Most real estate agents don't realize this but the term "Farming" as it relates to real estate was coined by Tom Hopkins in the late 1960's. Two areas of training that made Tom famous in his early days was his farming concept which was unique at the time and how to list For Sale by Owners. I have had the pleasure of attending Tom's trainings on several occasions starting in 1984 when I obtained my first real estate license in Columbus, Ohio. Eight licenses and seven states later, here I am in Jupiter Florida starting over again. To get motivated I decided to re-read some of the "classics". Think and Grow Rich, Rich Dad-Poor Dad, Real Estate Rainmaker, 21 Things I Wish My Broker Had Told Me and of course How to Master the Art of Listing and Selling Real Estate by Tom Hopkins.
As I read through these books I was reminded of how I got started in this crazy business and began to think back to what made me different back then. For those of you who may not know my background I will briefly review. I started literally with nothing, just a leap of faith that I could be successful in real estate. Having NO money to market, mail postcards, places ads, etc. I had to devise ways that would help me stand out. The method I share with you in this post took me from zero to being a top 3 agent in a company of 450 agents and then on to be a Top 100 agent in Florida and one of those "top 1% of all realtors" that everyone claims to be. I completed $13 million in volume with 55 transactions in my first year and increased my volume each year after that. In my last "active" year which was 2005 I completed $54 million in volume with 154 transactions. I am now rebuilding my business in a new market, with no contacts, no client base, no established reputation and no franchise name to back me up. However, I always keep these facts in mind:
- There are over 1.3 million members of the NAR http://www.realtor.org/vlibrary.nsf/pages/membershipcount
- More than 800,000 of those members will not complete a single transaction this year NOT ONE TRANSACTION.
- There are approximately 40,000 of the remaining members that consider themselves "full time" Realtors® meaning they derive the majority of their income from listing and selling real estate.
- That leaves 760,000 estimated "part timers" meaning they either cut hair during the day or derive the bulk of their income from other sources.
- To be in the Top 1% you need only complete an average of 30-40 transactions per year to qualify. That is why when you here someone completing 200, 300 or 400 or more transactions, they receive such notoriety.
- As you probably already know, 8 out of 10 new agents entering the business will fail in the first year, of the remaining 3, 80% of them will leave the business within 5 years.
It is for these reasons that I decide to jot down these steps that 90% of agents will not do. I know from the seminars and trainings I have given that only one or two agents in ten will actually put forth the initiative to implement changes either in systems or habits to help their own incomes and careers. What I propose is statistically proven, that if implemented it will work and double or nearly double your business each year starting from scratch. What I didn't know at the time was what I was doing. I did what I did out of desperation and lack of funding. I HAD to find ways to get business without spending money and here is how it happened. If what I share here with you helps provide you with an "A-HA" moment then it was worth it.
This is Part One in a Ten Part Series
I have always said "It is easier to take over a small country then to try and take on the world." This is the tag line I would use every time a new agent would ask me how I did it or how should they get started or how do they become me.
It is a fact that if you simply mail a postcards EVERY month without skipping a beat into a defined market area, within 24 months you will capture 20% of the transactions that occur with that market. Most agents fail because they try to compete with the big agents and they chase listings and buyers all over the county to get a deal. What they fail to realize is that if they concentrate their efforts and where they spend what money they have, they can produce much larger results within a quicker time period. Also, MOST agents will disagree with my statement because THEY HAVE NEVER DONE IT or some other agent told them "yeah I mailed postcards for a couple of weeks, never got nuthin' out of it, won't do that again, it was a waste." so that agents tells other agents and so on and so on, like a virus, actually more like a plague. I realize that mailing postcards can be expensive it might cost you a whole $200 a month to mail to 500 potential listings that's a large investment (not).
BUT I AM GOING TO SHOW YOU HOW NOT TO MAIL POSTCARDS (at least not yet, the effective use of postcards will be covered in Part Three) but it will require some effort on your part. In this first installment we will discuss the "WHY". Take a look at the illustration below (okay stop laughing I know I'm no Van Gogh but that's why I work in real estate).
Over the next ten installments I will begin to fill in these circles with the pertinent parts of the program duplicating exactly how I did it in my career. Please realize I am doing this as much for myself as for others to help get my business back on track by reviewing and renewing what I know works. Make a note that the first 3 circles on the bottom are your tripod. These are the items that will keep you stable and provide a more immediate revenue source so as to help build on the other parts. Now back to the WHY;
If by mailing just a single postcard each month to a define market area will result in an average of 20% capture of the transactions within that market, why would I want to do that. Let's break it down:
- To begin we will work with only a 500 home farm. To
determine if that farm is a viable market area we must find out what the
average turn over rate is within that subdivision or geographic area. When
completing this step we are looking for subdivisions or areas that produce a
minimum of 7% or higher turn over. That means that in 500 homes 35 of them
will transfer ownership on average each year or: 35 ÷ 500 = 7%. This
information is easily obtained by using your MLS and your tax rolls. Simply
use the tax rolls to determine how many total homes there are in that area
then check your MLS for how many sales occurred there. Depending on your MLS
I like to check back at least 5 years worth or one average real estate
cycle. This will help you determine if your market area is on an upswing or
downswing in the cycle. I would also add about a 1% to 3% margin of error
depending on your marketplace for FSBO sales and transfers that occur due to
inheritance or other inter-family changes.
