Farming Competition

If you have another agent consistently farming your target neighborhood, here is some advice… MOVE ON. Look for another farm. There are far too many targets out there for you to consider. While it may be a blow to your ego or pride, it will be far more cost effective to alter your plans for neighborhood domination by a mile or two rather than slug it out with an agent that already has a head start on you.

During our marketing consults with agents, I use the following analogy: Don’t play against the New York Yankees if you don’t have to. If you have one agent that has the lion’s share of the market in a neighborhood, move on. While one agent sending a monthly mail piece to a farm (and has done so for several months… at least 6 months) scares me away from a farm, several agents sending inconsistent mail is no problem.
Several agents we work with have adopted the following strategy; get a listing… send a postcard to that subdivision, when it sells, send another. While that may be a good idea, it is not a farm.

In a survey conducted by Sonoran Title, 65% of agents said they don’t farm consistently. In another survey conducted by Sales and Marketing Executives International showed that 90% of agents gave up after the 3rd contact attempt.
In the same survey, the number of deals derived from direct mail campaigns showed the following:
After the 1st contact: 2%
After the 2nd contact: 4%
After the 3rd contact: 6%
After the 4th contact: 10%
After the 5th contact: 81%
With 90% of agents stopping after the 3rd attempt, you can see why I say this is not for the faint of heart.

We’ve discussed that you need to determine the average sales price in your target farm and other recon work to analyze the percentage of absentee owners. Additionally, you need to determine the farm turnover rate and to see if another agent is actively marketing to your target farm.

To insure you have the best possible farm, pick 2 more potential farms and run the numbers against other potential farms. Don’t fall in love with the first farm you find. Test the numbers vs. other farms to insure you are setting yourself up for success. Consider the following table to streamline your thoughts:
Category Farm 1 Farm 2 Farm 3
Farm Name
Farm Size
Average List Price
Farm Turnover Rate
Percentage of Absentee Owners
Number of Agents Farming

Congratulations, you now have a farm! The easy part is over… yup the EASY part is done. Here is where 90% of agents fail – developing the message, and actually sending out each piece… month in, month out, year in, year out.

Posted in Uncategorized | Leave a comment

How to Calculate Farm Turnover

Another question to consider: what is the percentage of homeowners vs. absentee owners? A high renting community might require you to change your message to first time home buyers rather than listings. A confusing message will not reach the best audience. A message targeting first time home buyers that is sent to a farm of current homeowners will fall on deaf ears.

Farm turnover is an important statistic to consider. Farm turnover is the number of sales divided by the number of homes in the farm. A solid turnover rate is 8% to 10%. If you have 500 units in a subdivision, there should be between 40 and 50 sales in the past 12 months. To calculate farm turnover look at the tax records in MLS. This is a fairly easy calculation if you know how to manipulate spreadsheet data in the tax records. Track down the actual name of the subdivision you are targeting to farm. Using MLS, you will be able to see all of the homeowners and the sale dates of each property. From there, it is a simple sorting of sale dates to see how many sales occurred in the past 12 months. Divide that number by the number of homes in the subdivision and you have your turnover rate.

While you have every Homeowner on a spreadsheet, it would be a good idea to create a label template on a Word document. This way you can plan your mailings and print labels as you need them. I will be talking about a more cost effective way to mail to your farm shortly. There will be times you will want to send something via first class postage. While more expensive, it also implies a different type of offer. Another question to consider: does another agent have a strangle hold on this farm? If you live in this farm, it will be easy to determine… do you get mail consistently from one agent? Odds are your farm is not consistently farmed by anyone. I define consistently as once per month for at least a year.

Posted in Uncategorized | Tagged , , , , , | Leave a comment

How to Calculate the ROI of Your Geographic Farm

Consider the following to evaluate the Return on Investment (ROI) for a farm. You have selected a farm of 600 houses. The farm turnover rate is 9%. The average sales price of a house in your farm is $250,000. You have also determined that there is not an agent currently sending anything consistently to your farm.
Statically 54 houses should sell within the next 12 months within your farm (600 houses x 9% turnover = 54 houses will sell).

