If you want to generate more business, you have two clear choices: Marketing and Prospecting. Selecting a Real Estate Farm is crucial to ensuring that your marketing budget is used wisely, and in this video, you will learn the steps required to make the most of your direct mail campaign.
If you want to follow along, or use it as a written resource, here is the transcript:
So, whether you’re a new real estate agent or a seasoned veteran, you probably know that you need to be marketing. Your options for getting new business essentially comes down to marketing or prospecting, and even if prospecting, you want to supplement with marketing. Let’s be honest, most people don’t love the idea of cold calling expireds and FSBOs and going around door-knocking in the cold, in the heat, or just at all. So, you probably are at a point that you need to be marketing, maybe you’re doing some marketing and you probably want to figure out how do you better select who you’re going to market to. In real estate, we call that a farm.
There’s kind of two different groups of people that we market to: our warmer group or our sphere and then our completely cold databases, which we call our farm. Most often, we do these by geography, and what we want to do is make sure that when we’re selecting a farm, that we’re not just selecting it willy-nilly, that we’re actually looking at it with a scientific approach on what we’re going to select, who we’re going to mail, and how we’re going to mail them.
One of the first things that we want to take a look at when we’re selecting a farm is the turnover rate. So, we can get this data from your local MLS, and the best thing to do is to go in and download all of the data for an area that you’re interested in. In Arizona, we use subdivisions, but it might be that you need to go in and draw polygons. You might do it by zip code if you’re more rural. Either way, this is data that you should be able to get out of the MLS.
Generally, I like to look at a two year period, so that we get an average, and then essentially we take that and divide it by two. If I know that in a geographic area (or subdivision), there are 500 homes in that subdivision, and 50 of those homes sell each year, that would be a 10% turnover rate. If I look at a two year period and if I’m looking at 500 homes and 100 have sold over two years, that’s 20% which have sold in two years. We divide that by two. We’re back to our 10%. Looking at the two year period just helps us average it up.
The markets obviously vary. Generally, 7% is a pretty good number. I really look for that 7 to about 8%. anything over that is awesome. We do have some subdivisions that we farm that have as high as a 9, 10, 11% turnover. Those are rare, but they’re awesome. One thing with going over those super high turnovers is that you definitely want to make sure that there aren’t other agents that have already seen, “Wow. Holy crap. This thing is converting or this is turning over at 11% I want to mail there.” That’s where we want to look at what we call the real estate agent saturation rate. That’s where we’re going to start pulling our numbers from MLS in order to make sure that there isn’t already another real estate agent that absolutely owns it.
On a qualitative level, we could just create our search in MLS, look at what sold in the last year or two years, and just start looking and seeing, “Oh, man. This person’s name just keeps popping up.” Right there you can probably [forget about farming it] if it’s to that extent. On a more scientific, mathematical, quantitative level, what we want to do is look at how many agents participated in those transactions. You can use Excel or a business intelligence tool to help you with this, whatever your level is and your comfortability is with these different tools. But essentially, if we have a subdivision that has 50 homes in it or 50 homes that sold in the last year, and of those 50 homes, 20 different agents were involved, that gives us a realtor saturation rate of 2.5, meaning that essentially each agent performed approximately 2.5 transactions in that neighborhood.
Now, we can’t really say this is the saturation rate you want. I can definitely tell it you want it as close to one as possible, because if it was one, that would mean that out of the 50 transactions, 50 different agents were involved, which means no one has any sort of hold on that whatsoever. So, we do want to look for a number as close to one as possible, but again, this is going to be relative based on your particular market. Then, of course, these things all need to be considered relative to the price of the home, the turnover rates, all those things that we just looked at. For instance, if a subdivision has a really high turnover rate, we might be willing to go with not quite as solid of a realtor saturation rate, whereas if a subdivision is turning over at 7% and we see that one agent is doing 20% of the volume, we really want to stay out of that.
Once you determine that an area might be a good fit, you might see, okay, this area has a realtor saturation rate of just under two or something. You still want to drill down just a little bit further to make sure that the data isn’t lying to you. Meaning if 50 homes sold in the neighborhood and 40 of those were done by one-off agents, but 10 of those were done by a specific agent, there’s a really good chance that that specific agent is probably in there mailing this area a bunch, because generally one of the top ways to get these listing leads is through direct mail, obviously. That’s one of the things that you might want to look at and say, “Man, if this other agent has already been mailing them on a weekly basis for the last four years, maybe I want to back off of there and let’s look for another neighborhood.”
Again, these things are all going to be relative, because it varies a lot. Our real estate group is in Scottsdale, Arizona. We have thousands of different areas we can go after and not just Scottsdale. We have Phoenix. We have Mesa. You have all of the surrounding areas, whereas if you’re in a much more rural location, you can’t be quite as picky. Again, it’s all relative, but it’s definitely something that you want to really look at, because there’s no need to go to war with another agent.
Something that can oftentimes get overlooked is the time on market. A lot of times real estate agents say, “Oh, well, it’s fine. It’s a high price point. I’m willing to have this higher time on market, because these price points are so high.” This is a trap that newer agents fall into. You do not want a bunch of expensive houses that sit on the market for years, because one thing that we know about these expensive houses is that the clients can also be extremely demanding.
For example, I know we have an agent on our team that also does work in Connecticut and anything over $1 million she has to be there to show. It’s just the market. It is what it is there. When you get in these high price point homes that are just sitting on the market, whether it’s you, or your assistant, or someone else on your team, having to constantly interrupt their day to go out and show that property, because the listing agent has to be present for all showings, this not only can not make sense from a marketing standpoint and getting your ROI back, but this can just be an absolute bear on your productivity and hurt you overall. So, don’t go after these real high price point homes that sit on the market for forever.
