharted territory.
Leslie Heath, Keller Williams Experience Realty
Get out there and let the distressed motivated sellers know that if they find themselves in a possible foreclosure or a short sale, there is still a way to sell their home.
Get out there and talk to the public about short sales. Many have no idea what it is or how to begin the process of mitigation. Most companies will allow a short sale.
Partner Up with Other Real Estate Professionals
Jeff House, Keller Williams Advantage / The NEXT MOVE Network
Short sales hold tremendous advantages for everyone involved. A seller is able to get out from under an underwater mortgage when the balance he/she owes is more than the home’s appraised value. There is also an advantage for the lender. The lender doesn’t have to go through the foreclosure process.
Fortifying your business in your database and establishing strong connections and relationships with those already in your sphere will be critical to surviving in a shifted market.
Joanne Owens, Keller Williams On the Water
Clients need to be informed of what their options are, and realtors need to stay in their lane. We are not attorneys or CPAs. We refer our short sale clients to professionals.
Our job is to list, market, and sell the home through proven processes. Every situation is different. We rely on professionals to negotiate with the bank, i.e. short sale attorneys. Knowing what we do, how to do it, and doing it well serves our clients.
Javier Mendez, The Mendez Team at Keller Williams Realty Las Vegas
I would suggest agents to really know their market and study it on a daily basis — active, pending, and sold — even now before the recession ultimately hits. Also, partnering up and building a good relationship with a good lender and bank representative will always go far.
Finally, save your money! Build up a nice cushion, so when the recession hits and you inevitably have to slow down in business, you and your loved ones will be comfortable as you navigate through it all.
Brooke Gagnon, Keller Williams Mountain Properties
Get familiar with short sales and the foreclosure process — partner with an attorney with short sale history!
Constantly Stay in Touch with Your Past and Potential Clients
Laurie Sickles, Keller Williams Excel Realty
If a recession were to hit and a realtor is not inclined to include short sales in their business, I recommend the following:
- Reduce spending on advertising to a minimum.
- Touch base regularly with everyone in your database through phone calls, emails, and/or newsletters.
I, personally, like to send handwritten notes to all potential clients and past clients. I think people truly appreciate that you’ve taken the time to write a personal note instead of receiving a generic mass email.
Madalyn Suits, The Suits Team – Keller Williams Realty Peachtree Road
I believe it is important for the real estate professional to keep the public educated as to what is going on in the market. Do not let the media drive consumer opinion. This means you need to do market update videos and call your clients.
Keep the consumer informed. Stay in front of them. Be available to answer any questions. Dig to find properties or solutions for your client.
Joanne Owens, Keller Williams on the Water
In our area, few people will be underwater as they will have equity due to the increase in prices. However, we are educating buyers on forbearance, the different types, and the outcomes.
We have made this a regular part of our business always. We do not shy away from helping people during their difficult times. We were built during the recession, so we get it. We survive to thrive.
Seth Levin, Keller Williams NYC / LevinKong Team
Down markets are times to increase your efforts. These are the times when it is crucial to have more conversations and not pull back. We like to proactively show our clients opportunities and how they can take advantage of current trends.
People always talk about missing an investment opportunity when soft markets turn around. We try to make sure the people saying that are not our clients!
Brooke Gagnon, Keller Williams Mountain Properties
Even during a recession, people are buying and selling real estate. Building an agency business based on the strong long-standing relationship with your market is key. Focus on your community and tell stories about past clients and successful deals.
Social media is the best outlet to promote your brand and your team. Stay in contact with your database to be a source of knowledge and to keep pace with market trends and Q&A.
Peggy Pfohl, Keller Williams
Dive into your database and communicate with past clients on their circumstances. Be ready to assist if needed.
Save Money and Review Your Economy
Kim Erwin, The Kim Erwin Team of Keller Williams Coastal Bend
I think that the biggest takeaway from the previous recession was to ensure that you have a safety net of savings. The biggest problem with having a slow period in real estate is that it takes a period of time to feel the effects.
With a contract-to-close timeframe of 30 to 45 days (average for our market), you might not feel the effects of a recession until a couple of months in, when you realize your pipeline is empty and you are no longer able to fall back on existing contracts.
Jill Heineck, Heineck & Company | Keller Williams Realty Peachtree Road
Get both your personal and professional houses in order for at least the next 12 to 18 months. Understand your monthly P&L (profit and loss) and what areas you may need to cut for the short term.