Next apply something we call the principles of half. If 54 houses will sell in the next 12 months, half of them will have a brother, cousin, uncle, or friend that is a Realtor and they will list with them and there is nothing you can do or say to prevent this from happening. This leaves 27 houses.

Of the 27 remaining houses, half of them will remember to call you; this will give you 13 listing appointments.

Of the 13 listing appointments, you will list half of those houses. This will generate 6 sales during the next 12 months. You determine it will cost you about $400/month to print, label, and pay for postage on the 600 pieces per month. Your total cost per year will be $4800 to send them 1 piece per month.

You will generate 6 sales during that time from your farm. The gross commission on these 6 sales will be $45,000 ($250,000 x 3% x 6 transactions). So for every 1 dollar you invest in your farm it will return 9 dollars. Not too shabby.

Posted in Uncategorized | Tagged , , , , , , , , , | Leave a comment

How a Realtor creates a geographic farm

For newer agents the concept of farming might be unchartered territory. I define farming as targeting a specific community in which you solicit the majority of the neighborhood for business.
The concept is to establish and brand you as THE community expert. Farming is a long-term investment and not for the faint of heart. You need to be committed to this strategy, for agents that make it through “quiet time” – that is the gut wrenching, time standing still period until someone contacts you within the farm for business… in this case, a listing – the payoffs are windfall like.
When talking to agents about successful farming, the first picture that comes to mind is that agent driving down a street in their farm and EVERY for sale sign is theirs. While this field of dreams is pretty farfetched, it still illicits a smile from every agent who has thought of this scenario… and I have not met an agent who hasn’t thought of this at least once.
So before you start addressing and licking envelopes, you should really consider what and where your farm should be and then do the financial math. Before I talk about financial numbers, let’s talk about your potential farm.
Most Realtors want to walk out their front door and with their arms open wide declare their neighborhood as their farm. Is this idea good or bad… it depends.
There are advantages to farming your neighborhood. You are going to have better buy-in from people that know you if you live in the neighborhood, you are also going to know people better, interact with them move often, understand community issues more intimately, and have a great tag line as a resident expert.
Before you embrace the block you live on as your new farm, there are a few things you should consider; for example, how many houses are in the farm? A good farm should consist of about 500 houses. You may need to expand your farm to increase the number of targets. If you have too few targets, farming will not be worth your time.
The very next question, you should consider is: 1B (1A is how many houses are in the area) what is the average sales price of the neighborhood. If you are going to spend time, energy, and money on your farm; make sure your payday is going to be worth it.
The number of agents that miss this one boggles the mind. Agents will go through this exercise and forget all about how much the commission checks will be when the houses start to sell.
Farming is about time and numbers.

Posted in Uncategorized | Tagged , , , , , , , | Leave a comment

We are not in a housing bubble

Mortgage titan Fannie Mae depends on Douglas G. Duncan, its chief economist, to keep a close eye on the nation’s housing market. Duncan met with Times editors and reporters in Los Angeles this week to share his views on where the market is headed. Here are five key takeaways from his visit.

Housing isn’t really going gangbusters. Despite those eye-popping price jumps, housing is not in a bubble or even a boom. Real estate is also not likely to be the same economic driver it once was, Duncan said. “We are of the view that housing is continuing to grow, but we are not of the view that it is robust,” he told The Times. While home prices have posted double-digit increases this year, those gains are just bounce-backs from very low bottoms. Meanwhile home builders have been slow to acquire land and hire adequate help, and that has made housing’s overall contribution to the economy smaller than it would be otherwise. When construction finally does get humming along at full tilt again, the industry will probably contribute a million fewer jobs than it did during the boom, Duncan said. Those jobs will simply have to come from other parts of the economy.

The rise in mortgage interest rates will not choke off the recovery. Economists at Fannie Mae recently studied the relationship between a sharp increase in mortgage-interest rates and home prices. They found there is little correlation between the two. Sales may decline but prices are still likely to increase. Duncan also doesn’t expect mortgage-interest rates to surge again. Expect a more gradual increase, he said. “I don’t think that the rate rises will be as sudden as the first piece we saw,” Duncan said.