With that being said, also in certain markets, for instance, my mom is an agent out in Michigan. It’s very common that on these high price point homes that the commission start to tier off. She only gets 3% on the sell side for the first few hundred thousand dollars, and then it tiers off down to something around 2%. Don’t quote me on that, but I know that it’s very, very common in Michigan to have these tiered commissions. Again, going after these super high price points, if you have something where you’re super-established with these high value homes, then there might be something there, but I know a lot of new agents love to go in and look for these high price homes, because they want to be in luxury. It’s oftentimes not a good strategy, because time on market is really important.
You don’t want to get listings just to get listings. My wife and I used to call it hoarding inventory. You don’t want to hoard inventory; you only get paid when the house sells, so you want to get the listing. You want to get it under contract. You want to close the listing. You want to get referrals. You want to get repeat business. You want to keep them happy. At the end of the day, if you’re just getting houses and your hoarding inventory, you’re not getting paid and you don’t have a happy client. Definitely something we want to avoid.
Ultimately, everything is going to come down to the return on investment. You have to look at what it’s going to cost you to get a listing. Whether you’re getting those listings by doing direct mail, by running Facebook ads, by running Google ads, it all comes down to: What does it end up costing me to get a listing versus my other options? For a lot of people or a lot of real estate agents, their options are either, like we discussed, marketing or prospecting. You can market. You can use direct mail, you can use Facebook, you can use Google pay per click, or you can prospect. You can call expireds. You can call FSBOs. You can door knock. You’re always kind of competing between the two.
For us, with the Kay-Grant Group, when we founded it five years ago, we knew that we were not going to be out there door-knocking. We weren’t going to call expireds, and we weren’t going to call FSBOs. It’s just not something we were interested in doing. We started off with marketing right from the get-go. If you’re like us and you say, “Absolutely not. Now way am I calling any expireds. I’m not doing any prospecting, I’m not door knocking,” then really it comes down to marketing as your only option. That’s what is going to generate your highest ROI.
For us, in terms of generating buyers, we get that highest ROI from driving traffic to our website via pay per click. In terms of generating listing leads, we get the highest ROI by mailing postcards and letters. These days, we mail letters and brochures. That’s where we get the highest ROI, because of the fact that even though our market is fairly well saturated, by being extremely consistent, we still beat out [other agents].
For example, a lot of times my wife will go on listing appointments, and they’ll have a stack of postcards that they kept. At the end of the day, it’s almost like they judged based on, “Okay. I have one postcard from this agent, one postcard from this agent, one postcard from this agent. Oh, and then half the stack is the Kay-Grant Group,” which is our real estate group, “So I called you, because obviously you guys have the most knowledge and are the experts.” It’s kind of funny the way that works.
Of course, when choosing where you want to farm, you also have to pay attention to the obvious. ROI is important. Agent saturation’s important. Time on market’s important. Price points are important. I’m not covering price point in this, because I think everyone has a decent idea of where that is. Of course, that fits into your ROI analysis. If you’re getting 3% of a $250,000 transaction, you have $7,500 in gross commission, and then you have to figure it out from there. Generally, if you can get a 2x ROI, meaning you can spend $3,750 to generate $7,500, you’re in pretty good shape. Anything over that is just gravy. But there is something to be said, too, for actually being able to convert the listing appointment into a listing. Where you live, where you already have traction, where you know, that’s all important.
When we first got into this business (meaning the real estate business, not the direct mail business), we were maybe overly mathematical. We literally pulled all of the various MLS data, and we said, “Okay. what has the good price point? What has the good turnover rate? What has the low agent saturation?” That is 100% how we figured it out and we said, “Okay. Great. That’s where we’re going to mail. That’s what we’re going to do.” What we found happened is that my wife’s phone rang, she got listing appointments all over the Valley in Arizona, which is the Phoenix, Scottsdale Greater Metro, but she would these listing appointments out in the suburbs.
We live in Downtown Scottsdale in a condominium. We don’t have kids, don’t have any of that, so she went and she got these appointments in the suburbs and she couldn’t talk to it at all. She shows up, she does her whole listing presentation, very professional, everything’s awesome, and then they start asking about the schools and, “Well, what do you think about …? Really? The school district is better than this other one. So, are you going to use that in your listing? Do you think that’s a selling point.” She essentially choked up. While we were able to use direct mail to actually get her listing appointments, once she got the listing appointment, she had nothing to say to them.
You don’t want to forget about the obvious there. You want to make sure that you’re keeping in mind where you live, so that obviously where you live you can talk to, and that’s very true in in condos. We have a lot of traction in the condo community that we live in, which has 700 condos in it, because we’ve been there for six years. we can talk to it. People know our faces. That gives you a huge leg up. Then, of course, where we already have traction, we can say, “Hey. I sold your neighbor’s house down the street.” You can mail just listed. You can mail just sold. You can mail under contract. You can mail coming soons. The traction is definitely important. Then the where comes with the other two. If you live there, if you’ve already done business there, you know something about the community.
When you’re choosing this stuff, it should be a very holistic approach, and you really want to make sure that you look at the numbers, you look at those turnover rates, and you look at the agent saturation rates. But that’s also not the only thing that you look at it. That’s what’s going to get you your main list. From there, we’re going to dwindle it down to what we know and what we can talk about.
Hopefully this has been helpful. Always feel free to reach out to us at WisePelican.com. We have our chat feature and we’re on it all the time, happy to respond. We have our campaign strategists that are ready and willing and will respond rapidly. We’re always happy to help you set up strategy sessions, so that you can get your marketing underway or grow your marketing. Whatever it is that you need to do to grow your business we’re really here to help you succeed!
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