Begin by cutting 15 to 20%. Revisit the lead generation areas that you excel in and register for advanced training, so that you are ready to take it to the next level. Also, hone messaging for social channels.
Drew Smith, Weichert Realtors Langley Biggins Company
It’s always a good time to go over your personal expenses. Limit your overhead, carry little to no debt, and have a well-funded emergency resource to weather a season of drought.
Marissa Rose Zingales, Liberty Realty Sells For 1% and more
In order to prevail during a recession, you must think positive and plan for better days ahead! Save as much as possible now and cut overhead costs.
Be Versatile
Seth Levin, Keller Williams NYC / LevinKong Team
We decided to diversify our business both geographically and from a price-point perspective after 2008. We took a Manhattan luxury-focused business and pivoted to incorporate all price points and expanded to Brooklyn, Queens, and Long Island.
This made us less tied to a particular micro-market, giving ourselves a better chance to take advantage of better performing segments. There is opportunity in every market; you don’t want to close any doors before you know how shifting markets will play out.
Zender Canizales, Streetlight Realty LLC
Short sales are known to take a very long time to process, be accepted or denied, and to close the transaction. Therefore, an agent should try and have multiple streams of income that are real estate-related.
It is difficult to work outside of the field and still be able to give real estate a fair share of work. But if the other income revenues coincide with real estate, then it is easier to manage them all. For example, if you are good at video, make sure to add that service for other agents.
Robert N. Beck, Premiere Properties Group, Keller Williams Realty
In short sales, take a class. It’s mostly paperwork and hard negotiations. I do 1031 exchanges. If possible, get involved with rental properties. Either your own if you can buy (especially now with low interest rates) or in managing others where you get a monthly fee for managing them.
In a previous recession, 50% of the realtors in a county group had to take other jobs. Some went into selling services like legal shield, home warranties, and similar services that relate to the real estate market.
Chad Boyers, The Danberry Company
While I don’t think that a recession or downturn in the housing market is imminent (mainly due to historically low inventory), when the time comes, it’s important to be flexible and willing to stretch yourself professionally in order to survive and thrive.
I think that being able to help buyers and sellers in a variety of situations is important. Specializing in a specific area can be good for many agents for periods of time, but if there is no flexibility or understanding of other markets or situations, it can be more challenging to thrive in a downturn.
I personally am able and willing to work with both buyers and sellers in a wide geographic area and in various price ranges for traditional sales and purchases, as well as investments/short sales.
Darcie Barton, Keller Williams Capital Partners
Any change in the market is a great opportunity to make a name for yourself and your experience. The ability to adapt to clients’ needs is the key.
Most agents look to leave the marketplace when things are not as easy or there is a shift. The agents who do the heavy lifting in a tough market will reap the rewards when the market stabilizes.
Kyle Alfriend, Alfriend Group / RE/MAX
In real estate, there will always be buyers and sellers. There will always be investors looking for opportunities. As realtors, we are business owners. The realtors who know this and act accordingly will thrive in every market.
I have experienced a lot of economic changes in my 31 years of real estate. In every market shift, the same people always rise to the top. They quickly change to the market, waiting on no one to give them permission, and get back on top.
Peggy Pfohl, Keller Williams
The industry has always experienced cycles and those in the business when the last recession happened in our industry realize there will be shifts. We understand this latest “crisis” will pass and we have to be willing to step out of our comfort zone and do all that it takes to survive.
Thriving in a shifting market means working longer hours, waiting longer for our commissions, cutting expenses, and thinking out of the box.
Master Modern Digital Marketing Technologies
Sean Morris, Morris & Associates, Keller Williams Bellevue
Shift and pivot your business to digital and virtual platforms. The real estate market is still extremely hot, even as we’ve changed how we do things. From virtual listing and buyer consults to digital showings, those agents who are embracing this pivot are having continued success.
Save for a rainy day. Review finances and cut expenses.
Prepare now. Set your goals for 2021 and create your business plan, so that you have a roadmap for how you’re going to achieve those goals.
Marissa Rose Zingales, Liberty Realty Sells For 1% and more
Advertise more on social media and put yourself out there! In today’s day and age, social media is full of opportunities and networking is endless! It’s the perfect time to start a real estate blog.
Stay connected with family, friends, and previous customers. A referral is the best compliment you can get in real estate, especially during a recession.
