Actionable advice for brokers in response to challenging markets

This article was provided by RCN Capital 

Mortgage brokers play a crucial role in any real estate transaction. But for many the task of brokering investment properties can be made more difficult in challenging markets. Factors like low inventory can make finding deals more complicated and high rates can hoist properties out of an affordable range.  

The means of overcoming market adversities often requires up-to-date market awareness, an understanding of key metrics, and acute business acumen. Luckily, there are a number of actionable strategies that brokers can utilize to stay prepared and be ready for any market conditions. 

Drivers for change 

One crucial metric brokers can abide by is the Fed Fund Rate, often simply referred to as the Fed. The Fed rate is governed by the Federal Open Market Commission (FOMC), a policy making body consisting of 12 voting members from around the Federal Reserve System.  

The Fed rate directly affects interest rates across the mortgage industry and has profound economic impacts besides. Lower Fed rates can have a supportive impact on the U.S. economy. It is generally expected that when the FOMC moves the rate down, things like unemployment rates drop as well or are at least suppressed in an otherwise inflammatory environment.  

Unemployment rates themselves are a commonly accepted litmus test for economic health. When unemployment is high, things like economic production, tax revenue, and consumer spending tend to be reduced. While investor and consumer spending are economically distinct from one another there is still meaningful information to be gleaned from the relationship between the two.  

When consumer spending is down, investors may find it harder to flip properties to new owners or even to fill vacancies in the rental assets in their portfolio. 

Market activity 

There are several pieces of market data that can help brokers strategize for their business and for their clients. Some metrics may not seem to have a direct or relevant impact but taking a closer look at certain trends can reveal valuable insights.  

One such trend is in housing starts and completions. Housing completions are a direct statement of inventory as it enters the space each month. And while this information seems to be useful in its own right, waiting for housing completion data as it is released can leave brokers, and their investors, competing for properties that will be highly contested due to the announcement of their completion.  

This data is still useful and doesn’t leave brokers in a bad situation, there’s just more than can be done with an emphasis on housing starts. Brokers with enough foresight to track housing starts in various markets will gain the advantage of a long view of market activity.  

Seeing where housing starts are highest signifies future activity. With the average turn time for the new construction of 1–4-unit residencies being about 12-18 months, brokers can identify these developments and project their expected completion date. This awareness can give the broker an edge for their business and their clients in determining where and when new inventory will hit the market in advance of completion metrics.  

Strategy  

In down markets it is especially important for brokers to emphasize strategy. This goes for both the strategy of their brokering business, and the investing strategies of the borrowers with whom they work.  

One of the best ways for brokers to keep producing is through diversification. That is diversification of products, of markets, and of clientele. At present, the majority of states in the country do not require licensing to broker commercial deals. This can be a massive advantage for brokers. It enables brokers to step into the field of brokering real estate investments with very little time and overhead.  

While investment deals are commercial by nature, they cover a wide range of property types, from true commercial buildings like retail, warehouse, and office spaces, to residential investments. Private lenders tend to specialize their products around a small number of these asset types. Because of this, brokers can diversify the lenders they work with to provide coverage for deals on a wide range of asset classes.  

With a diverse network of lenders, brokers will have access to a larger pool of prospective business and will be able to work with more of the deals that cross their desk. Similarly, brokers already working in the field of conventional mortgage can expand their margins by taking their transferable skillset to investor clients and investment lenders.  

Many lenders also have referral programs which enable brokers to send in deals by referral to be handled directly by the lender. When referral deals close brokers are able to take home their cut, often in points paid at closing.  

The lack of licensing requirements also leaves few impediments to keep brokers from expanding into new markets. Brokers can establish themselves in new markets through online networking, tradeshow travel, and effective marketing. 

Since borrowers are an extension of a broker’s business, savvy brokers know to keep an eye on investor strategies. The same discussions of market activity and rates should come into play as these impact the availability of prospective investments and their overall potential. What brokers can do is to help identify prospects through nationwide multistate licensing systems (NMLS) or other real estate aggregate software.  

Beyond identifying deals, brokers can drill down on their client’s exit strategy. Will the investment be sold for profit or held for rental cashflow? Imparting business expertise to clients is an effective way of building trust and securing repeat business while ensuring that deals are strong and can make it to closing.  

Take action 

Challenging markets require brokers to embrace a more comprehensive, strategic mindset. By closely monitoring market fundamentals and key economic indicators brokers can anticipate shifts in market activity and set themselves and their clients up for success.  

Diversification remains a cornerstone of resilience within the real estate industry, ensuring brokers have a path to walk in any circumstance. Equally as important to a broker’s success is their role as a strategic advisor to clients, counseling a sound investment strategy and a clear path to profit.  

In an industry where market conditions are constantly evolving, the ability to adapt, diversify, and provide sound guidance will continue to distinguish the most successful brokers from those who simply react to market changes. 

Andy Bates, Jr. Partnerships Coordinator with RCN Capital, leverages his experience in sales and client services to establish meaningful relationships with clients and partners alike. Andy has made it his mission to expand revenue channels and services through lasting, strategic partnerships. In his journalism, Andy combines market data with industry perspectives to provide insight for real estate and investment professionals.