Homeownership is the goal but renting has lost its stigma. The homeownership rate has fallen drastically since the boom years, raising questions about whether America will become a rental society. But much of the growth in the rental market has come from the single-family housing market, as investors have snapped up homes and turned those properties into rentals, meaning that former homeowners have tried to re-create their experiences. While the homeownership rate is not likely to rise anytime soon, even those people who lose their homes are likely to become homeowners again. The aspiration to be a homeowner remains unchanged by the crisis, and most renters would still like to own a home, Duncan said.

It is indeed a good time to buy. Home prices are still down considerably, even though they are up from their bottoms. Mortgage-interest rates are still very low despite the recent spike this year. But you should only buy a house if you can afford it, Duncan said.

Investors pose a possible risk. Big investors have become a significant factor in the housing market’s recovery. The question is, will new home construction increase supply, just as big investors decide it’s time to sell their holdings? If they were to do so, that could usher in another decline, though not one of the same magnitude as the last housing downturn, Duncan said. Investors should be watching the home builders closely. “If I were them, I would have a close eye on what’s actually happening in construction, because that is going to be one form of competition,” Duncan said. Another form of competition for both investors and builders will be homeowners who are freed up to sell their house after spending years “underwater.”

By Alejandro Lazo

Posted in Uncategorized | Tagged , , , , , , | Leave a comment

Home Prices Rise… But So Do Interest Rates

Mortgage applications fell 2.6% for the week ending July 12, an industry trade group said.

Applications have remained on a downward trajectory for the past several weeks with the industry concerned over growing interest rates and the possibility of more increases.

The refinance index alone dipped 4% from the previous week: the lowest level since July 2011, the Mortgage Bankers Association reported.

In addition, the purchase index inched up 1% from last week.

As a whole, the refinance share of mortgage activity posted its lowest level since April 2011, falling to 63% of total applications, compared to 64% the previous week.

Meanwhile, the average contract interest rate for a 30-year, fixed-rate mortgage with a conforming loan balance finally halted and remained frozen at 4.68%.

Additionally, the 30-year, FRM jumbo decreased to 4.81%, from 4.86% a week prior.

The average 30-year, FRM backed by the FHA climbed to 4.38%, from 4.37%, the highest rate since April 2012.

The 15-year, FRM dropped to 3.70%, from 3.76%, and the 5/1 ARM edged down to 3.39% from 3.40% a week prior.

Posted in Uncategorized | Tagged , , , , | Leave a comment

Home Prices Continue to Increase

Home prices in May experienced the largest year-over-year increase nationwide since February 2006, according to CoreLogic’s latest Home Price Index. This increase of 12.2% annually marked the 15th consecutive monthly increase in home prices nationally.

“It’s been more than seven years since the housing market last experienced the increases that we saw in May, with indications that the summer months will continue to see significant gains,” said Mark Fleming, chief economist for CoreLogic. “As we approach the half-way point of 2013, home prices continue to respond positively to the reductions in home inventory thus far.”

Month-over-month, home prices, including distressed sales, rose by 2.6% in May 2013 compared to April 2013.

But the rapid home price recovery has its skeptics.

Anthony Sanders, distinguished professor of real estate at George Mason University, believes home prices are rising too fast compared to underlying economic growth, which is slow. According to Sanders, the rise in prices is an indicator of a housing bubble. “If The Fed withdraws the punch bowl, the party will end quickly,” he said.

Sanders added that we are currently experiencing a market that is artifically influenced in a way that is driving up the price of housing.

“Investors are still driving the increase in house prices using Uncle Ben’s cheap money. This is not your typical consumer housing bubble, but an investor bubble,” said Sanders.

With distressed sales excluded, home prices increased on a year-over-year basis by 11.6% in May 2012 compared to one year before. On a month-over-month basis, with distressed sales excluded, home prices rose 2.3% from April to May.

CoreLogic’s Pending HPI indicates that June 2013 home prices, distressed sales included, are predicted to rise 13.2% year-over-year from June 2012 and will increase by 2.9% month-over-month from May 2013. Without distressed sales included, June 2013 home prices are expected to rise 12% year-over-year from June 2012 and by 2% month-over-month from May 2013.

