Real Estate Investment:Quick Answer Series: Close the Door on Open Houses!

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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 . Then there are balloons, streamers, directionals, refreshments, and such, for let’s say another . 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 0,000 this year, your hourly time cost is . Now, 6 hours times is 0. Add that to the hard costs and you are 5, 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: 5 divided by 5 leads, and you have a cost of 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, 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 0,000 and an average commission side of 2.5%, then your average GCI or gross commission income is ,000. Your budget per closed deal is 10% or 0. Now take the 0 and divide it by the 24 average leads you need to close one deal, and you have a maximum budget of .83 per lead.

Now let’s evaluate the marketing idea. Cost per lead is . Budget per lead is .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.