This article was last updated Oct. 20, 2022.
If you’re looking for more listings, one of the fundamental ways to build a thriving real estate business is to set up a geographical farm. But how do you go from finding a farm to becoming the neighborhood’s dominant agent?
In this guide to building a geographic real estate farm, I’ll break down how to choose the right location, run the numbers, create a marketing budget and plan to provide those prospects value from the get-go. Follow these fundamentals, and you’ll dominate your farm.
Step 1: Choosing the right farm area
The difference between success and failure is choosing the right area to farm. There are four major factors to consider when identifying a farm area with profitability potential.
1. Is there enough rotation in the neighborhood?
You can calculate home rotation for a neighborhood by the total number of homes sold in the neighborhood for the previous year divided by the total number of homes in the neighborhood.
With most real estate training, the consensus is that you want a minimum of a 5 percent turnover rate in the neighborhood per year for the farm area to be desirable. I look for a minimum of 8 percent when researching a farm area.
There are neighborhoods where people hold homes longer and some neighborhoods where people move more often. The higher the turnover rate, the better the opportunity in that neighborhood.
2. Is the size of the neighborhood good for you?
Being self-aware of your capacity is essential when choosing a farm. You need an area big enough to merit your time, energy and money investment. You also need to make sure the area or neighborhood you choose is not so large that it will strain you in terms of the time and financial commitment required for success.
Most profitable farm areas have between 100 to 500 homes, and this number allows you to leverage your efforts in areas with between 10 to 50 listing opportunities in the coming year. Keep in mind that many successful agents have multiple farm areas they focus on and serve.
3. Is there a dominant agent in the farm area?
The evaluation into whether there is a dominant agent in the area is not about you shying away from the competition. It simply provides the opportunity to evaluate how quickly you can become the dominant agent in a chosen farm area.
I consider a dominant agent for a farm area to be someone who has listed 20 percent or more of the homes listed in the past 12 months in that area.
The lower the percentage of listings taken by the top agent for the farm, the better.
You can determine this by adding the total number of homes currently for sale, under contract or sold in the past 12 months. Then add the number of homes the top agent for listings has taken in the neighborhood over the past 12 months. Simply divide the total number of homes the agent listed by the total number of homes listed, under contract, or sold.
If there is adequate rotation of homes being sold, the number of homes in the targeted area fits your available time and budget, and there is no dominant agent, then we have a farm area with potential!
Step 2: Develop a budget, and run the numbers
Understand your numbers and plan your expenses. I suggest planning to spend $2 per home per month, which will cover monthly direct mail pieces, special events, and just listed/just sold cards in a typical farm area.
The spend per month for each home may go up or down depending on the average sales price of the homes in the neighborhood. But the $2-per-month-per-house is a great number to use when evaluating the opportunity a farm area possesses.
The next step is to make sure the neighborhood numbers are profitable with your budget. The plan of action we discuss below should yield well over 10 percent of the listings in the neighborhood in the coming year. But for this evaluation, I suggest using the conservative number of 10 percent of listings taken in the neighborhood in the coming year.
How to analyze the opportunity
If there are 200 homes in the neighborhood and my budget will be $2 per home per month, then I can anticipate spending $4,800 per year farming this neighborhood ($2 x 200 homes per month x 12 months).
If there were 20 homes listed, under contract or sold in the past 12 months, I will assume there will be 20 available in the coming year. Using my conservative estimation of listings to be taken of 10 percent, that would mean two listings taken in the coming year at a minimum.
If the average sales price in the neighborhood for the previous 12 months was $400,000, and I took and sold two listings, then I would have $800,000 worth of sales from the farm next year.
If the commission rate is 3 percent, I could expect $24,000 in gross commission from this farm area next year. If your commission split is 75 percent, you would have an income of $18,000 from this farm area.
Again, we are being conservative in our listings taken estimation, but based on this evaluation, your investment of roughly $4,800 would generate a return of $18,000 in income. That is a 375 percent rate of return, and I like to see at least a 350 percent rate of return based on this conservative evaluation to move forward with farming a specific neighborhood or area.
