Why Should Title Businesses Scale During Real Estate Downturn?

Author A. W. Tozer famously said, “Complacency is the enemy of progress,” a warning that Title businesses should take to heart. 

Nonetheless, complacency is wired in our brains. We are creatures of habit. We’re wired to look for safety in consistency and habits. 

Relying on habits, however, can, in some circumstances, do more harm than good.

In the business world, the habit of sticking to established strategies does not always yield the best results. 

Here’s why. 

How Behavioral Economics Explains Real Estate Strategies During Downturns 

Favoring routines often drive business leaders to adhere to tried-and-tested strategies. Relying on familiarity and repetition may seem like a winning strategy for averting risks. But not all is black or white. Business nuances matter.  

The willingness of businesses to maintain the status quo, especially in uncertain economic times, can be explained by behavioral economics. 

Behavioral economics is a field of study that combines insights from psychology and economics. It looks at how emotional, cognitive, and social factors influence the economic choices individuals and organizations make.

Avoiding new business approaches is often an emotional response more than a rational business decision. Hence, understanding what influences our decisions helps us evaluate the benefits of exploring new growth strategies more clearly.

Let’s look at how Title businesses can use the economic downturn to pivot and scale their businesses. 

The Current State of Real Estate 

The facts for everyone in the real estate industry are clear: the housing market is experiencing a downturn. Title and Escrow companies feel this firsthand with a shrinking inventory and challenges coming from a shift in buyers’ and sellers’ behaviors. 

While industry experts and economists closely following the state of housing can try their best to predict what’s next, there are underlying causes that complicate the task. 

Rooted in a combination of high mortgage rates, low supply, and affordability challenges, the downturn in real estate seems like an impossible puzzle. 

1. High Mortgage Rates

A key factor in the downturn is the dramatic increase in mortgage rates. As of late 2023, the average 30-year mortgage rate soars around 7.29%. A truly stark number, especially compared to the low 3% range of rates from just two years ago.  

Here’s where the shift of sellers’ and buyers’ dynamics comes into play. The current high rates look unattractive from both perspectives. However, for sellers who closed on a property with a 3% mortgage rate a few years ago, selling now doesn’t seem justified. Investing in a new home with a mortgage rate above 7% isn’t an attractive offering. 

2. Low Housing Inventory

There’s a noticeable decrease in home sales, which creates an inventory issue. With little willingness to sell, homeowners limit what the home resale market can offer and drive prices up. On the other hand, the demand for housing doesn’t seem to be slowing proportionally to the shrinking supply, and that puts additional pressure on the pricing. 

Buyers are also feeling the negative effects of high mortgage rates and the low supply. In fact, many potential homebuyers find themselves priced out of the market. 

3. Affordability Issues

The cost of financing a home purchase has become too expensive for a large segment of the population and, in particular, first-time buyers. First-time buyers often seek more affordable homes, and their search becomes impossible in the market today.  

Although experts expect a decrease in mortgage rates in 2024, the reduction might not be substantial enough to change the market significantly. 

The housing market will continue to experience the effects of high mortgage rates, limited inventory, and affordability issues. Potential government shutdowns and ongoing inflation concerns further exacerbate the economic uncertainty.  And even if the Federal Reserve has paused interest rate hikes, the housing market will likely remain in a downturn for the foreseeable future. 

A downturn in real estate means challenges not only for sellers and buyers but also for the professionals who take care of the closing– Title and Escrow. With fewer transactions come the issues of maintaining operational efficiency and decreased workloads.

For most Title and Escrow professionals, the intuitive solution for this challenging time would be to stick to tried and tested strategies like conservative spending, cutting non-core costs, and sticking to only a few essential services. 

Those strategies, however, pose a risk of reducing the business’ competitiveness. 

An economic downturn is actually the right moment for Title and Escrow professionals to evaluate the benefits of innovation and lay the groundwork for their future growth. 

What Should Title and Escrow Businesses Do to Compete in an Economic Downturn?

The downturn in real estate is a huge factor that puts pressure on companies in the sector to cut costs and scale down operations to remain in business. 

Nonetheless, these challenges offer an opportunity for Title and Escrow companies to reassess and refine strategies to not only survive the low but also set themselves up for success when the tide does turn. 

