IS THERE A MAGIC FORMULA FOR SELECTING A FARM?
Of course there is a magic formula! That's one of the reasons why some agents' farms are more successful than others. You just can't expect to earn a living by mailing to 250 homes with a 2% turnover rate. "I live here, so I farm here" is NOT the magic formula!
Quickly, let's define farm, so we're all on the same page. For the purpose of this discussion, we'll use this definition: A FARM IS A MARKET NICHE to whom you will target market - 'could be based on geography, a hobby, a profession, or any number of other things.
The MAGIC FORMULA begins with some preliminary calculations to determine how many households to target in your farm or market niche. The easiest to evaluate is a potential geographic farm, so I'll use that in my examples (in italics). However, the same formula applies to any farm or market niche:
- Make sure that no single agent has a 25-30% market share in any farm or market niche you are considering. If one does, STOP NOW. Don't bother to proceed. Move on to another area.
- Determine the average days on market in any area you are considering. STOP NOW, if typical "days on market" are 200, or even 100. Move on...
- Establish your goal, i.e. how much money you want to earn. (I want to earn $500,000 next year in my market niche)
- Estimate the average commission for each transaction. ($5,000 per side)
- Translate the above information into how many transactions you must close to achieve your goal. (I must close 100 transactions, which means I must identify a source of 50 listings - assuming that each of my sellers will also buy a home.)
- Evaluate any market niche you are considering to identify the turnover rate, i.e. percentage of households that sell in a year. (For the sake of this example, let's assume that about 5% of the homes sell each year.)
- Calculate the number of households to target by multiplying the number of transactions (#5 above) by the turnover rate (#6 above) (50 listings divided by 5% turnover rate = 1000 households).
- GET REAL! No one lists all the homes in their market, so now you need to estimate your market share. (If you think one in four listings, i.e. 25% market share, is a challenging but reachable goal, multiply the number of households by four)
The magic answer to your magic formula is... drum roll please... 4000 HOUSEHOLDS in your farm or market niche will be necessary to achieve your goal, in this example. (Note, I am not proposing you farm 4000 households, I'm saying that's the conclusion in this example!)
TOO MANY? You're not willing to pay for the marketing pieces, postage and advertising to reach that many households? Start over now by evaluating another potential farm or market niche, applying the same formula.
You my conclude that your expectations are unrealistic, and reconsider your goal. Or you may cut the number of households in half by choosing a farm or market niche at double the price range (and commission) or double the turnover rate. Do this exercise as many times as necessary, until the numbers make sense for you to proceed with creating your farm or market niche. Just remember, you and your farm should have a common bond such as geography, hobby, profession, language... In my community, the numbers just aren't there to justify a mailing program, so I don't do one.
Farming is a huge commitment that requires significant expense and effort, so any mistake at this stage can be very costly, as well as ineffective. Investing time up-front to evaluate your farm BEFORE you begin could save you time, money, and disappointment in the long haul. If you're not prepared, there's no point in even starting a mailing program.
I have found that the mind will absorb only what the butt can endure, and you will be spending a lot of time at your computer working this Magic Formula. Therefore, I'll save additional information about successful farming for another post later this week.
After 40 years in this business, I am still learning new tricks and remembering old ones. One of the many gems I took away from the Hobbs Herder Gateway this week was this expanded definition of a farm, although my "magic formula" is a little different than theirs. To all you folks who are comfortable with what you already know and cynical about real estate seminars, I assure you that I will more than recoup the investment within a month, and keep profiting forever after. THAT is the magic formula for succeeding in this business since 1967.
Copyright 2006-12. All rights reserved.
DISCLAIMER: Information contained in this post is deemed reliable on the date of publication, but it is not guaranteed and it is subject to change without notice.
________________________________________________________________________________________
Margaret Woda, REALTOR and Associate Broker
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I love all types of farms. We have a high end geo farm and we have a social farm and an expired listing farm. It is all about marketing and understanding Marketing principles and returns. Your return is not going to be 2% if you are sending out junk postcards that everyone else is using. You must set yourself apart from your competition in that farm. You must do this with the act of giving principle and energy and they must feel this from you. A subject for another post.
