Kevin Patterson, CEO of Prudential Professional Real Estate, laid out the challenges ahead for residential realtors on Wednesday, September 11 at the Tri-Lakes Marketing Forum held at the Gleneagle Country Club. The monthly event, organized by co-chairs, Kim Rossbach of McGinnis/GMAC Real Estate and Michael Podoyak of North Caent.
Patterson’s remarks focused on the state of the local residential real estate industry – including changing trends in the market. The Colorado Springs Business Journal caught up with him just before his address.
“Many consumers don’t realize that 75 to 80 cents of every dollar of a real estate commission are paid out to an agent or referral source. After all the commissions, fees and overhead are covered, our profit margin is less than five percent,” he said, adding that it is about the same as the profit earned by grocery stores. Patterson, who manages a total of 136 agents, also sees a trend toward large companies like Prudential to provide ancillary services to its brokers. “The larger firms are beginning to offer a number of adjunct functions in-house that you didn’t see a few years ago – services like property management, title insurance, mortgage brokerage, moving and relocation assistance, and apartment rental information.”
The veteran broker, who joined his family’s business (then Patterson Professional Realtors) in the 1990s, also sees big challenges ahead in the marketplace, due in part to local layoffs and corporate restructuring. “We’ve got the lowest mortgage rates in years, which helps to keep houses selling, but if rates start to increase again, with our current volume of job losses, business will grind to a halt.”
He also sees that a large number of his residential real estate colleagues are in denial about the impact of 6,000 jobs lost in the past twelve months. “They don’t talk about it, but it’s got to have an impact.”
When asked whether the slower business climate is scaring new realtors away, Patterson said that the opposite is true. “Our high-volume agents are used to the last few years of non-stop business; they find the current over-supply of inventory and increasingly indecisive buyers a real hurdle. It’s harder to get a deal done – especially when you’ve been used to easier times. The newer agents are more motivated and are often more energetic – they have to make a living even in a tough market.”
That tough market provides buyers a bargaining edge as prices soften, and a decreasing number of deals that are getting done, according to Pikes Peak Association statistics. “Today some buyers will expect to see 45 or 50 homes before making a decision. That’s ten times what it was eighteen months ago – and creates a lot more work for the realtor. Patterson says that homes priced $220,000 and below are still moving well, but that once the price escalates above that, buyers look much more closely at the neighborhood and condition of a home before writing a contract. “Once you get over $400,000, you see homes sit on the market for months or even years,” he notes. Surprisingly, however, he does still see an active market for $1,000,000 homes. “Kay Deen Patterson just closed on a million dollar home last month at Prudential,” he adds, “but there’s a lot of inventory out there.”
The situation could be worse. Patterson points to Vail where his company’s brokers have handled many upscale second home transactions in the past five to ten years. Wealth created by the dot.coms evaporated as fast as it was created, he says, and as a result, in some neighborhoods as many as 20 percent of all homes are for sale – most priced over $1 million dollars.
“Everything affects real estate sales,” said Patterson. “The weather, world events, fires, and consumers’ attitudes – look at the insurance moratorium that occurred as a result of the fires near Woodland Park and Palmer Lake. The residential real estate market reacts to any change in the world around it.” He also believes that the tragedy of September 11 continues to affect the Pikes Peak region. “I think a lot of businesses were motivated to make the hard decisions they had been putting off – and that they should have made anyway. We’ve seen a lot of belt-tightening.”
Not surprisingly, real estate is still a solid investment, says Patterson. “You can enjoy your investment while you’re watching it appreciate,” he notes. “Real estate is not as volatile as the stock market and enjoys reliable appreciation.”
As far as the future is concerned, the CEO who says his company generates approximately 70 percent of its business from repeats or referrals, sees increased incentive for realtors to offer more customer services that cement client relationships. “Some of our customers have bought eight or ten properties from Prudential,” he says. “We need to package ourselves as service providers rather than simply as contract-writers. We’re called on to recommend dentists or to provide community or school information. I think it’s developing that trust that will bring our clients back – even when times are tough.”