“Home price appreciation, particularly in much of the western half of the U.S., is increasing at a torrid pace,” said Anand Nallathambi, president and CEO of CoreLogic. “Across the country, pent up demand and continued low interest rates are fueling strong demand for a limited inventory of properties. We expect that trend to continue to drive up prices throughout the balance of the summer months.”

Nevada was the state with the highest home price appreciation increase, distressed sales included, with prices up 26%, followed by California and Arizona – two states that recorded price increases of 20.2% and 16.9%, respectively.

Posted in Uncategorized | Tagged , , , , , | Leave a comment

Showdown ahead for CFPB and Corday nomination

President Obama on Thursday re-nominated Richard Cordray to head the Consumer Financial Protection Bureau, all but assuring a fight with Senate Republicans who oppose the agency’s sweeping powers to regulate the financial services industry.

Cordray, 53, took the helm of the consumer agency in late 2011 through a recess appointment. His term expires at the end of the year unless he wins approval. But Senate staffers say Obama’s end run has poisoned the waters for Cordray.

President Barack Obama on Thursday nominated Mary Jo White to lead the Securities and Exchange Commission and also named Richard Cordray to stay on as head of the Consumer Financial Protection Bureau.

“Until key structural changes are made to the bureau to ensure accountability and transparency, I will continue my opposition to any nominee for director,” said Sen. Mike Crapo (R-Idaho), ranking member of the Senate Banking Committee. “If the president is looking for a different outcome, the administration should use this as an opportunity to work with us on the critical reforms we have identified.”

There are at least three bills and one ongoing court case aimed at turning the bureau into a five-member commission, subject to the congressional appropriations process.

Consumer advocates, however, say Cordray has taken a measured approach to regulation, as illustrated by recent rules about mortgage lending, and demonstrated a willingness to work with all interests. They might not always agree with his positions, but they support his effort to continue the work. Some question whether the GOP structural argument is an attempt to destroy the agency.

“Republicans just talk about turning the CFPB into a commission, but they’re not going to limit their fight to that,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. “They want to take away its funding, eliminate some of its authority.”

Whether the consumer bureau should be led by a director or a commission is a valid debate, he said, but not one that should hold the appointment hostage. Mierzwinski noted that it’s not unprecedented for an agency to have a single director: the Office of the Comptroller of the Currency, which regulates the nation’s largest banks, is led by one person.

Those who support having a commission-led agency say that it is the best way to protect consumer interests in the long run, because the strength of enforcement could waver depending on who is at the helm.

“If the Republicans ever get the Senate back, it will be the consumer activists calling for a commission,” Richard Hunt, president and chief executive of the Consumer Bankers Association, said during a call with reporters. Like many opponents of the bureau’s structure, Hunt said he has no qualms with Cordray. The director, he said, has proved to be tough but fair, yet there is no guarantee that the next director will be as capable. That is why he thinks there needs to be a board comprised of Democrats and Republicans with staggered terms, much like the Securities and Exchange Commission.

Analysts say Cordray’s best chance of winning confirmation might involve a deal that turns the bureau into a commission with Cordray as chairman.

Jaret Seiberg, senior policy analyst at Guggenheim Partners, thinks “the Obama administration is amenable to this type of deal as long as CFPB continues to be funded outside the congressional appropriations process.”

The White House has not indicated whether the president would consider restructuring the CFPB. Obama has always said the bureau should be independent, with one director. If Republican senators again block Cordray’s nomination, the president could use the recess appointment. But Obama refused to address that issue during a news conference announcing the nomination on Thursday.

Instead, the president focused on the accomplishments of the bureau and the work that still needs to be done.

“Financial institutions have plenty of lobbyists looking out for their interests,” Obama said. “The American people need Richard to keep standing up for them. And there’s absolutely no excuse for the Senate to wait any longer to confirm him.”