And Margaret- you are so right, it takes dedication! Lots of it. Most agents give up too soon. Katerina
Katerina - I think most people give up too soon because they didn't consider in advance what the scope of the commitment would be, and they may not have selected a productive farm. Maybe this formula will help them maximize results.
Brad - As a broker and branch manager, I found that agents overwhelmingly went with the "I live here so I farm here" formula. If that works, it is luck.
Linda - I wish someone had taught this to me. I basically "farmed" my sphere of influence, but never connected the dots. Now that I think back, we knew most of the people through our kids activities - junior golf, swim team, scouts. If only I had thought to include that connection in the mailing pieces I used...
Hi, Adam - I've heard nothing but good feedback on Brian Buffini's program, but it's one of the few I haven't done. Based on feedback from folks who have done the program, I couldn't disagree with anything he says. Thanks for sharing.
Hi Margaret,
I know this is a generally accepted farming approach. Is it also a Hobbs-Herder approach? Just wondering if they have any special take on it.
Margaret
All good information, the formula I use to determine weather or not I will farm is; lets say that the average turnover is five years for an area. If there is a 100 homes to the area than 20 homes per year will sell. Eighty percent of those people will chose a Realtor or 16 people, I want to capture 80% of those people or 12.8 families times how many families you choose to represent. If your doing a farm of 500 homes than you should be able to list 64 properties per year.
Hi, Don - This is definately their definition of a farm (market niche, not necessarily a geographical area), and they did go through a similar formula. However, this is the example I've used over the years in teaching farming to agents; it may or not be exactly the same as HobbsHerder. Think of this as sort of a hybrid, theirs and mine rolled into one. I encourage you to check out their schedule because you may learn something new - at the very least, you'll remember something you knew. (Like that play on words... new and knew... haha)
David and Kristin - Yes, you are right. This is the easy part. Wait 'til agents see the frequency schedule for farming that will be my next magic formula. We may lose a few, and we'll hear from agents who swear they are successful with monthly mailings.
Herb, I am reminded of that quote every time I go to training. I believe speakers get so wrapped up in themsevels that they just don't think about it. As to the farming, I do believe this formula could help an agent choose the RIGHT farm, so it's not a waste of time. I have certainly observed it working in my community for persistant agents. And thanks for the "5" Herb!
Okay, Margaret. You've got me thinking again. I may have to start farming.
Thanks.
There you go, Jim - You've identified your market niche, and it's a good one. MUCH less expensive than mailing, too! Who says you're not farming!?!? I think that's what Lenn Harley and some other wise folks are doing, too - they just don't realize it.
Hi, Karen - Think long and hard, because it's a big commitment. You may decide "NO" after you read my post on the magic formula for mailings - I did. (In draft form now, coming soon to a blog near you...)
David - Focusing is very hard for me to do - You know the whole thing about teaching an old dog new tricks.
Excellent post! A lot of people don't understand what it means to really farm! A lot of agents also think that they can send out a mailing once, and that they get results, when in reality it takes 6-12 months to really start seeing a return on your investment. I always recommend to people to set aside the amount of money it will cost to farm for AT LEAST 6 months in advanced and have the marketing ready to rock & roll. If you plan on doing it once or twice--don't bother, and if you plan on doing it one month, not do it the second, and then the third month doing another mailing--don't bother! your wasting your time. Any time you stop your marketing (say you skip a month) you are really starting over again. Now this may not be true for people who have farmed for years, and for one reason or another skipped a month, but it is true for agents who are just starting out in farming!
Jeff, Thank you! Your opinion means a lot to me. I don't think my post on mailing schedule will be very popular... coming later this week.
Gary, Before beginning anything like this, it's so important to know what you're getting into. All this talk about farming had me analyzing different areas of my neighborhood today, trying to identify a farm - the bottom line is that there's just not enough turnover to justify farming nearby homes.
David, Thanks for your input, and your reinforcement. Six months set-aside is a great idea!
My farm is my past clients and SOI. I regularly mail newsletters and and a bi-monthly magazine. This works great for receiving referrals. Although I don't mail to 4000 people (I sure wish I had 4000 past clients), I am constantly adding to my mail list.