- Once we have determined the turn over we can now
estimate the amount of potential transactions. Some of you may say "Well
isn't that 35 transactions?" my response is no, it is actually 70
transactions, one for each seller and one for each buyer. Believe it or not
but if you work this system correctly you will double side more of your
listings. This occurs because of the concentration of yard signs that
happens when you work a smaller market. The more signs with your name on
them, the more deals you will double side because if a buyers is checking
out an area and they keep seeing your name, they won't bother to call anyone
else. If you would like to get some perspective on this, please check out my
previous post about
Your Home on the Internet? Read This First...
- Now estimate the number of potential transactions you
will capture. Just multiply 70 x 20%=14. So if you work the program,
you should obtain 14 transactions for this farm area. Now you may say
"Frank, what the heck! I'm going to do all this work for just 14 sales in 2
years? Are you nuts!?!?!" My answer young padowan is "No", I am not nuts.
Remember earlier I stated this is ONLY if you mailed a postcard once a month
for 24 months. In the coming installments, I am going to share how you will
blow these averages out of the water so stay tuned! I promise it will be
worth your time and energy. What if you could capture 30%, 40%, 75% or even
90% of the transactions that occur? How much would that be worth? Read
- Let's assume that you work in an average market that
has an average sale price of $200,000. At that sale amount you would earn a
gross commission of $6000 or $200,000 x 3% = $6000. Now let's assume
again that you are on a 50% split with your broker so your end would be
$3000. Please adjust this for your actual commission split. 14 transactions
at $3000 each is $42,000 or just above what the average real estate agent
earns per year. For some people $42,000 maybe a lot of money, but let's
assume it's not enough.
- Now let's assume that you can not increase your
capture rate above 20%. No matter what you do 20% is the best return. How do
you increase your income? Simply by extending your farm. For example, if I
am earning $42,000 from one farm, I add another 500 home farm the following
year. If I follow the same process I am now earning $84,000, the next year
another 500 homes, now I am earning $126,000, the neat year another farm
area and I am at $168,000 and finally in year five I add one more farm and I
am at $210,000 per year consistently each year if I maintain and service my
farm. I now have 2500 homes in my farm. Sounds easy doesn't it? Well it's
not easy BUT it is simple. In the volumes I achieved that I shared with you
above, I did that with only a 1500 home farm. I sold 44% of my own listings
and outsold even the most tenured of agents in my company within months, not
years but months.
- For the last part of this technical review, let's
figure out how we are going to work all these homes. This may vary depending
on your market but the average residential street has about 10 to 15 homes
on each side of the street. So that means that we need to break this down on
a street level. Remember in the beginning we are not going to use postcards
or direct mail of any kind. So, to work a 500 homes farm you need to touch
125 homes each week or 25 each day for 5 days out of the week. 25 homes is
about one complete turn around the block. In one month you will have touched
each home at least once and learned about 500 homes. This is where I start
to lose people. "What do you mean touch each home and how do you mean
on a street level?' That is the reaction I get from most agents when
I start to explain this system. DON'T WORRY, I would ask you to do anything
I wouldn't do myself or that you would be uncomfortable with. I DO NOT
KNOCK ON DOORS! So breathe a sigh of relief and kick back a little. How
long would it take you to walk 2 blocks? 5 or 10 minutes? This process will
take you about an hour per day.
- Now for the homework! We will complete these steps
together and I will provide you with real examples from my research and
results so we can compare notes. Using the information above, investigate
your MLS and determine the farm area you would work. Some points to
- Look for areas that provide a minimum of 5% turn over, no less. Anything less would be an ineffective use of time and money.
- Always look back more than one year. 5 years if possible and at least 2 years minimum. One years worth of data will not give you a real indication of the turn over.
- Once you have looked at the yearly turn over, add the yearly totals together and estimate the total turn over rate for the 5 year period. This will provide you with an excellent method to determine what amount of income you can expect to net over the next 5 years (barring any unforeseen catastrophes).
- You can use I have created and download from my website to make your calculations easier. These form are in Word doc format:
PLEASE NOTE THAT THE EXAMPLES PROVIDED
DO NOT TAKE INTO CONSIDERATION INCREASES OR DECREASES IN AVERAGE SALE PRICE
MAKE SURE TO INCLUDE THAT IN YOUR ESTIMATE AS WELL!
So now my question is, do you want to know more? Would you like me to continue with this series and share with you how to achieve the same results? Good or bad market, buyers or sellers market, up or down market it works. I have taught this method to other agents with great success. In fact, I am working on a $2 million dollar deal with one agent in Melbourne that I taught this method to and she went from $8 million dollars in listings to nearly $50 million dollars in listings in just 7 months. Do you think her transaction volume has increased as well? Of course. Another agent in Orlando I shared this had not completed a single transaction in six months since joining the company, again she was new and had never sold real estate before, she had nearly no money and cleaned houses to earn an income while trying to get her real estate business going. After we discussed her goals and desire, I shared this method with her and she obtain 4 listings and 2 transaction in less than 60 days after implementing the program. She now has a thriving business and averages 2 to 3 transactions per month.
So if you would like to learn more, subscribe his blog and in a few days I will have Part Two - Supporting Your Farm While Supporting Yourself.
Frank Verna, Broker and Sales Trainer
Serving Jupiter, Tequesta, Juno Beach and Palm Beach Gardens
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© 2007 Frank Verna, PA