The term “real estate farming” describes a prospecting strategy agents used to grow and nurture future business. When agents “farm” an area, they focus their lead generation efforts, advertising, and marketing in one place to gain clientele within that region, much like planting seeds on a farm. Success depends on choosing an area to farm with care. You do this by researching demographics, looking at the number of homes and apartments in an area, reviewing historical sales data, and considering the potential for future sales.
Let’s break down the steps you should take in order to choose the best farming area for prospecting:
1. Consider Your Region & Demographics
Before you start farming, you need to know as much as you can about the area. Consider where you live or other places you know well. It helps when you either live in or nearby the neighborhood you’re farming. Then, consider home prices and sales data to see if you can earn the income you’ll need to meet the goals in your real estate business plan.
When choosing a potential region, consider the following criteria:
- Types of homes
- Average income
- Transportation options
- School ratings
- Average age
- Commuter area
- Nearby employers
- Local amenities
Much of this data can be found through Google searches, census data, and statistical tools found on most local multiple listings services. Consider national housing trends from sources like Zillow’s real estate market reports and National Association of Realtors’ (NAR) research and statistics pages. This data will be valuable in determining if the area you wish to farm has benefits for your business. Also, the more you know about an area, the more you can position yourself as an expert.
Zillow economic research (Source: Zillow)
2. Evaluate Personal Preferences & Interests
Focus on aspects of the neighborhoods you’re considering that interest you. It is difficult to be fully invested in something that you don’t love, especially if it is a place where you live. Since you will be spending a lot of time in a particular area, make sure it is a place that you can speak genuinely about so you can sell other people on wanting to be there too.
Similarly, you can specialize within your farm by focusing on a specific type of home. For example, if you prefer mid-century homes, selling them may come more naturally to you than a community that consists of new developments. Buyers respond to your enthusiasm and personal knowledge on the topic. Keep your interests in mind as you consider possible farm areas, as they will ensure you are not just an authoritative agent, but a passionate one.
3. Define Boundaries
As you consider different areas, it’s helpful to look for well-defined boundaries. While you can always set geographical boundaries yourself, established ones make it easier to market your listings effectively since the geographic area you work in is clear to yourself and others.
Fifty-six percent of buyers have a preferred neighborhood and find it important—even necessary—to remain within that area. Since each neighborhood contains certain characteristics (e.g., school systems, home style, and general community feel), target the specifics of the neighborhood and focus on a specific clientele. Also, by defining your own boundaries, it will prevent you from overstepping another agent’s territory.
For help determining boundaries, check out Offrs.com and utilize its territory map to be specific about the area you are targeting. It also offers predictive analytics at a great price for small business owners.
4. Research Sales Activity in Potential Farm Areas
Make sure your chosen area has enough sales activity to make real estate farming worthwhile. You want to find a combination of high sales prices, relatively high turnover, and low competition. Here is how to research the sale potential in your farm areas:
Calculate the Average Sales Price & Commission
It’s easier than you might think to get an average sales price in your anticipated farm area, and it takes just a few steps to complete. First, open your Multiple Listing Services (MLS) program or a program like Realtors Property Resource (RPR) and choose the ZIP code of the area you’re considering. RPR and many MLS systems offer the ability to draw an area on the map to help you define boundaries.
Next, pull all sold listings from the area from the past two or three years to find the average price homes have sold for. Once you have the average price, you can estimate the commission you might have earned per transaction and determine how many listings you will need to close in your farm area to make a profit and meet the goals you have set for yourself.
Consider the Turnover & Absorption Rate
Turnover rate is used to determine whether an area has enough activity to sustain your farming campaigns. Make sure the location you want to farm has a relatively high turnover rate. Tom Ferry, a noted real estate coach, recommends only considering areas with a 6% to 8% turnover rate. To figure out the turnover rate in your potential farm area, use the following formula:
Number of homes in farm area ➗ Number of homes sold in the last year = Turnover rate
You also want to consider the absorption rate in your farm neighborhood, which predicts how many months of inventory are available in a particular area. Two calculations are required to find the absorption rate, first the rate of home sales to understand how many holes are sold within a certain amount of time:
Time frame (typically 12 months) ➗ Number of sold homes = Rate of home sales
Then, use that figure to calculate the absorption rate:
Number of active homes in area X Rate of home sales = Absorption rate
Calculating both the turnover and absorption rate will help you decide if your target farm area is financially viable to reach your income goals, while also giving your valuable market knowledge about the area.
