If you’re launching a career in real estate, calculating the neighborhood turnover rate in your farm is one of the first things you’ll want to do.
The impact of neighborhood turnover can be pivotal to the growth of your career. Don’t underestimate the impact it can have on your results.
In this article, we’ll cover what it is, why you need to know about it, and, of course, how to calculate it. We’ll also share some helpful tips to help guide you in choosing the right farm.
Why is My Neighbourhood Turnover Rate Important?
Newly-minted real estate agents already face an uphill battle in the struggle for listings and brand awareness. Choosing the right geographic farm can make or break an agent’s first year of business.
By calculating your neighborhood turnover rate, you can plan a more effective strategy for conquering your market. You’ll be able to determine important aspects of your marketing and sales such as:
- estimated total sales for the year
- average price of the homes in your market
- projected revenue from listings
- number of leads you’ll need to meet your sales target
- the projected cost of lead generation
- conversion rate targets
Calculate your neighborhood rate to determine the best way to market to your audience, the best price point to attract prospects, and to prioritize your sales efforts.
Create a well-informed and insightful pre-listing presentation using your detailed knowledge of the local market. Clients hoping to sell their home will have managed expectations if you educate them about the turnover rate and its impact on the local market.
What is a Neighborhood Turnover Rate?
Simply put, the neighborhood turnover rate measures the length of time it will take for a neighborhood to completely flip, or turn over. You estimate this number by calculating how quickly homes sell over a span of 12 months, and extrapolate what that would mean for a complete cycle to take place. Of course, not every home in a given neighborhood would sell. Some would be passed down to family for generations. But, by that same token, others are likely to sell multiple times over. Therefore, this estimate proves to be an effective metric for evaluating how “hot” or how “cold” the market is in a given area.
How Does Neighborhood Turnover Impact The Market?
Low neighborhood turnover in a subdivision suggests that homeowners tend to hold on to their property. Agents should be wary of choosing to farm in such areas. There may not be enough homes on the market for your inventory. And then there’s the competition.
You may want to calculate the market share of competing agents operating in your farm. If a single agent dominates sales in a subdivision with a low turnover rate, chances are they’re well established among the locals. They’re likely relying on referral business, which could make winning clients more challenging for an inexperienced newcomer.
Using MLS And Google Spreadsheet To Calculate Neighborhood Absorption Percentage and Turnover Rate
Create a simple Google or Excel Spreadsheet to calculate and track your neighborhood absorption percentage and turnover rate annually.
Your spreadsheet should be like the one below:
|Total Number of Homes||Enter figure|
|Total Annual Sales (Jan 1 – Dec 31)||Enter figure|
|Neighbourhood Turnover||Calculation: Total Homes / Total Sales|
After you log into your local MLS, follow these steps:
7 Steps To Calculating Your Neighborhood Turnover Rate & Absorption Percentage With MLS
Step 1: select a subdivision.
Step 2: select ‘Sold Closed Date’ and pick any 12-month range or the standard calendar year
Step 3: click on ‘Results’
Step 4: select Office Inventory
Step 5: sort by listing agent: this will help you identify any agents who dominate the results
Step 6: go to the calculator and enter total sales
Step 7: click on ‘Tax Record General’ to determine the total number of homes in the neighborhood
Once again, your calculation should like this:
(Total Number of Homes Sold / Total Number of Homes) x 100 = Neighborhood Absorption Percentage
So, if the total number of homes in the neighborhood is 240 and 18 homes were sold, the neighborhood absorption percentage is 7.5%.
To calculate the turnover rate, simply divide 100% by the absorption percentage. That will give you the estimated number of years it will take for the neighborhood to completely “turn over.” For your reference, in the example above, that number is 13.33 years.
5 Tips For Choosing A Farm For New (And Seasoned) Agents
Tip #1) Work where you live (and places you know)
If you serve the neighborhood you live in, then your passion for the community and intimate knowledge of the culture will be a strong asset. Competitors from outside your market will have a tough time matching your in-depth, personal understanding of the neighborhood.
You can also work multiple subdivisions of a city where your contacts and knowledge are strong. This way, you can build quickly on your existing contacts to establish yourself as the local realty expert.
Tip #2) Calculate the neighborhood turnover rate
Once you’ve settled on a subdivision you want to work in, calculate the turnover rate to project your annual sales estimate.
Remember, a low turnover rate means you may not have enough inventory throughout the year. Poor demand = poor sales.
Tip #3) Analyze the competition
Competition can be a great motivator. Analyzing the intensity level of competition in farms that you’re considering can help you pick the environment that is right for you.
Use MLS data to determine how many agents are operating in your farm. Then, review your neighborhood turnover spreadsheet and check out the agents with top market share.
So, for instance, if 50 agents operate in your farm and only 6 homes were sold by 2 agents, your competition is actually minimal.
On the other hand, a farm with a large number of homes sold by several agents requires much more effort. With insight into the competition, you’ll be far better prepared.
Tip #4) Keep your pricing competitive
Setting the right listing price in your farm will go a long way to generating interest and bids from prospective buyers. Research the market and analyze the absorption rate of homes in your desired farm.
Tip #5) Go where the inventory is
Previously, we said you should serve a community that you know and already love. But if there’s no or little inventory, it’s time to look elsewhere.
On average, you’ll need a farm with a minimum inventory of 150 similar property types. Areas with less than 150 of any single property type lack enough diversity to provide potential clients with multiple price options.
Again, this is where your neighborhood turnover rate comes in handy. If only 5 homes a year are sold in a neighborhood of 200 properties, the low turnover will make it impossible to build volume.
With these tips in mind, you’ll be able to choose a geographic farm with the highest likelihood of success. You’ll be more informed about the market you serve and better prepared to meet your annual target.
Launching a real estate career takes consistent effort, but the right tools and knowledge will give you a distinct edge. Visit often for more great tips and digital marketing ideas for real estate agents.