Cordray will have to face the Senate Banking Committee, which will probably vote along party lines, as he seeks confirmation. Although the Democrats have 55 seats in the Senate, a single Republican could filibuster a final vote. If that happened, five Republicans would have to break ranks to end the filibuster and push through the nomination.

Posted in Uncategorized | Tagged , , , , , , , | Leave a comment

The Cliff and Your Real Estate Business

The housing market and the housing industry have escaped a potential blow on several fronts now that lawmakers have at least partially resolved Washington’s “fiscal cliff” budget morass.

A bill passed by Congress on Tuesday to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.

Chief among them is one that provides an additional year of relief for troubled homeowners selling their properties. Without action by Congress, those homeowners would have faced big tax bills if they completed “short sales”—those in which the lender agrees to allow the borrower to sell the home for less than the outstanding mortgage amount.

In the past, forgiven debt has typically been considered taxable income. But in 2007, Congress exempted homeowners from treating some forgiven mortgage debt that way as part of an effort to encourage alternatives to foreclosure.

“An extension of the tax break is positive for home values by reducing the number of foreclosures and helping more troubled borrowers stay in their homes,” wrote Jaret Seiberg, an analyst with Guggenheim Securities. “That means less supply on the market.”

Another move that should benefit some homeowners is the restoration of a tax deduction for mortgage-insurance premiums, including premiums paid to the Federal Housing Administration and private mortgage insurers alike. That deduction had been absent for a year after expiring at the end of 2011. In 2009, 3.6 million taxpayers claimed this deduction, according to the National Association of Home Builders.

“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” wrote Issac Boltansky, a Washington analyst with Compass Point Research and Trading.

The housing industry also dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage-interest tax break. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.

The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.

These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)

However, analysts still believe the mortgage-interest deduction could be altered as Congress continues to look for ways to save money. “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will…dodge Congressional scrutiny going forward,” Mr. Boltansky wrote.

Posted in Uncategorized | Tagged , , , , , , , , | Leave a comment

CFPB may trial run new mortgage disclosure rules

The Consumer Financial Protection Bureau is proposing a plan that would give banks the opportunity to test run the launch of new mortgage disclosures for borrowers, rather than throwing them directly into unfamiliar territory.

While the idea is still in the brainstorming stage, it’s part of a broader initiative that the CFPB launched in 2011 to streamline and outline specific mortgage disclosures that the lending industry is required under Dodd-Frank reforms to deliver to borrowers.

The proposed plan would allow banks on a select case-by-case basis to obtain safe harbors from the CFPB’s initial disclosure rules as they go through a trial period to figure out how to best deploy the revamped mortgage disclosures.

With the CFPB expected to role out a slew of new rules in January, the concept of allowing banks to test drive disclosures before they’re forced to fully comply is attractive to the market.

“At first blush, the trial disclosure proposal that the CFPB announced today looks like an interesting idea, and a pretty unique approach,” said Rick Sharga, with Carrington Mortgage Holdings. “Reaching out to practitioners to create in-market trial programs that benefit consumers and work better for financial institutions is a win/win.”

He added, “By allowing lenders to make recommendations on better ways to clearly communicate disclosures to borrowers, and giving them safe harbor during the test period, the CFPB can tap into the expertise of professionals who work with consumers on a daily basis, and have real-world experience in what sorts of processes and procedures should work best for everyone involved in the transaction.”

The initiative, which is known as Project Catalyst, would encourage banks, credit unions and other financial firms to propose trial runs to the CFPB for the purpose of studying how best to deliver the new disclosures.

In 2011, the CFPB began the long process of hashing out proposed forms for the combining of the Truth-in-Lending Act and RESPA mortgage disclosure forms. Sharga says he likes the test pilot concept, but needs more information.

“There are some details that need to be spelled out – what sorts of disclosures will be included — TILA? RESPA? Others? — what will constitute a “successful” test,” he said. “But the CFPB should be applauded for taking an approach that solicits industry input, and works toward a common goal of enabling borrowers to make more informed decisions.”

The CFPB said the option to test drive disclosures would apply to disclosure requirements that fall under the CFPB’s direct authority.

Posted in Uncategorized | Tagged , , , , , , | Leave a comment