The GFC effectively helped refocus principals on what it takes to run a successful real estate business, writes Michael Davoren

WELL, FOUR months into 2013 and you can hear the sighs of relief in the real estate industry now that the market is improving in most parts of Australia and New Zealand. The big question is, ‘Has the real estate industry learnt anything from what has been one of the toughest downturns in our history?’

I think the answer is a resounding ‘yes’. Let’s face it. There has been a pretty major wash-out in the industry – up to 30 per cent of salespeople and businesses in some areas have disappeared. So why have the survivors learnt lessons from this time and not from the previous downturns, and what are those lessons?

I think real estate business owners are of a higher calibre now in terms of business acumen. This has evolved for a number of reasons:
There has been an increasing number of owners come in from outside the industry with little or no industry experience, but with strong leadership and management skills

Better systems (in particular, CRMs) have helped salespeople control their individual businesses better
Personal and professional development for all industry sectors (eg. sales, property management, commercial) have improved significantly
It would appear that some franchisors have provided better management and leadership training for their franchisees

The first one is about leadership and the last three are about management. Real estate experience is an advantage but not a necessity. The history of real estate in Australia and New Zealand is littered with disasters in businesses involving very experienced real estate people who lacked either good management or leadership or both.

Technology has created a lot of headaches for many business owners, but the other side of the ledger far outweighs those inconveniences. Good CRMs do what highly disciplined and successful salespeople have done for many years, plus a whole lot more. The advancement of technology in this activity area has helped more agents achieve higher performance levels which, in turn, add to the profitability of the business.

Personal and professional development has also improved in quantity, quality and attendance. Some franchise groups in particular have driven hard in this area and notably in property management, which has become the spine of the industry and not only kept many businesses afloat from a cash flow point of view but also from a wealth creation situation for the business owner. There are many businesses worth millions of dollars today because of the growth in their property management over the last few years.

I also think the management skills that I referred to earlier have had better focus from a training point of view. Management is an easier skill to sharpen up on than leadership, which means there is no excuse for being a poor manager. Management training is supported by most franchise groups along with some real estate institutes (REIs), universities and most training organisations.

Leadership is another issue though. While I do not subscribe to the theory that all leaders are born leaders, there are some personality types that find it more difficult to be leaders than others.

Some long-established myths about what makes real estate business owners successful are being challenged and none more so than the amount of real estate experience required. My observations tell me the four most important features are:

1. Ability to recruit, develop and retain good salespeople
2. Ability to grow a profitable rent role
3. Ability to monitor and understand the numbers (including profit and loss statements, cash flows and activity conversion ratios) and
4. Strong wealth creation strategies

So, if these are the magic ingredients, let’s look at each a little more closely:

1. A successful sales team starts and stops with the leader. Most people join a team because of the leader, they stay because of the leader and they leave because of the leader. For the less successful business owners who find it difficult to recruit and retain good staff, it might be time to look into the mirror and ask three questions:

Would I want to work for me? The business is a reflection of the owner

Would I want to work in my office? As a wise man once said, “You cannot recruit into a swamp”

Would I want to be part of my team? Successful people want to mix with successful people

These may be ‘tough love’ questions but they are the secret to turning a business around.

2. Many of the businesses that made up the part of the industry that were washed out had no property management, had to sell the property management to cover debt or had an under-performing sales department being propped up by the property management department.

Successful businesses have invested in top property managers, top property management systems and continuing professional development. This is one part of the real estate business that has truly continued to improve in professionalism.

3. A good understanding of the figures is crucial for the successful business owner. Too many owners wait for end of month figures or worse still, quarterly figures. You should know cash flow forecasts on a daily basis.

Just as important are the activity numbers, which are paramount to profitable businesses. Benchmarking salespeople and businesses against successful individuals and entities is a valuable tool in the development process.

4. Then there is the huge number of salespeople and business owners who give a lot of advice and take very little of that advice themselves. There are a lot of salespeople who do not own one property, let alone several. As an industry, we should be putting our money where our mouth is for our own benefit. Wealth creation is not a thing to be ashamed of but it can be the back-stop that helps us during the tough times.

So, to the final question. As the market improves, will there be a massive surge of salespeople back into the industry?

I don’t think so. If there is any lesson to be learnt it will be the emphasis that has to be put on the quality of agents who are employed. It is truly false economy to be putting people on for the sake of numbers.

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