Open Houses: A Saga – Post #1
What is an open house? Well, I’m glad you asked. According to Merriam-Webster, it’s the following:
“1: ready and usually informal hospitality or entertainment for all comers
2: a house or apartment open for inspection especially by prospective buyers or tenants”
This series of blog articles will cover several different aspects of Open Houses but it will mostly be covered from the real estate agent’s perspective, as that’s the most technical perspective there could possibly be toward an Open House. If you are a buyer and not licensed to sell real estate, and you are looking for information on open houses, you can find more information in this series than you ever wanted.
I have broken it out into multiple sections and posts, and they are as follows:
- Blog Post #1:
- Section 1. Open House Strategy
- Open House Checklist
- Blog Post #2:
- Section 2. Open House Selection
- Section 3. Open House Preparation
- Blog Post #3:
- Section 4. The Day of the Open House…
- Section 5. Conclusion
Section 1. Strategic Open Houses
Open House by the Numbers
Most people would like to know how much they are going to be paid for a job. It is a largely essential part of the job search and one of the main questions at the interview. “How much does it pay?” This is something that hopefully every W-2 employee in the world could provide an immediate answer to. But as most agents know, when someone asks them “How much does it pay to be a real estate agent?” it is hard to answer at all, let alone accurately. That being said, it does not hurt to try and figure out where your time is going to be best spent while in the field of real estate.
Granted, as an independent contractor whose income is tied to activities and their attached results (or lack thereof), it is not an entirely easy question to answer. Meaning a real estate agent, who is an independent contractor (see our Business Planning class for more info), is only paid based on the results of a successful transaction closing. What all of this means, is that a real estate agent has to use either their past experiences or the past experiences of another agent to try and make their best estimation as to what their hourly rate COULD be based on the amount of time they’ve spent on an activity. The reason for doing this exercise is to discover which activities are financially effective and to encourage the repetition of those activities.
In this scenario, that activity we are referring to and doing numbers for is Open Houses. But this exercise could be applied to any passive or active prospecting duty.
The idea is to analyze how much time was spent on an activity and how much money was made as a result of that time. To figure that out for open houses, you will need to know the following variables (we will base this exercise on a one-year timeframe):
Open houses per month – 3
Total number of Open Houses – 36
Hours per Open House – 4 hours,
Total hours – 144 hours (how many hours were spent on open houses over the entire year).
Prospects per open house – 2
Total Prospects – 72 (meaning how many total prospects did they meet and speak to over the whole year)
Close Rate – 7 (closings to prospects ratio, this number varies from person to person and gets smaller with more time in the industry. A fair number to start off with for a new agent would be 7. Meaning for about every 7 prospects, an agent will get 1 closing.)
Sales (Total Prospects (72) divided by Close Rate (7))
Average Sales Price – $150,000
Average Gross Commission – $4,500 (based on 3%)
Your average commission income after company split — $2,250
Commission Split – 50%.
So, in our scenario, it would look like this:
3 open houses per month x 12 months = 36 total Open Houses.
36 open houses in 12 months x 4 hours per open house = 144 total hours worked on open houses over the past 12 months.
With an average of 2 prospects per open house x 36 open houses over the past 12 months = 72 total prospects.
72 prospects divided by 7 (our close rate) = approximately 10 Sales (rounded down from 10.28).
Your average sales price of $150,000 x 3% = an average gross commission income (GCI) of $4,500.
That GCI of $4,500 x .50 (your split in this scenario, 50%) = $2,250
$2,250 earned per transaction x 10 total Sales per 12 month period of open houses = a total income earned as a result from just open houses of $22,500.
$22,500 in total income over 12 months divided by 144 total hours worked = $156.25 per hour.
This is just a fictional scenario that was used for the purpose of teaching the exercise of activity analysis but it’s very clear that, if the numbers in this scenario are even in the realm of being realistic, almost every person would be more than willing to sign up for a job that paid over $150 an hour. Let’s say that this exercise is off by more than 50%, that still equates to $75/Hr. Let’s say that, instead of 2 prospects per open house, an agent only gets .5 prospects per open house. Even with that number plugged into the above formula, the hourly rate would still be $37.50. The numbers add up. Open houses pay well.
Open House Checklist
It might be helpful to make yourself a checklist for each open house. Or check with your broker to see if they have one or they know of one of their other agents that have one. It would not hurt to be sure that each open house is receiving your full attention and a checklist/system would help to increase your success rate on each one. It could have some of the following:
Address:
Subdivision:
Date of Open House:
Time:
Week Prior:
___ Place ad in sources you are using for advertising by 5 PM on Monday.
___ Place ad in Classifieds (if desired) ____ Saturday ____ Sunday
___ Place Open House announcement sign in yard
___ Prepare Flyers (take to open house)
___ Send out Open House Cards/invites (optional)
___ Hand Deliver small flyer to neighbors (using 5/5/10 rule)
Day of Open House:
___ Place Open House signs at street corners, neighborhood entry (when possible, go to homeowners’ door for permission to place signs in their yard)
___ Place Open House sign in yard
___ Stage home, turn on lights, set out flyers, sign-in sheets “Make Offer” folder
___ Make coffee, put out bottles of water, make cookies (Optional)
Before Leaving:
___ Check flyer box at street, if applicable, add flyers if needed
___ Leave note for Homeowner if it is your listing, if not, contact listing agent
___ Take down all Open House signs
Open House Follow-up:
___ Call all who attended within 24 hours
___ Send thank you notes on Monday
Want an easy to use version of this? Download below!
Part 2 coming next week!