The real estate industry toughs it out
By DONA GERSON
"I'M NOT writing any contracts on the hood of the car, but I'm hanging in there. My income will be less than last year, but I can make it and next year's going to be better." So said a sales associate for one of the franchise real estate offices in suburban Cook County.
Despite sharply fluctuating interest rates, a drastic reduction in new home construction, constant attacks on buyer confidence, and a drop of over 12 percent in the membership of the Illinois Association of Realtors, most of the old-timers and not-so-old-timers in the real estate business were toughing it out and talking about "creative financing" during recent high interest periods.
"Actually the real estate salesperson has a distinct advantage in times like these," said Don Ursin, president of the Illinois Association of Realtors (IAR). "Expertise is necessary today. With new types of mortgages and opportunities for individualized financing plans, the salesperson is the key to transmitting rapidly changing information." And the IAR ensures that a constant flow of this vital information is available to its professional members through seminars, professional training and publications.
Of course, there is less control over customer confidence. Confidence is so vital, so necessary, so basic that every threat to buyer confidence is a threat to the real estate industry itself.
Salespersons throughout the state have criticized gloomy media accounts of housing sales in particular and the economy in general. "They made it look as if real estate offices were closing by the thousands," lamented Roy Fair, former president of the IAR.
While a skilled salesperson knows the people and the problems of the local territory as well as any precinct captain, the repetition of grim economic forecast keeps prospects away just as surely as a low rating in the polls can undermine a political candidate. The IAR tries to offset these reports through its Public Information Council which sends out the message that owning real estate is an excellent hedge against inflation.
Even during periods of high interest rates, some persons must purchase homes. "Creative financing" is the term for the system that developed when a willing buyer and a willing seller told a hard-working realtor that they were unwilling to accept high interest rates.
According to "Pudge" Mitchell-Krick, a sales associate at Thorsen Realtors, a Caldwell Banker Company, articles of agreement can be drawn to fit the needs of the particular sale. For example, the parties might agree to retention of title by the seller, a lower than market interest rate, or a ballon mortgage.
There is no doubt that 1980 has been a rough year for real estate. New housing starts in the six-county Chicago metropolitan area (Cook, Lake, DuPage, Will, McHenry and
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"Whenever money is expensive, the nerves of the real estate business are affected," said Sam Sherwin, president of the 2,500-member North Side Board of Realtors of Chicago. Realtors want money to be available as cheaply as possible, yet they have no more control over the cost and supply of money than the service station operator has over the price of gasoline. The consequences of the unprecendented 2 percent increase in interest rates on home mortgages within a two-month period in 1980 were profound.
Meanwhile, the savings and loan associations have been caught in a terrible squeeze between the lowest savings deposits in history and excruciatingly high interest rates. Home buyers in Illinois seem to get scared off when interest rates reach the psychological threshhold of 12 percent. According to Warren Pursell, executive vice-president of the Illinois Savings and Loan League, when inflation is out of control, the only alternative for the lender is to adjust mortgage rates to correspond more closely to inflation. If the S&L people are correct, the fixed rate mortgage is about to go the way of the family farm and the hula hoop. The new mortgages, the Graduated Payment Mortgage (GPM) and the Renegotiable Rate Mortgage (RRM), will provide more options in real estate financing. But both the expertise and the enthusiasm of real estate salespersons will be called upon in order to gain public acceptance for the GPMs and the RRMs.
John Pfister, vice-president and manager of market research for Chicago Title & Trust, predicts that interest rates will drop to a more reasonable 10-11 percent by the end of 1981, and new housing construction in the Chicago metropolitan area will increase markedly — from 22,000 units in 1980 to 38,000 in 1981 and 51,000 in 1982.
Because of pent-up demand by an increasing number of newly formed households and an increase in the number of people of home-buying age, an acceptable interest rate would trigger a much healthier market next year.
And what about the real estate office of the 1980's? To survive, it must become more efficient and more productive. The days of easy money are past. Tom Koenig, president of Koenig & Strey in Glenview, says that electronics could change the typical real estate operation to a more capital intensive, one-stop office that would provide a range of services including relocation, temporary lodgings and furniture moving as well as the sale, purchase and mortgage financing of homes in different parts of the country.
The real estate franchise did not do to independent realtors what McDonalds did to the local hamburger stand, but approximately 27 percent of the real estate offices in Illinois are now franchised, according to Robert Cook, executive vice-president of the IAR. Nationwide recognition and national advertising are advantageous, especially where transferees are a substantial proportion of the customers. Yet a percentage of gross income plus the required franchise fee is a lot for a realtor to pay to enjoy these benefits.
While the franchise office does offer opportunities, it will not squeeze out small local market operators, says Roger Marquardt, president of the 3,500-member DuPage County Board of Realtors. Even in the toughest of times Marquardt, Cook and others still believe that it is possible for the small independent operator not only to set up an office and survive, but to excel.
Their prediction is optimistic, but realtors are optimistic people. And they'll need that optimism, as well as expertise and ingenuity, to deal with the changing money markets and lifestyles of the 1980's. Free-lance writer Dona Gerson is also an Evanston alderwoman.
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