The 2024 Recession: Balancing Cost-Cutting and Growth Pursuit Strategies

For most brokers in 2023, there are two ongoing realities: High interest rates, which are dampening the ability for many income-earners to afford a home, and a lack of inventory due to softening real estate prices across the country (and the aforementioned interest rates are probably playing a part there, too).

WAV Group's Victor Lund explains how real estate brokerages can navigate the 2023 recession with a two-pronged approach.

Real estate has four economic modes of operation: Buyer Market, Seller Market, Growth Market, Recession Market. We are in a recession market, defined as a market that has retracted 20% or more.

In the realm of the real estate industry, recessions present a formidable challenge that prompts real estate brokerages to make strategic decisions to weather the economic storm. As economic uncertainties loom large, organizations are faced with the crucial choice between cutting spending to conserve resources and pursuing growth to seize opportunities. The decision hinges on factors such as financial stability, industry dynamics, and long-term goals. In this article, we explore the two primary approaches that companies consider during recessions: cost-cutting and growth pursuit.

Cost-Cutting Approach: Weathering the Storm

In speaking to several owners of America's largest firms who are members of the Broker Resource Network, cost cutting quickly has become the modus operandi across the board. During a recession, real estate brokerages adopt a cost-cutting approach to maintain financial stability in the face of reduced consumer spending and economic uncertainty. The key strategies under this approach include:

1. Reducing Expenses: To preserve cash, companies scrutinize every expense and curtail discretionary spending. Operational costs are meticulously reviewed and streamlined to ensure maximum efficiency.
2. Workforce Management: Unfortunately, workforce reductions become a necessity for many organizations. Layoffs and furloughs are painful decisions that help control labor costs but can impact morale and company culture.
3. Scaling Back Initiatives: Expansion plans, new projects, and investments are often postponed or scaled back to prioritize core operations. Capital expenditures are scrutinized to ensure they align with immediate needs.
4. Agent Optimization: Effective agent management becomes crucial. Companies strive to avoid excess agents, reducing carrying costs while maintaining the ability to fulfill customer demand.

Growth Pursuit Approach: Seizing Opportunities

Contrary to conventional wisdom, many of the nation's most successful companies view recessions as windows of opportunity for strategic growth. Historically, many of the world's most successful businesses were born out of recessions. These organizations focus on exploiting market gaps and positioning themselves for post-recession success through the following strategies:

1. Investing in Innovation: Innovation becomes a driving force as brokerages create new services that address evolving customer needs during the recession. It is an opportune time to launch affiliated services in insurance, mortgage, concierge, title, new home, property management, commercial real estate, etc.
2. Expanding into New Markets: Companies may choose to enter previously unexplored markets or target niches that remain resilient amid economic uncertainties. Expanding markets in the USA include Atlanta, Raleigh, Dallas, Fayetteville, Greenville, Charleston, Huntsville, and Jacksonville.
3. Acquisitions: Organizations with solid financial foundations may consider acquiring distressed competitors or complementary businesses at lower valuations. Merging an office that is operating at a loss, or breaking even with a competitor who is in the same boat will often create a profitable office. It's easy to know the volume required to make an office profitable, you will find many willing competitors who are anxious to avoid losses. Download a copy of our recent book, Acquiring More Profit by George Slusser and Victor Lund, here.
4. Strategic Marketing and Branding: Companies that continue marketing efforts effectively can gain market share by establishing themselves as value-driven brands.
5. Customer Retention and Loyalty: Building strong customer relationships during tough times can pay dividends in the long run, fostering loyalty and referrals.

In reality, the decision between cost-cutting and growth pursuit is not binary. Most companies strike a balance between the two approaches – tailoring their strategies to their unique circumstances. Available resources, industry landscape, competitive positioning, and risk tolerance all play a pivotal role in shaping the company's course of action.

Navigating a recession requires careful consideration of both cost-cutting and growth pursuit strategies. While cutting costs is crucial for immediate survival, strategically pursuing growth can position companies to emerge stronger in the post-recession landscape. Regardless of the path chosen, each decision should be informed, data-driven, and aligned with the company's long-term goals. As businesses embrace the challenges of a recession, their adaptability and resilience become the cornerstones of their success.

WAV Group's brokerage advisory specialists – Victor Lund, Mark McLaughlin, George Slusser, and Finley Hair are experts at supporting you through your recession planning. We can aid in the planning or the execution of any piece. Reach out to request a confidential consultation.

To view the original article, visit the WAV Group blog.