The Pareto Principle in Real Estate

What does the Pareto Principle have to do with real estate? As it turns out, quite a lot.

You know about the Pareto Principle, right? It’s otherwise known as the “80-20 rule.” This rule states that for many outcomes, approximately 80% of consequences come from 20% of the causes. And conversely, only 20% of the outcomes come from 80% of the effort.

One story about its origin claims that a farmer realized that 80% of his peas came from 20% of his pea pods, then started looking at other things and finding the same result. I’m not sure I believe that one. After all, who would count peas?

A more likely source is the story about someone realizing that 80% of the land in the Kingdom of Italy (late 1800’s) was held by 20% of the people. That’s probably true for many places today.

Wherever it originated, the Pareto Principle does apply to real estate, and not just in the percentages owned.

For instance:

• 20% of your marketing efforts are likely to bring you 80% of your prospects.
• 20% of the information in your bio matters more to prospects than the other 80%.
• 20% of your past clients and members of your sphere probably send you 80% of your referrals.
• 20% of the features in that new listing will be more attractive to buyers than the other 80%.
• Only about 20% of the prospects you’re mailing to are likely to take action within the coming year.

So let’s look at those numbers…

20% of your marketing efforts are likely to bring you 80% of your prospects.

How can you use the Pareto Principle to enhance your real estate marketing results?

The first thing to do is keep track of where your clients are coming from. ASK them where they found you. And since real estate marketing is cumulative, try to ask them which bit of marketing tipped the scales for them.

If you keep track for a few months, you’ll have a good idea of where the bulk of your business is coming from.

Then do more of that!

20% of the information in your bio matters more to prospects than the other 80%.

Give this some thought. Approximately 80% of what you do for clients is the same as what every other agent does (or should do). There’s no sense wasting bio space talking about those things.

Instead, use the Pareto Principle to let your real estate bio showcase what makes you special. And most importantly, what makes you special to those clients you love working with and want most.

• What makes you stand out from other agents?
• What is of highest importance to those clients you want most?

If you love to sell historic homes and have a great deal of enthusiasm and knowledge about them, that should be in your bio (as well as on a static web page and in blog posts).

If you love to help first time home buyers and you are happy to explain the process and guide them through it, let them know. If you keep yourself informed of all the programs available to help them, that too should be in your bio.

The same could be said for helping luxury buyers and sellers, probate or divorce sellers, move-up buyers, downsizing homeowners, relocating buyers, military buyers and sellers, investors, or even FSBOs and homeowners with expired listings. You have some skill or personality trait that is of value to those clients you love most, and the benefits you bring to them belong in your bio.

But just being there is not enough. Positioning counts as well, so make sure those facts stand out – and perhaps stand alone. You don’t want them buried in the middle of a paragraph about other things, and you do want them near the beginning of your bio.

20% of your past clients and members of your sphere probably send you 80% of your referrals.

Do keep track, and at the end of a year or two look and see which of your past clients or members of your sphere have sent you referrals. Which have sent more than one?

It’s very likely to come in at about 20%. It doesn’t mean that the others didn’t love you, it’s just that some people are more social. They get out and about more and talk to more people – giving them more opportunities to say “I know just the real estate agent you need!”

So what should you do about that? First, don’t give up on the other 80%. Their “once in a while” referrals count, plus you never know when they’ll want to buy or sell real estate themselves.  Stay in touch – preferably once a month, but at least every other month.

As for the ones who are busy sending others to you – be lavish in your thanks. Send a small gift or take them out to lunch. Make sure they know that you appreciate their efforts.

20% of the features in that new listing will be more attractive / important to buyers than the other 80%.

Just like your service to clients, 80% of what you might say about a house is information the buyer would expect (or it’s information that’s included in the details). While a prospect may eventually be glad to know that there’s a new septic or the roof was replaced 2 years ago, those details won’t matter until after they’ve fallen in love with the house. They won’t make them pick up the phone to make an appointment.

Think about it: Have you ever heard anybody say they’ve been dreaming about a house with a new septic tank? Nope, but you may have heard them say they’ve dreamed of a house with a huge fireplace, a bay window with a window seat, or a gourmet kitchen.

The 20% or so of features and benefits that are not the same as every other house are the ones that will interest them.

Since most buyers are searching on line before calling an agent, your listings need to reach out and grab them. That means having professional quality photographs and well considered property descriptions.

Start work on that description while you’re still at the house with the sellers. How? By asking good questions. For instance:

• What have you enjoyed most about this house or the neighborhood?
• What’s your favorite room? Why?
• What will you miss most when you move away?
• What attracted you and caused you to buy this house?
• What have you changed or added since you bought the house?

It could be that the same things that attracted the seller will attract a buyer, so take notes. Use that information together with your own knowledge of today’s buyers to determine what will be most attractive to a buyer today. Then get that “most important” benefit into the first few lines of your description.

Don’t bury the “good stuff” under a pile of details that buyers can read elsewhere.

I know – some houses don’t present you with a lot of “good stuff,” but if you think hard and long and go over your photographs enough times, you’ll find something that will be attractive to the right buyer. I’ve written a couple of property descriptions lately that I think the agents sent to me to write because they simply couldn’t see that “something.” They weren’t easy to write, but I kept looking and finally found the gems.

Whatever the house, you can find something interesting to say. You CAN do better than “Come home to (address).”

20% (or less) of the prospects you’re prospecting to are likely to take action within the coming year.

If you’re developing a territory or creating your place in a niche, you can’t expect everyone to want to sell every year! However, by continuing to stay in touch with the entire territory,* you’ll be creating “mind share” with the rest of those homeowners. When you have that, they’re sure to think of you first when the day comes for them to sell.

*If you’re just starting out and need to grow your territory, market to as many as you can afford to mail to regularly. Then expand the territory as more closings come.

REMEMBER: you’ll get far better results by sending 10 letters to 100 homeowners than by sending one letter to 1,000 homeowners.

Where else do you use the Pareto Principle in Real Estate?

Share your thoughts!