How to Manage a Downturn in Your Real Estate Business

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Whether it’s a recession, an industry bubble bursting, a global pandemic, or some other crisis, the real estate industry is a susceptible market to downturns. Ideally, the time to prepare for a downturn is before it happens. That might mean diversifying your business, building a slush fund, setting up sustainable systems, etc. Whether you prepared or not, there are steps you can take now to minimize the financial damage. 

Reduce Real Estate Expenses

One way to weather a downturn is to reduce your real estate business expenses. There are expenses you can eliminate that would have the lowest impact on your business.

Consider contacting your mortgage company, credit cards, or car loan provider about reducing your monthly payments or pausing them temporarily. In times of economic downturns, most banks and other financial institutions are more flexible with granting these exceptions. Approval is based on need, but may only require a one-page application with little to no documentation. Some lenders will reduce the payment while others defer all of it for a period of time. Make sure you understand the payment structure after you discuss changes with your lenders, since it doesn’t reduce what’s owed, it just suspends payments. Worried about your credit? This is a much better option than missing or late payments as lender-approved changes shouldn’t impact your credit. Talk to your lender about your options as early as possible, since we don’t know how long the downturn will last.  

If you’re renting commercial office space, contact your landlord for deferment options on your lease. Many landlords are flexible on the payments and would prefer to work with you than have to find a new tenant. Then call your utility providers. Many will reduce or defer payments. Cutting down on your regular expenses allows you to keep business running even if it is a bit slower.

Increase Real Estate Business Income

In addition to cutting expenses, a downturn is the time to get creative about increasing real estate business income. 

Broker Price Opinions are one way to increase real estate business income. Refinancing, which reaches record highs in a downturn, can lead to an uptick in opportunities for Broker Price Opinions. If circumstances make appraisals challenging, broker price opinions, which are often done as a drive-by instead of an interior and exterior inspection, become an appealing option and can lead to more income opportunities for you.

When the market is good, you see more For Sale By Owners. But when buyers dwindle and there isn’t much movement in the market, people who might have chosen to sell on their own may become anxious and seek professional support in selling their property, especially if they’re fearful prices will decline. Marketing or outreach to FSBOs can lead to additional business. 

A third option to consider is new home developments. Developments may be struggling with the downturn. To help keep sales moving, they may raise commissions and make more buyer concessions. Another benefit is that there are often less inspections and roadblocks than a traditional home resale. Due to governmental actions like shelter in place, arranging inspections and repairs can be challenging, so new home development sales can help assure your deal will close. 

Protect Your Real Estate Business During a Downturn

Even during a downturn, it’s important to protect your business. This is not a time to cut back on your E&O insurance or cut corners. It is time to make sure you’re paying attention to changes in regulations. This includes understanding any loosening of regulations or new ones. Keep checking our CoronaVirus page for updates.

If you have a question about legal implications related to a downturn or changes you’re making in your business, wouldn’t it be a relief to know you had access to free legal advice? CRES clients can call the CRES ClaimPrevent® Hotline 7 days a week and receive a response from an experienced attorney within 4 hours or the next business day. Every recommendation is confirmed in writing.

How has your real estate business weathered a downturn in the past?

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published March 25, 2020

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