Step 3: Gather the information about the owners
Once we’ve identified the neighborhood or area we’ve decided to farm, the next step is to gather accurate contact information for the owners. You will have a greater ability to add value to more homeowners the more accurate the contact info is.
One of the first places many agents decide to farm is the neighborhood they live in. If you are going to farm your own neighborhood, ask the homeowner’s association if they have a contact list for the neighborhood. Most do, and because you’re an owner in the neighborhood, they should provide you a copy.
If you are starting from scratch, use the tax rolls and public records to retrieve the mailing addresses for the homeowners. Phone numbers and email addresses are available for purchase via websites like truthfinder.com.
Step 4: Develop a communications calendar
Consistency is vital when it comes to geographic farming. Developing a communications calendar for the entire year is foundational in making sure you become known as the neighborhood expert and resource.
The core communication is to mail each homeowner at least once a month. Many agents will send mailers twice a month during the busiest selling seasons and once a month during the other six months.
This is an example of a monthly communication calendar that has worked well for us:
In January, April, July, and October, the mailers should be reviews of the sales for the neighborhood. January should include statistics comparing the sales data year-over-year for the previous two years. April should share the numbers related to the homes currently for sale, under contract, or sold in the first quarter of the year. July should be an overview of the sales for the first half of the year compared to the first half of the previous year. October should share the numbers related to the homes currently for sale, under contract, or sold in the third quarter of the year.
In February, May, August and November, focus on mailers that include reviews or testimonials of past clients. February might include a headline like, “We love our clients and here’s what a few of them had to say about us.” November might include a headline like, “Thankful for our clients this year! Here’s what a few of them had to say about us.”
In March, June, September and December, we focus on the previous month’s sales activity. The format for this piece is address, status (active, pending, or sold in previous month), list price, sold price, list price per square foot, sold price per square foot, and days on market.
Each mailer should have a call to action that includes the offer of a free, no-obligation valuation analysis of their home.
The outgoing mail to the neighborhood will also be supplemented with additional pieces as well. Just-listed cards should be sent every time a listing is taken in the neighborhood.
Pending contract cards should be sent every time one of your listings in the neighborhood goes under contract or a buyer goes under contract on a home in the neighborhood with you. Just-sold cards should be sent the day one of your listings closes or a buyer closes on a home in the neighborhood.
The communication calendar should include a phone conversation, text message, or voicemail left to each homeowner in the farm area of once per quarter — at a minimum. Mailers alone will get some business in the farm area over time, but nothing is more valuable than personal, real estate-related conversations with owners in the farm area.
Step 5: Plan special events for the farm area
Special events in the neighborhood are a great way to personalize your involvement in the community. Examples of neighborhood special events could include, but are not limited to:
- Food truck nights
- Family photography days
- Pet photography days
- A fall festival in a neighborhood park
- A movie night in a neighborhood park
Step 6: Be seen in the neighborhood
Spending time in the neighborhood is an excellent time investment. It could include walking or riding a bike through the neighborhood if these are activities you do regularly anyway. If you’re going to take your dog for an extended walk on the weekend, why not take that walk in your farm area?
Attending as many neighborhood or area events as possible will create name and face recognition. By being present in the neighborhood, opportunities to meet and build relationships with homeowners will naturally happen.
Step 7: Stay consistent
Don’t give up too soon. The main reason most agents don’t find success with geographic farming is that they stop right before they reach the tipping point. There is a rule of thumb in advertising known as “The Seven Times Factor.”
The idea is that it takes most people seven exposures to an ad or individual before they even notice it. The key to success in geographical farming is consistency. Commit to farming the neighborhood for at least a year to get results.
Real estate geographic farming is a core strategy for most successful agents. If you don’t currently have an area you are farming, now is the time to start. If you are already farming, now is the time to expand your efforts.
Do you want more listings in the coming year? Identify the right farm area for you and your criteria, execute the action plan, and take more listings.