Finding the Right Geographical Farm

Finding the Right Geographical Farm

Feb 24, 2012

Geographical farming has long been a staple of real estate agents. There's no question that geographical farming can be a successful method of lead generation. However, many agents try geo farming without success, and declare, "Geographic farming doesn't work."

But with just a little planning (and the right natural personality style), geographical farming can be a successful lead generation method.

Geographical farming has long been a staple of real estate agents. There's no question that geographical farming can be a successful method of lead generation. However, many agents try geo farming without success, and declare "geographic farming doesn't work."

Agents struggle with geo farming because:

  1. Like "real" farming, where you plant the seeds is important.
  2. Like "real" farming, it takes time for the seeds to sprout.
  3. Like "real" farming, geo farming requires that the seeds you plant must be tended, and cultivated.
  4. Geographic farming is not a good fit for their personality style.

But with just a little planning (and the right natural personality style), geographical farming can be a successful lead generation method.

Your Personality Style

Geographic farming is a good lead generation option for agents who are Controllers and Analyticals. Both these personality styles are willing to do the up-front research required, are detail-oriented, and have the patience needed to wait for results. Note: if you're not sure what your personality style is, feel free to take our free personality assessment.

That's not to say you can't farm if you're a Promoter or Supporter, but because it's not a natural fit for you it may be better to find a lead generation method more closely matched to your style.

What to Consider When Determining the Right Farm

Most agents select their geographical farm for one of three reasons:

  1. The neighborhood is "nice" or "high-end",
  2. The neighborhood has homes the agent "likes" for some reason (architecture, landscaping, parks, shopping)
  3. The agent lives in the neighborhood.

Not one of these reasons is the right reason to select a farm. Because you are going to spend considerable time and resources cultivating your farm area, it's important to spend a little time researching the prospective areas before you begin. Here's what you need to consider:

  • The average sales price
  • The average commission to be earned per home
  • The number of active and pending listings
  • The number of homes sold in the previous three years
  • The average days-on-market time for the homes sold in the previous three years
  • The total number of homes in the geographical farm.
  • The listing and selling agents who had transactions in that area in the previous three years (track how many homes each sold)

Once you have gathered this information, create a table as in the example below.

 Farm 1Farm 2Farm 3
Total number of homes150200250
Estimated farming cost per year
(mailing,open house costs,advertising, etc.)
$2,100$2,800$3,500
Average sales price$300K$350K$400K
Average commission
(calculate at your average commission %)
$9,000$10,500$12,000
Total homes sold in farm, previous three years151612
Turnover rate
(# of homes divided by total homes sold)
10%8%5%
Income potential
(total homes sold x average commission)
$135,000$168,000$144,000
Average days on market433961
Number of current listings1337

Analyzing the Data

In order to find the right farm, start with four prospective farm areas. Keep in mind that farms of more than 300 homes become very costly to farm. And the larger your farm, the harder it is to keep up with inventory in the area. We recommend farms of 300 or fewer homes.

In determining which farm is most likely to yield results, you need to determine the average sales price, your potential commission, the turnover rate, the average days on market, and whether any agent (s) are currently dominating the geographical farm.

Why Turnover Rates Matter

You might find a farm that meets all of your criteria in terms of days on market, commission, and agent competition. But if the turnover rate is very low - in other words, homeowners rarely move - it simply doesn't make sense to target that area as your geographic farm. You can easily determine the turnover rate by dividing the number of homes in the farm by the number of homes which have sold. Ideally you want a turnover rate of at least 10-15%.

Based on the information gathered so far, Farm 1 provides the best opportunity. While its average sales price is the lowest, its turnover rate is the highest and its days on market number falls between that of the other two farms. The final step involves looking at agent activity within each farm.

Domination vs. Competition

It's not uncommon to find two, three, or more agents farming the same area. While this doesn't in and of itself mean you shouldn't farm that area, you first need to see if you are facing a situation of domination or a situation of competition.

For each of the three farms you are considering, create a data table to review whether any one agent is dominating the market. Fill in the percentage of the transactions held by the other agents by reviewing their performance in the farm you're considering over the past three years. You can easily see if an agent is dominating the market, and whether their market share is growing or lessening.

A good rule of thumb is not to farm in an area where any one agent has 30% or more of the transactions. The exception to this is the situation where an agent's activity in a market is steadily trending downward. That agent may not be doing a good job of keeping in touch with the farm and/or may be preparing to leave the business. If all other indicators are positive, the farm may be worth a second look.

Year 1Year 2Year 3
Farm 1
Nancy Nice - 5%Nancy Nice - 7%Nancy Nice - 5%
Ned Simpson - 10%Ned Simpson - 8%Ned Simpson - 10%
Nora Aster - 7%Nora Aster - 10%Nora Aster - 3%
Nicole Mason - 12%Nicole Mason - 10%Nicole Mason - 12%
Norm Peterson - 0%Norm Peterson - 2%Norm Peterson - 10%
Farm 2
Jane Doe - 10%Jane Doe - 14%Jane Doe - 21%
Jim Smith - 2%Jim Smith - 1%Jim Smith - 5%
John Jones - 49%John Jones - 22%John Jones - 10%
Jane Jetson - 5%Jane Jetson - 0%Jane Jetson - 0%
Jack Lee - 0%Jack Lee - 25%Jack Lee - 35%
Farm 3
Bob Thompson - 35%Bob Thompson - 34%Bob Thompson - 36%
Bill Baker - 20%Bill Baker - 5%Bill Baker - 0%
Betty Boop - 0%Betty Boop - 5%Betty Boop - 30%
Brad Street - 15%Brad Street - 40%Brad Street - 0%
Barry Carson - 7%Barry Carson - 10%Barry Carson - 5%

In the examples above, Farm 1 offers the best opportunities from a competitive standpoint, as no agent has dominated the transactions in that farm. In addition, none of the five agents is truly growing share of the farm. Farms 2 and 3 both have agents which dominate the farms.

Summary

It's well worth the time and effort to do a little research when you're considering a geographical farm as part of your lead generation efforts. A review of turnover rates, days on market, and potential commission - coupled with a competitive analysis - will help you select the farm with the best possibility of yielding results.