Quick Answer Series: Close the Door on Open Houses!
I’m often asked what I think of open houses. Well, I think it’s as good a way to waste a Saturday afternoon as any. My advice is to just take a long nap and catch up on your sleep instead. It will advance your real estate practice a lot faster than an open house! Let me explain.
An open house is simply an advertising idea. Nothing more. Nothing less. As such, it should be evaluated like any other advertising idea. Cost per lead versus budget per lead. So how do we do that? Get out your calculator, and let’s crunch some numbers.
First, let’s look at cost per lead. Any advertising idea has a cost per lead, and open houses are no exception. I know that you’re probably thinking, “Open houses are free.” That’s simply not true. First there is the cost of the ad to bring people to the open house. Let’s say it’s $50. Then there are balloons, streamers, directionals, refreshments, and such, for let’s say another $25. I’m being very conservative, you’ll have to admit.
Then there is your time cost. If you spend 6 hours counting setup, placing the ad, buying the refreshments, cleaning up, taking down balloons, streamers, and directionals, it will be a miracle. We’ll have to submit you to Guinness Book of World Records!! Now how much is that? If you are planning on making $100,000 this year, your hourly time cost is $50. Now, 6 hours times $50 is $300. Add that to the hard costs and you are $375, and we were being very conservative.
Now we count the leads. If you are really lucky, you’ll get 4 or 5 leads in one afternoon. Now do the math: $375 divided by 5 leads, and you have a cost of $75 per lead. And odds are that 3 of those “leads” are not leads at all. They are more apt to be curious neighbors. Either way, $75 per leads is just not going to work in most markets. Why? Because it’s over your budget per lead.
How can you know your budget per lead? Simple. Assuming your market has an average sale price of $200,000 and an average commission side of 2.5%, then your average GCI or gross commission income is $5,000. Your budget per closed deal is 10% or $500. Now take the $500 and divide it by the 24 average leads you need to close one deal, and you have a maximum budget of $20.83 per lead.
Now let’s evaluate the marketing idea. Cost per lead is $75. Budget per lead is $20.83. Survey says… ENGH! Now if you’re looking for a good excuse to get out of the house and at the same time feel like you’re being productive, by all means do an open house. Or if you can’t say, “NO!” to your sellers, go ahead. It’s OK. But don’t for a minute think it is the highest and best use of your time or marketing budget. From a business perspective, it’s just plain nuts! Don’t do it! And that’s my quick answer.
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If you were my Realtor, i would want you to have an open house. it has become a given when selling any property. For word of mouth (which is worth a lot) open houses work really well.
Hi Yaletown,
Thanks for reading, and thanks for your comment. I am afraid I must respectfully disagree. Having listed hundreds of properties, I can tell you that I have never, nor will I ever, hold an open house.
If I were your agent, I’d carefully explain to you that open houses have never been about selling the open house. They’re about finding buyers. The odds of selling the house to a customer coming in during an open house is less than 0.25%.
It’s like the odds of winning the lottery. Don’t get me wrong: Even a blind hog finds an acorn every now and then. But agents are afraid to say no to their clients. I’m not. But maybe that comes from having 50-60 active listings at all time.
Agents ought to be telling their clients that open houses are a bad idea if for no other reason than the security risk. Not a week goes by that we don’t read about property being stolen from a home during an open house or even worse, an agent raped or killed.
I believe you should find a better way of getting leads, and spare your client the risk of an open house. But that’s just me.
Again, thanks for reading and for your comment.
Ironic I read this after the open house I hosted today. Because of the statistics regarding open houses, I never expect to sell a home from an open house. But it is part of the seller’s expectations. Like print ads.
Yet I continue to do both for my clients, knowing they are more self promotional than effective home selling tools.
Hi Mark,
Thanks for reading and for your comment. Most people wouldn’t be as honest as you are. I admire that. I will say, that as long as you understand why you are doing it, and you are not misled into believing it’s a great marketing idea, I have no problems with it. Just like I have no problems with magazine ads so long as they are done effectively (see my previous article on home magazine ads). Thanks again for reading.
Matt I am without a doubt honest about what works, what doesn’t and the reasons behind it. I even named my blog after this. If want an answer, you want it honest. Sadly, sometimes the answer is ugly. Therefore the name is honest-but-ugly.com
Open honest communication is the foundation for building real trust with a client. Not sugar coating it, not telling them what they want to hear. Some people like the honesty, some want to hear a lie.
I enjoy meeting people at open houses but the best statistic I have heard is only 1 out of 10 homes sell as a result of an open house. I find that holding a REALTOR open with free lunch and give away gas cards is more effective for promoting the property and not myself.