Research the Competition
Once you’ve determined the area has enough sales activity to sustain your business, the next step is to figure out what your competition looks like. Be sure to take particular note of the top closing agents for the past few years. You can do this by examining sites like Zillow or Realtor.com, and reviewing agent profiles for a specific farm area or ZIP code.
More often than not, there’s usually one agent who already dominates an area. Getting a foothold in areas like that can be a challenge since, chances are, that agent has been selling in that area for years and is very well established. On the other hand, if you find a number of agents closing sales in the same location, then there is more than likely room for you as well.
Assemble Real Estate Farm Area Data
Now that you know all about the demographics of the area and the numbers around sales activity, turnover, absorption, and competition, you need to pull all that information together to choose a farm area. Try creating an easy-to-read table so you can compare areas side by side.
Example Farm Area Comparison
Farm Area One | Farm Area Two | Farm Area Three | |
|---|---|---|---|
Total Number of Homes | 150 | 200 | 250 |
Estimated Farming Cost per Year (mailings, open house costs, advertising, and so on) | $2,100 | $2,800 | $3,500 |
Average Sales Price | $300k | $350k | $400k |
Average Commission per Sale (calculate at your average commission %) | $9,000 | $10,500 | $12,000 |
Total Homes Sold in Farm (previous year) | 15 | 16 | 12 |
Turnover Rate (total homes sold divided by total # of homes times 100) | 10% | 8% | 5% |
Income Potential (total homes sold x average commission on sales) | $135,000 | $168,000 | $144,000 |
Average Days on the Market | 43 | 39 | 61 |
Number of Current Listings | 13 | 3 | 7 |
Download Farm Area Comparison (Blank Form)
Farm Area Two may not have the most homes, the highest average sale price, or the highest turnover rate, but it still provides the highest income potential. Successful agents consider as many data points as possible before settling on an area to focus their farming efforts.
5. Finalize Your Farm Area
Companies like SmartZip and GNOwise can help you further evaluate by providing real estate-focused predictive analytics. Predictive analytics help agents look at potential sales trends, market shifts, and which properties within a given farm area might be more likely to sell.
After collecting and analyzing information, you should be ready to pick a farm area that meets your criteria for the best location, the highest potential income, and the lowest amount of competition. Once your farm area is all set, the next step is to get to work on becoming the go-to agent.
How Real Estate Farming Marketing Strategies Work
The idea behind real estate farming is for an agent to target a local area and become an expert on everything in that neighborhood, providing top value to their clients. Then, clients will find value and confidence in your understanding of a neighborhood and flock to you, instrumental in building your client base and, eventually, your wallet.
With comprehensive knowledge of the recent and past market trends in a particular area, you will be able to speak to newcomers as well as individuals who have been in the area for years. You can answer questions by providing insightful answers that instill trust in your abilities. Clients will work with agents that they trust.
Of course, not only is it important to know the real estate trends, but having knowledge of restaurants, grocery stores, town ordinances, regulations, events, and so on is subsequently worthwhile information to be able to provide. People want to envision themselves living in the area, so it’s important to produce a snapshot of daily life within the neighborhood.
Farming can be done using a slew of marketing tactics, such as:
- Leaving memorable door hangers
- Offering eye-catching brochures
- Sending timely postcards
- Effectively using social media
- Attending networking events
Companies like ProspectsPLUS! specialize in producing customizable farming materials directly on their site. They also make it easy to organize and schedule delivery of direct mail marketing so you can stay on top of your farm area.
Bottom Line
Overall, the ultimate goal is to be the go-to real estate expert in the neighborhood you’re farming so you can “plant seeds” that will build your reputation and brand awareness. With farming as your real estate lead generation strategy, you can focus on becoming an authority in the community. You want people to consider you an area expert and remember your brand when it’s time to buy or sell real estate. Agents find that, over time, efforts toward farming in a specific area build upon themselves by increasing referrals and overall sales.