Do Your Best Serving Clients
Katie Rocco, The Rocco Team at Keller Williams Realty
I believe in being the best possible agent for my clients, in every market. To be able to be the very best, I have to be on the forefront of the market and stay educated and learn all I can, so whatever the market brings, I am ready.
If a seller has to short sell their home, it is usually an emotional time and they need an expert they can trust to handle all the details. No one knows for sure what is coming in the future. Our goal is to be the very best for our clients in every market!
Linda Burtch, ABODEslc with Keller Williams Salt Lake City
If you come from a place of contribution rather than a mindset of personal gain, you will have a steady business. You will be able to help your clients through the economic downturn, while at the same time, securing your own future as a professional in this industry.
Sharpen your skill set in listing and pricing property correctly to cause it to sell, and know your local market on a micro level. Educate your clients on all of their options and make sure that you are looking out for their best interests.
Sean Morris, Morris & Associates, Keller Williams Bellevue
Reach out to your sphere now and see who might be in trouble that you can help.
- Do your clients understand what forbearance actually is and how it will impact them?
- Are they in an equity position in their house?
- Does it make sense to sell now and capitalize on that equity?
- Who do you know who would benefit from purchasing while rates are low?
Come from a place of contribution and create value for those around you.
Ginny Bond, Real Living Brokers Realty Group
COVID-19 has made the world smaller. Agents need to be experts in their knowledge of the market and should touch base with lenders about the forecast for next year.
My business has been succeeding due to referrals from past clients. Be personable and reliable, and always make it about the customer and the transaction.
Kelly Gebler, Keller Williams Realty Portland Elite
Short sales are an emotional and fearful time for a homeowner. You have to be able to handle them with both skill and grace to help them through, so they can land on their feet again and get their lives back on track.
Laura Myers, Keller Williams Arizona Realty
Be a resource for consumers to gather clarity and information on the strategy that works for them and be available with a proper team of advisors and partners to fulfill the demand and processes.
Lisa E Arzate, Coldwell Banker Heritage
Work to ready potential first-time homebuyers to buy. Become aware of any opportunities for special financing to first-time homebuyers.
Sharpen Your Skills
Karina Christensen, Keller Williams Integrity Real Estate
For real estate agents to thrive even in downturns, education is critical! Most agents who come into the business focus on buyers as that is the easiest way to get into the business. However, to be able to have a business that survives in any market cycle, a successful real estate agent needs to focus on listings and how to get them.
Even in a down market, short sales are only a portion of the market. Having listings to sell and knowing where to find them allows an agent to have a thriving business.
Arnold Sykes, Arnold Sykes Consulting LLC
Refresh yourself on what you did to survive and prosper in the Great Recession. Keep doing what you’re doing, provided it is working for you. Be encouraged that, just like before, there will be “substantial shaking out” in our industry (in non-performing, under-performing, incompetent agents). All of which is good.
Stay informed. Sharpen the saw daily. Huddle with positive people. Avoid the whiners. Remain confident in your own abilities, then go out every day and prove it!
Karen A. Marshall, Keller Williams Realty
Everyone needs to take at least initial classes on all types of real estate and be well versed.
Use Real Estate Investment Opportunities
Robert N. Beck, Premiere Properties Group, Keller Williams Realty
Realtors work on a 100% commission income. Consider investing in single family homes and duplexes in good times. You know where they are. A lot of people think being a realtor is easy. It takes a considerable investment in systems, marketing, and time. That’s every month.
It’s not practical to think you can have a seller or buyer every month. Being a realtor is running a business, even if you are affiliated with a firm. I see numerous dropouts who are good, talented people. I think it’s best to set your expectations but be in touch with reality.
Brandi Wyne, Berkshire Hathaway Homeservices Professional Realty
I believe that real estate agents can get prepared for a recession, should the same occur, by educating themselves on how a recession can open up opportunities for real estate investment.
A wise investment helps manage the balance between supply and demand, which in turn, helps the economy bounce back from a recession.
Brandon M. Ammons, Coldwell Banker SFOC
One suggestion I have for agents is to begin to look into purchasing investment property. If there is a recession, it would be an opportune time to buy and hold property and possibly lease out.
When the market begins to rise and transition into a buyer’s market, agents who own investment property can utilize the opportunity to sell.
What Can You Say About Processing Short Sales as a Realtor?