Good point, Brian. I was speaking of open houses to the public. I think that agent open houses can be a very useful way of getting a home the attention of other agents. Let the seller pay for the food or you’ll go broke for sure!
I might offer, as an alternative, my listing approach that effectively bribes agents to show the house because of increased commission. I have averaged selling homes in half the average DOM using that approach, and the traffic has been huge.
Check out The Ultimate Listing Presentation on my blog, at http://BlogMattBlog.com. Thanks for reading and for your comment.
I have not held an open house in over 10 years now and will never do another.
I also have not ran a print ad of any sort of over 5 years and will likely not do another unless something changes very dramatically.
Why? Because neither one return a decent investment of my resources.
Matt, I want to thank you for a wonderful article. Years ago I wrote a few articles regarding this topic only to be bashed by narrow minded consumers. I feel that when you explain these reasons in person, clients understand them better. If I lose a listing becuase I won’t do an open house, so be it!
Hi Jennifer,
You’re welcome. Thank you for reading and for your comment. Anyone who looks at open houses objectively will come to the same conclusion. The problem is that many in our industry refuse to be objective because tradition always trumps objectivity. The good news is that those agents are failing at an alarming rate and leaving much more for the rest of us who are willing to see things objectively. Thanks again for your comment.
Perhaps using social media in hand with Proximity Marketing will have a positive outcome.
Open Houses are about exposing the house, getting feedback, and sometimes actually selling it at the Open House.
I always do open houses and generally get important “can use” feedback. I track results of all of my marketing activities; I find that I sell 1 out of 11 properties via my Open Houses — sometimes to a relative of a neighbor who, having browsed at my Open House, then promoted the property to her son, brother, etc.
Buyers cruise neighborhoods to determine the ones they like. If you’re holding an Open House, they’ll stop in and, in my business, 1 out of 11 times in the past 4 years, that has resulted in the sale of the house.
Case in point: A couple came into my open house and after examining the house and talking with me for about 30 minutes, they decided to buy it. During the process of writing up the offer, the wife mentioned that initially her husband didn’t want to see the house because he said he would never buy a corner property. The wife told him “They’re having an Open House — let’s just take a look.”
Finally, you never know which marketing activity will bring in the buyer for a specific house. And just like all real estate local, all real estate sales are “specific.” So if a Realtor leaves out a possible successful strategy, he/she eliminates, altogether, a success from that activity.
Interesting thoughts, sounds like you are trying out some new schemes and strategies. I’ve heard of a lot of realtors using web open houses as a great tool. Just taking very good pictures or videos of the house and giving any potential buyers a very good idea of what the property has to offer. Then if they are satisfied, they can call or email a request for a viewing.
Teri,
I say whatever you’re doing, if you’re having a 9% success rate using open houses, keep doing it! That’s awesome.
In NC we have a saying: “Even a blind hog finds an acorn every now and then.” And for most of us in the business, that’s what success in open houses is — a blind hog finding an acorn. For most of us in the real estate business, open houses are just a huge waste of time and money.
Again, I’m glad they are working in your market — if I had that success rate, or knew of anyone in my market with a similar success rate, I would recommend them.
Thanks for reading and for commenting. Keep doing what you’re doing! That is truly awesome!
Matt,
I agree with you about Open Houses. But in my 10 years in the business, I have actually sold the home I held the Open House at on three different occasions. But, I know people in my office that haven’t done that in the 20 years they have been in the business. So the odd are pretty poor of selling that particular property yourself.
I tell my clients I don’t think they are of much value. They have been, in the past, really for the agents benefit to pick up potential Buyers for other houses. But now I don’t believe they give the Open House agent the opportunities they use to.
If they are set on having an Open House done, I will have two of them done. I tell them I will have another agent in my office do them because I don’t do dual agency and it would be better if someone else found the Buyer.
As long as I explain my reasoning and agree to do the two, they seem to be accepting of that. Of course, I had better have a very well laid out marketing plan for them other than Open Houses.
Sally
(206) 550-9450
Matt, I totally agree with your open house approach. The largest percentage of exposure is the realtors with buyers who are utilizing the multiple listing system; therefore, attractive commission to the selling agent is a great tool and well worth the effort of selling that idea to your seller. I feel most uncomfortable sitting in an open house waiting for random, unqualified buyers to come through; I have been in situations where I could not watch all of the buyers and was worried my seller would be missing things. Now, if I have a seller who insists, I take my assistant or fellow realtor with me, or I pay another agent to sit the open house (I know, doesn’t fit the “cost per buyer” formula) but part of my listing presentation is about the low percentage of success the open house brings to the seller.
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