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Why an Italian Economist is important to Real Estate

By
Real Estate Agent with Keller Williams Realty 0575737

ParetoIn Business Management circles, we owe a debt of gratitude to an Italian economist. The man's name is Vilfredo Pareto. Pay attention because if you remember his first name you will impress all your friends and get extra credit. He lived in the 1800's and was the son of an Italian civil engineer. What does this have to do with real estate you may ask?

He came up with this very worldly principle called the Pareto principle. Others of us refer to it as the 80-20 rule. It is an observation on numbers for the mathematicians out there, and can be extended to life as well. It can be categorized as the vital few and the trivial many. What you want to do in life is focus on those things that give you leverage on the whole.

The observations included such things as 80% of the income went to 20% of the population. Or, 80% of sales came from 20% of the customers. You can extrapolate many things in life to this 80/20 rule. 90/10, 70/30, 95/5 rules abound showing that this is an inexact science but these out of balance proportions exist nearly everywhere.

A while back I saw an eye popping statistic that said 7% of Realtors sold 93% of the real estate. If this is true, it is really amazing and can probably account for the "part timer" label on so many Realtors or account for the high turnover in the ranks. But it is important to note that "despite" a 93/7 rule in sales in real estate the agent that sells four houses a year still could give a client GREAT service! You also might not be buried in the noise level as far as attention from the large teams. So little guys, don't despair!

80/20 and Mr. Pareto are an interesting phenomenon to understand. But this is a people business and a good agent is still a good agent.

Comments (10)

Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR
That's a good thought, Gary.  I do seem to find that 80/20 rule is true.  Nicely written blog.
Feb 12, 2008 12:02 PM
Mike Norvell Sr
Morris Williams Realty - Leesburg, FL
Norvell Consulting Group

Hey Gary...I believe that there is some truth into the subset of the original set...the 80/20 of the original 20%

 

....Yes those are numbers I am looking for in my searching for highest and best use discrepancy properties...  That is another post , but I do truy love the Pareto Principle!!

Feb 12, 2008 12:15 PM
Nannette Turner
eXp Realty LLC - Lynchburg, VA
Online Marketing Home Ownership Advocate Specialis
Exactly!  I love this blogs.  I also find if I put 20% more effort in my business I can increase my production by 80%.  Those stats are pretty good!
Feb 12, 2008 12:25 PM
Rich Dansereau
Positive Real Estate Professionals - Knoxville, TN
What a nice tidbit of history; and I like the thrust of your blog.
Feb 12, 2008 12:30 PM
Don Wixom
RE/MAX Executives Nampa, ID - Nampa, ID
"Looking out for your next move..."tm
Nice post Gary... It's usually the agents who have many transactions in their history that ARE the GOOD agents.  If I have heart surgery, I'm going to want someone who has done it more than 4 times a year.  Just a different perspective.  I know there are lots of good agents out there!
Feb 12, 2008 03:09 PM
Kate Elim
Dockside Realty - Spotsylvania, VA
Realtor 540-226-1964, Selling Homes & Land a

Gary...I especially liked one of the points you made. 

But it is important to note that "despite" a 93/7 rule in sales in real estate the agent that sells four houses a year still could give a client GREAT service!

I'll probably be one of the few that agrees with that statement.

Cheers,

Kathleen

P.S.  How come I never ran into Vilfredo when I lived in Italy???

Feb 12, 2008 03:36 PM
Jesse Clifton
Jesse Clifton & Associates - Fairbanks, AK
It's pretty accurate in our market as well... a handful of active agents sell the vast majority of real estate.  I agree with you that even the agent that only sells a few houses a year could give great customer service, although unfortunately that's often not the case.  It's a simple matter of keeping up with changing trends, technologies, etc. 
Feb 12, 2008 06:55 PM
J Perrin Cornell
Coldwell Banker Cascade Real Estate - Wenatchee, WA
Broker, ABR, VAMRES
Well almost half of the total agents do not belong to NAR. Then we keep saying real estate is local. In some areas 4 sales a year could amount to 400K incomes. So to march thoase agents to agents from other areas isn't a good match. But the old 80/20 sure does seem to work in so many areas. Didn't know who came up with it though...thanks!
Feb 12, 2008 11:52 PM
Norma Toering Broker for Palos Verdes and Beach Cities
Charlemagne International Properties - Rancho Palos Verdes, CA
Palos Verdes Luxury Homes in L.A.
Gary - I'm going to have to remember Vilfredo and casually include it in my next business discussion with my Columbia MBA son; he'll be quietly impressed. I did a post on the Pareto Principle a couple of months ago, but didn't have the first name or the photo.  Nice research!
Feb 13, 2008 01:18 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher
Gary,This was an interesting read, I've heard of the 80/20 rule but applied to different things....now I know where it originated.  I do believe a lot of principles apply to that rule.
Feb 13, 2008 08:33 AM