Zender Canizales, Streetlight Realty LLC
Short sales can be profitable when they are stacked. Meaning, with multiple short sales, the waiting will not be as bad because as one closes, others are in process, giving it a trickling effect. Those with the time to do so should look into it further.
Leslie Heath, Keller Williams Experience Realty
Don’t be afraid to have the seller talk to you about short sales. There are many benefits for all involved in the process. With the low interest rates and so many 100% and 3 ½ % loans right now, there is a chance some of these loans may be pushing the limits on their mortgage payments in a few years.
Realtors need to follow up with these clients to make a way for them if needed.
Laura Tomaszewski, Coldwell Banker Realty, NW Austin
Short Sales allow home buyers and investors to leverage themselves into properties that would have been out of their purchase budget in normal market conditions.
Since the condition of short sales can vary, I advise my buyers to really understand the property condition and have the budget set on what they are willing to work on going into the deal.
A budget savvy buyer can do well with purchasing a short sale and holding the property for when values rise again.
Leslie Burns, M.C. Real Estate
Short sales take a lot of commitment, communication, and documentation. It will get frustrating at times. However, that client will remember that you worked hard for them.
You will most likely make a low commission rate from short sales. However, that client will remember how you treated them and you will benefit from doing the right thing. What goes around comes around.
Michelle Moore, Benchmark Realty, LLC
It’s an excellent way to help sellers to sell, buyers to buy, and to keep banks and other lienholders from having to take on those assets.
What Will the Next Recession Be Like Should It Happen?
Fariba Ferdowsi, Keller Williams Realty
This time will be different than the last recession. The interest rate is much lower and we have been experiencing a shortage of inventory for a long time. I believe a lot of buyers will continue to buy and once more listings are available, the investors may take advantage of the opportunity.
I survived the 2008 crash and will survive this one. It is all about staying the course and figuring out what needs to be done to get more business.
I believe the government will find ways to keep the homeowners in place or we will face an unprecedented disaster. I also believe low-interest rate is here to stay for a foreseeable future; if it goes up, we will have another recession.
We are digging into more and more complications that will be harder and harder to get out of. The only solution ahead is for governments to learn to cooperate and work together, rather than operate independently. We have to accept the oneness of humanity and the world!
Jeffrey Collins, Keller Williams Premier Katy
I strongly believe the government will not allow the same thing to happen to the housing/mortgage markets like what happened in 2007-2009. The unknown is what mortgage lenders will do with the 4.7 million loans in forbearance and what they will do with those payments that have been missed.
The most logical solution is to place them at the end of the mortgage as a zero-interest second loan that must be satisfied after the main loan is paid or at the time of the sale of the home.
Karina Christensen, Keller Williams Integrity Real Estate
Unlike in the recession of 2008, this pending recession, should we even have one, would not result in a lot of short sales and foreclosures. This is because so many people have lots of equity in their homes, thanks to the high home prices.
Currently, less than 4% of all mortgages are in forbearance and if the homeowners can no longer afford their payments, they can certainly sell their home on the open market and get a premium for it, and even walk away with their equity.
Laurie Sickles, Keller Williams Excel Realty
As an agent in Central Ohio, I don’t foresee a recession. Our housing market is strong and doing well above the national average. There is not enough inventory for buyers, and new build companies no longer offer incentives to buyers because people are desperate to buy and they’re willing to pay higher prices even without incentives.
Also, there is no indication that interest rates are expected to rise from the all-time lows they are currently at.
Laura Myers, Keller Williams Arizona Realty
The majority of homeowners that may be in default have to be considered for length of time of ownership as they could easily have equity now although back in 2008 they did not. There could be equity in many of these homes and this could create more sales vs more short sales from that time frame.
In addition, take into consideration the factors that will come into play. Will lenders offer reverse mortgages? What impact would that have to allow people to survive the recession until recovery? This is, however, not a platform that is always in the best interest of the seller.
Lauri Besancon, Wiles Hanzie Realty
I was a realtor during the last recession. I did do some short sales, but they were very time-consuming, and the banks were not easy to work with. The process could take two to six months to close.
I am hoping we are not looking at that type of recession again, but if we are, I hope the banks learned from it and will be more willing to speed up the process. It was VERY frustrating for buyers.
Amanda M. Lott, Keller Williams Real Estate
While there may be an economic recession, there is a need for housing. Look at demographics to understand housing needs. Don’t look at Wall Street or GDP to estimate the need for housing.
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