Thank you, Julie! You're not alone... I think a lot of folks use the "I live here, so I farm here" formula. In my neighborhood, no matter how hard I try to tweak the numbers, there is just not enough turnover unless I would mail to many more homes than I can afford.
Deb - Your market niche is the one I have used consistently - old clients and sphere of influence - although I've just had it pointed out to me that I need to make my mailings to old clients more personal. Don't worry, I wasn't recommending 4,000 homes, that just worked out to be the answer for that example. That result would surely send me back to the drawing board to find a different farm.
Bill - I love it. "tin man syndrome" - You're right it takes a LOT of resources, not to mention commitment.
Donna - Thank you! I've come to realize that a lot of what I do, or know how to do, is not necessarily something that all agents get during their fast start training after licensing. Even if they do, it's a good reminder, some months after being out in the field and some of this stuff starts to make some sense.
I am so impressed by some of the comments on this thread - people with ideas to add, people who feel like they learned something from reading this... great dialogue, thank you!
Margaret,
Thanks for the great post on farming. I've been in this business for 21 years now and have never farmed yet! It's always been on my list of things to do and I'm just now trying to decide where to farm and how many homes to farm. Your info on the stats really helped! Thanks again.
Hi, Paula - 'Cill fee the samean't wait for Part Two, hmmmm? I hope you feel the same when you see it.
Gita - You're right. A farm can be ANY market niche! Even Internet buyers, as Jim Crawford suggeested.
Claudia - I don't know if you saw my earlier comments, but I've done the research and had to reject farming in my community.
Great information. I know some agents that are extremely successful with farming...they own the area. I've been farming (monthly) my own neighborhood, but also in conjunction with that I sponsor the garage sales, started a n'hood website, and attend the girls night out functions. However, I'm not farming for listings as much as farming for referrals and name recognition. I have had a few listings (and maybe one more soon) but I have to say most of my business comes from referrals and the internet. I think one of the keys is to choose a small enough area that you can really work it and stick with it!
Margaret,
Very few people pick their farms properly. As a matter of fact most agents I talk to including some who are H/H clients that have negative opinions about farming can attribute their lack of results to not doing the research in the first place.
Michael, Welcome to ActiveRain. Good to see another AA County agent become active. I've invited a lot of people who accepted, but didn't do anything. Did you join the Group for Anne Arundel?
Brian, you're right. that is so true. I was fortunate to have someone teach this to me in mid-career... it might even have been the Hobbs-Herder program I went to in '92. My market niche just doesn't have enough turnover for me to be a super-star, but I'm okay with that. Some people would not be.
Kelly, It sounds like you have a plan and you're working it. That's a good start!
Margaret,
If you're comfortable with where you're at that's what matters. I orginally started with a certain farm in mind and once I did the research discovered that I could do the same amount of business in another area with a higher turnover rate with half the size farm. That lowers my intial cost to get a farm up and running and expand down the road. I do want to be a mega-agent and I'm going to have to do it in smaller steps.
Margaret,
Great Post! The diligence to scout a farm is absolutely necessary....
-Bill
Bill@Sauenuf.com
http://www.Sauenuf.com
Brian, if that's where you see yourself, that's where you'll be - big steps, little steps... You're off to a GREAT start!
Bill, necessary, but often overlooked
Anonymous - oh, oh... someone forgot to log in before commenting! Why don't you log in and comment again. Then I'll delete that first comment and this part of my comment.
Hi, Adam - When the ROI is low, it doesn't make sense to do frequent quality mailings - but that's where blogging comes in.
Donna - So what's the bottom line... are you doing it or planning to? It has never made sense for me. And thanks for mentioning the picture. I got totally inspired this morning, when I read some of the many blogs listed on Bob Carney's post this morning, and decided it wouldn't kill me to participate in this little ActiveRain grass roots effort to support Breast Cancer Awareness Month.
Kelly, I hope it helps you make an educated decision about whether or not to start an expensive campaign of frequent quality mailings.
If you are thinking of paying Hobbs/Herder thousands of dollars for their seminar and materials SAVE your money. I am in the process of recovering $4000.00 through Small Claims court from Hobbs/Herder. They have had my money for 3 1/2 years and refuse to own up to their inability to deliver what they promise. Don't be their next victim.