Are There Blue Skies Ahead?

There's no popping sound--not yet anyway. But for doomsayers who've been worried about a housing bubble, data released last week brought long-awaited news: after months of slowing sales, in August the median existing home price fell by 1.7 percent, the first year-over-year price drop in more than a decade. The number of homes on the market jumped to 3.9 million--the highest inventory level since 1993. For the 112,000 U.S. agents who work for Century 21--the world's largest real-estate sales company--the changing market demands new techniques. NEWSWEEK's Daniel McGinn asked Century 21 CEO Tom Kunz how he's leading his company as the housing market turns. Excerpts:

Not at all. In July or August of 2005 we started telling our brokers that the market was beginning to slow and we needed to start preparing for this. How did you prepare for the slowdown?

First, let me say we still have a fairly strong market. Jobs, income and interest rates are in great shape. The forecasts say this will still be the third-best year for home sales in history. But inventories have moved up, which is why we've reminded our agents how to properly price a home, how to market a property and how to make it stand out. When there are five or six homes in the same subdivision up for sale, it comes down to how you position your property. We've also worked with [our mortgage partner] to create "buy-down products," so instead of sellers lowering their sales price, we can work with them to buy down the rate of the buyer's mortgage, to make the home more appealing. I also told our offices last year that as they made budgets for 2006, to take their original budget and figure out how they'd cut it by 10 percent, then figure how they'd cut it by another 10 percent, and put those plans on the shelf. It's easier if you have those budgets ready, rather than making decisions when you're in the throes of a declining market. Is it hard for agents to tell would-be sellers their homes are worth less than they think?

It takes time for buyers to understand they don't have to act so fast and for sellers to understand that pricing is not what it used to be. The real price of your home is what somebody is willing to pay for it--that's the bottom line. A lot of times people look at this and say, "I'm losing all this money," but until you sell the property you haven't lost anything, even though they saw that paper equity sitting out there. The reality is you have to deal with what you bought it for and what you're going to sell it for at the time you want to sell it--you can't look at what [you] may have missed out on.

I don't know. The issue with too many agents has to deal with the level of expertise they have. As the market starts to fall ... there will be people who get out. But we continue to recruit agents. We average about 7,000 to 9,000 inquiries a month on our Web site from people who say they're interested in a career in real estate. Hasn't the Web made agents less necessary?

You need to understand that information alone without knowledge of how to put the transaction together is somewhat useless--and scary in some cases. As a corporation, we have an obligation to better educate the public about what a real-estate transaction really looks like. What happens after the offer is accepted--all the work that needs to be done to get to closing--is one of the busiest times for a Realtor, who's doing most of that work.

It seems like just the last few years we've seen the discount agencies, but they're not new. There were companies doing that in the 1970s. What's brought them to the forefront now is technology--it's a very low cost of entry and to get your name out. But this is not something that's new. Commissions have always been negotiable. And my dad always taught me from the time I was a small kid, everything in life has a price-value relationship. What is it you're buying and selling and what is it you're getting for the price you're paying?

Based on the prices of a couple of homes that have sold nearby, I think I'm probably still ahead of the game.