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You Are Already Beating the Odds

by | Jun 23, 2022

Probability is the mathematical study of chance. It measures the extent to which an event is likely to occur by comparing favorable outcomes to total possible outcomes. If you roll a pair of dice, you have a 1 in 36 chance of getting snake eyes (or double 1s) because the sample space or total number of possible combinations is 36. But let me take a commercial break from mathematical theory with these fun probability stats:

  1. You have a 1 in 114,195 chance of being struck by lighting
  2. You have a 1 in 12,000 chance of finding a pearl in an oyster
  3. You have a 1 in 292,000,000 chance of winning the Powerball jackpot
  4. You have a 1 in 11,500 chance of winning an Oscar
  5. Men have a 1 in 3,333 chance of being drafted by the NBA and women have a 1 in 5,000 chance

Statistics like these can be sobering and dream-killing. I repress the urge to pull someone aside on the lotto line and tell them that they have a greater chance of being struck by lighting. But to some, they can be inspiring. My husband found a pearl in an oyster years ago, so though it is about the same odds as me winning an Oscar, I know it’s possible.

Now add some competition to the mix, and you’re analyzing the likelihood of your opponents outcomes which is a subset of probability called game theory. If you think about the classic game of rock, paper, scissors it would seem to have the same randomness or sample space as throwing a pair of dice, I mean there are only so many possible outcomes with two players. But humans tend to be non-random because we have inherent psychological weaknesses and tendencies that help to more accurately predict possible outcomes. If you have spent an entire plane ride playing rock, paper, scissors with your 5 year old you know this all too well.

As real estate agents, you have to understand what the possible outcomes are in order to play to win.

As the housing market shifts and the U.S. economy (likely) heads into recession, we look for answers in data. It’s natural human instinct to lean into the measurable when faced with uncertainty. Of course it’s not possible to predict the future and we do have the challenge of lagging data in real estate, but there are important statistics that we can look at to help understand what we are up against for the next couple of years. As real estate agents, you have to understand what the possible outcomes are in order to play to win.

  • 65.5% of Americans own their own home
  • Nearly 40% of all American homes are mortgage free
  • 70% of all mortgage holders have a rate of 4% or lower
  • Housing starts fells 14.4% last month
  • There are roughly 3 million licensed real estate agents in the United States, roughly half of them are members of the National Association of Realtors (NAR)
  • Over 150,000 people new licensees joined NAR during the pandemic
  • Roughly 10% of real estate agents dropped the licenses during the 2008 housing crisis
  • Fannie Mae is predicting a 13.2% drop in home sales in 2022 to and another 11% drop in 2023

Let’s take Fannie Mae’s number of existing homes and look at the probability of you selling them. If you are one of 3 million licensed real estate agents in the U.S., figure a good 5% drop out of the business next year. So that’s 4,671,000 for 2,850,000 agents or 1.6 homes for every agent to sell. If you assume that 50% of the sales will be co-broked, that at least increases the number of transactions your average agent is doing next year. But still, that’s only 2-4 transactions for each agent. At the median price point of $405,000 in the U.S., assuming a 2.25% commission, that’s a $9,112.50 commission or $36,450 in gross commission a year. Yikes!

You see where I’m going with this. It’s beyond sobering—it’s a cold water slap in the face. You may be thinking to yourself: “well, that’s just your average agent, and I’m not average.” If that’s you then you are one step ahead of the game because at least you have confidence in your ability to compete. But even if you have an amazing track record of winning listings, consistently getting referral business and filling your pipeline with new prospects, it still begs the question: WHY? Why are you doing this? What gets you out of bed in the morning? It’s not the money. It’s never as simple as that. What’s underneath that? Where is that money going or who is it for? What does that money mean or what does it prove?

This may seem rudimentary to you. You have read the books and done the work, I know. But if there was ever a time to revisit your why, it’s now! Because this market is only going to get harder. It will test your stamina and will. It will force you to be creative, nimble and adapt. It will weed out the part-timers, bull market riders and get rich quick dreamers. It will also become critically important who your business partners are and who your brokerage is. Are they up for the challenge? Do they have the competitive edge? Are there enough resources for you to succeed?

Inherent bias admitted, I believe the boutique approach of The Agency—and boutique brokerages in general—is a huge advantage in a market like this. We do more with less. We partner with a select group of people to perfect their game theory and beat out the competition. We nimbly and creatively take on the one-size-fits-all mass market model and shine like a north star.

Think of the boutique brokerage as your small sample space. You’re not 1 in 25,000. You are 1 in 1100. You are already beating the odds.

Until next week,

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