1. Plan and Strategize

Typically, during downturns, a lot of staff are laid off. Title companies are left with fewer resources to handle the work, and they are normally stretched thin and can no longer put the same focus on the customer. 

Operating a leaner workforce also presents challenges to scaling up once the market does turn. 

What Title and Escrow professionals can do is evaluate the processes to streamline where possible. Dedicating more time to revenue-associated tasks, rather than time-consuming, less value-added processes, sets the business up for success. Those additional processes can be outsourced and automated.

2. Manage Costs 

Cash flow constraints are always concerning, with or without economic slowdowns. 

A business will always have operational costs. Those costs do not significantly decrease in a downturn. Often, they even increase. As a result, companies try first to maintain sufficient liquidity. The focus is on covering operational expenses such as payroll, office rent, and other operation costs.  

Employing resources to meet immediate needs should not cause Title and Escrow professionals to forget about long-term goals. 

In fact, cash constraints should serve as a catalyst for making strategic changes. Changes that improve efficiency and reduce costs in the long run. Renegotiating terms with vendors helps alleviate cash flow concerns. 

During downturns, companies might have more leverage to negotiate favorable terms with suppliers and service providers. These new terms can help ease cash flow challenges.

Furthermore, renegotiating vendor terms will help move staff into more vital business roles around building better customer relationships. 

3. Accelerate Innovation

Economic uncertainties often drive innovation, and Title and Escrow companies can explore the opportunities for the benefit it provides. 

One way companies can leverage innovation is to utilize technology. Using solutions that simplify and speed up document processing improves customer service.  This step helps Title and Escrow professionals to focus on positioning themselves as trusted advisors. A partner who can help navigate the complexities of the market.

4. Focus on the Customer

Word of mouth is still the best way a business can grow. To create an environment where people willingly recommend their business, Title, and Escrow companies should focus on the service.  Enhancing customer service can be a key differentiator in a competitive market. Repeat business and referrals are especially invaluable during slower periods.

After automating the non-essential and time-consuming title and escrow work, companies would be able to redirect resources to excel in customer service. 

5. Expand Services

Diversifying services to include areas less affected by the downturn can offer new revenue streams for Title and Escrow companies. Services like refinancing, commercial real estate transactions, or handling foreclosures and short sales can offer a way to support the business during tough times. 

This diversification mitigates the impact of a slowdown in the core business but also positions the company to capture a wider market segment and be more resilient in varying economic climates.

6. Fortify Market Presence 

More to the point of better navigating the market, a downturn is the time to be strategic with marketing.

Many founders will likely be pulling back on advertising their business. However, those who ramp up marketing efforts to remain top of mind will have the chance to get ahead. Once the market recovers, those businesses will grow faster. 

7. Strengthen Relationships with Industry Partners

Building and maintaining a network of industry relationships offers a robust support system for Title and Escrow businesses, especially during challenging economic times. These partnerships can also open up shared opportunities and provide valuable insights into market trends and client needs.

The goal is to have strong connections with real estate agents, lenders, and other industry stakeholders. Securing these relationships offers Title professionals a more consistent flow of referrals and collaborations.

On a Closing Note 

Exploring counterintuitive strategies might be disconcerting at first. But remember what happened with the airline industry during and after Covid-19.  A lot of the airlines tightened their budgets and laid off many of their staff to try to manage the rapid revenue fall. 

However, they failed to anticipate that once restrictions are lifted, people will flood the airports, eager to go back to traveling. This oversight caused delays, skyrocketed rates of mishandled luggage,  and set the scene for poor customer service. 

Airlines found it hard to pivot in this short amount of time and let many of their customers down. Their experience is a lesson we shouldn’t forget.

In an economic downturn, proactive Title and Escrow companies should turn their attention to strategies that improve efficiencies. Look for ways to enhance diversification and manage risks. The key to staying competitive and later scaling a Title and Escrow business in a downturn is to focus on long-term goals. 

Doing what many have done is not a guarantee for success, so why not explore the alternative? 

In the meantime, you can always subscribe to Rexera’s blog so you’re up-to-date with everything related to real estate strategy and HOA asset management.