Ground breaking metrics for every ranch real estate brokerage to operate by
I’m going to introduce some new concepts to the ranch real estate market. These concepts are standard in many financial and commodity markets but I’ve applied them to our market for farms, ranches, and land.
Now you may be saying we are not in a “commodities” market, and I 100% agree. The challenge I see in the ranch real estate market is there is little quantitative metrics that provide any value to the seller, buyer, or the market in general. With my metrics you’ll be able to have meaningful conversations around prices with buyers and sellers and ultimately sell more ranch real estate listings faster and be able to win more ranch listings with prospective sellers.
I’m going to be introducing 3 concepts or calculations that any ranch broker should begin using on their portfolio of listings.
- Price per Acre to Market (PPATM)
- Price per Acre Rank (PPAR)
- Total Price Rank (TPR)
So now I hear you saying …”there are no two ranches alike. They are all unique and impossible to compare.” Rightfully so. Then why when negotiations come down to making a deal is it always price per acre? Because it matters what a buyer will pay, what a seller is willing to take, and what a lender is willing to lend on ranch real estate.
The next objection I hear is “sale price is really what matters. The asking price really doesn’t help us compare our listings to the market.” Then why price it at all? The asking price is roughly where the sellers market is at during any given period of time. The price sellers are willing to entertain in exchange for their property. So …asking price does matter.
One final point to make as to my logic for introducing these concepts is often times the buyer and or seller are high net worth individuals. They’ve spent their career handling millions of dollars of operating capital, reviewing financials, looking at large ROI opportunities, understanding yield, and more. We as an industry do not build the case with real metrics and data to support our claims. Brokers usually rely on their reputation and good looks to convince the buyer or seller that their claims or advice are accurate.
This has to change!
We need to substantially improve our service level to clients with real-time data and analytics to best inform them of buying or selling decisions.
Ranch Real Estate: Price per Acre to Market (PPATM)
PPATM is the percentage of a listing price per acre to the average price per acre for similar listings in that market.
See example 1-1 below. First you’ll need to know that the Average Per Acre price is 100% of market, meaning that is the going rate for per acre asking price. In this case, it is $5,073.
Comparing your listing or other listings to this market average as a percentage creates a meaningful data point for your clients. The tighter the acreage group the more valuable the data point but by comparing the per acre price vs total price, statistically it enables us to look at a wider range of acreage to compare.
What I’ve learn while pouring over listings and their numbers, listings that have a PPATM greater than 110% of market are very difficult to sell and have a high months on market total. In broker speak, this usually translates into an “over-improved” property. The house is massive, too many buildings on the land, the livestock or equine facilities are extravagant, its use is very specialized such as hunter jumper equestrian facilities, or other.
Regardless, for both the buyer or seller this gives a quantitative number to compare listings in all different ways and scenarios.
If meeting your brokerage goals is important, you need to be inside of 105% of market at most. You simply don’t realize how many prospective buyers pass over your listing before they ever ask for a showing simply because they know the seller has an inaccurate view of the market asking prices.
As the broker, you’re goal is get your marketing investment back as soon as possible and balancing that with representing your seller with best possible sale price. For the efficient broker, targeting your average months on market for your brokerage is important. We’ve found that to maintain this KPI for your brokerage, the listings need to be 95% of the market or lower.
For brokers and prospective sellers, this number creates a lot of value when supporting your suggested asking price for their property or gives you the analysis to evaluate salability and if you’d consider taking on this listing.
Ranch Real Estate: Price per Acre Rank (PPAR)
Simple as it sounds: a numerical ranking of listings in the dataset from highest price per acre to lowest price per acre. If price per acre of a listing within the group of comparable listings is the highest then it will rank #1 in PPAR.
Why is this metric important? When your listing is setting at the top of the market in price per acre, then you either A) need to have property amenities to really back it up, or B) lower your price per acre if you expect to get an ROI on marketing dollars spent.
Don’t get me wrong, it feels great to set a record for price per acre within a county, but if you are focused on selling listings, turning your listing inventory, getting an ROI on marketing spend, then you need to be in the middle of the price per acre rank. Again, buyers are either mentally or in a spreadsheet tracking price per acre. Even if they are not ranking them as REALSTACK does, they are mentally processing this price per acre against their comparable properties.
From the brokers perspective, it is another metric to evaluate your price in the market at any given time. If there are 5 comparable listings, then you want to rank 3rd or better when possible. This helps you get leads, showings, and transactions. When taking on listings you evaluate that the ranch real estate property will fit in this metric to help contribute to your ROI and lowering your months on market averages.
It is important with PPAR to have tighter bunch in acreage per listing. In most counties as the acreage goes up the price per acre declines. In example 1-1 above we have an outlier with 1922 acres. We had to include this property because it was one of our ranch brokerage client listings and within Bosque County, Texas there were no other ranch listings within +/- 1,000 acres of it.
Ranch Real Estate: Total Price Rank (TPR)
Another simple comparison but deep value: a numerical ranking of listings in the dataset from highest overall price to lowest overall price.
Why is this important? In studying the data of ranch listings, I found gaps in acreage within certain counties. Not surprising, but statistically this has meaning. Let me explain.
If a county has a heavy set of inventory between 200 and 500 acres but no listings between 501 and 2000, then the Total Price Rank becomes significant because total price of a large acreage ranch can present a challenge in certain areas of the United States.
Let’s take Bosque County, Texas as in example 1-1 above. It is a popular county for high income earners to get a weekend retreat who are based out of Dallas-Ft. Worth. They can afford and are most interested in property +/- of 100 acres. Ranch real estate they can afford, enjoy, and maintain. When you jump out there with a 1,900 acre place your total price for that market can present a challenge to what the demand for that county will bear.
The months supply for acreage in this range will be high and the absorption rate will be low therefore stretching out your marketing investment before you’ll realize an ROI. Remember your goals for your brokerage on ROI and average months on market? Well it is statistically likely that this listing will not meet those brokerage goals and objectives.
There are a lot of things in the ranch market you can’t control such as oil prices, overall demand, stock market, and more, but you can control Price per Acre to Market, Price per Acre Rank, and Total Price Rank.
Conclusion
In business, cash flow is king! If you take on fast moving ranch real estate listings and price accurately, then your return on capital will be most efficient. Efficient capital equates to more dollars returned to your brokerage faster! Return on capital will be another article for ranch brokers.
Price per acre to market, price per acre rank, and total price rank are key factors in managing for the most efficient use of your marketing capital that gets tied up in every ranch real estate listing. Start measuring and re-evaluate your current portfolio of ranch real estate listings to watch your cash flow and gross margins begin to sore.
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