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Measuring the percentage of houses we buy in any market
By Ken Channell  | | Ken Channell | | In the 1970s in the real estate brokerage business, it was discovered that an agent with 20% or more market share in a neighborhood or subdivision had a tremendous advantage. That agent could get more listings in that neighborhood and gain momentum to reach 30% to 35% market share. While I was employed by ERA, we began measuring market share in the early 1980s. We called the program ERA Market Link and we measured market share of listings and sales at the market level. We downloaded transactions from MLS and targeted the top real estate companies and agents in each market to focus on increasing our market share. We learned then that real estate is "a numbers game and a people business" and that what we measure tends to increase. When I came to HomeVestors in 1998, we did not measure market share of discounted house sales. But that changed in 2003 when it was obvious that we needed to track our performance against some market share criteria. At that time, HVA Founder Ken D'Angelo said that in his experience, 5% of all houses in Dallas sold at a discount. The challenge was how to document that percentage. The National Association of Realtors publishes a number for Existing Homes Sales on a monthly basis. In 2005, that number ranged from 4% up to 10% of all existing houses that sell each year. Using 7% as an average for 2003, we multiplied the number of Single Family Detached houses in each MSA (Metropolitan Statistical Area) by 7% to determine the number of single family house sales. Then, we multiplied that number by 5% for the number of houses sold at a discount. Using that formula, HVA had ten markets in 2003 that hit 15% or better market share. Houston led the way with 22.2% followed by Columbia, SC, St Louis and Fort Worth at 17%+. Brevard County, FL, Dallas-Ft Worth, Jacksonville, FL, Tucson and Minneapolis all achieved 15%+ in 2003. However, those numbers were based on buy contracts written and were inflated over today's numbers, which are based on buy closings. After first presenting these numbers, there were some challenges to the method since the 5% statistic was based on Ken's intuition. Based on that challenge, we hired a research analyst to help us document discounted sales in a total of nine markets. We selected the zip code where we bought the most houses in each market and identified the number of houses that sold in each of the zip codes as well as the average price per square foot. We then used a factor of 70% of that value to identify a house as being sold at a discount. Using that method we discovered that 25.2% of all the houses sold were sold at a discount in those zip codes. Our franchisees in those areas averaged buying 17% of those houses. This research convinced us that 5% is a very conservative estimate of the number of houses available at discount in a market. Of course, the number of houses that can be bought at a discount will vary by zip code. HVA has tracked market share every year since 2003 and in 2005 established market share as a method of identifying the number of franchises we should grant in any market. The new page in the Franchise Owners section of HomeVestors.com, "Benchmark Database - Market Share - Rankings In Order,"shows the current market share for each active HVA market. The goal, as you probably know, is 20% penetration in each market. Currently, we have four markets based on closed buys that exceed 20% market share, five between 15% and 20% and another 14 that have surpassed 10%. When all of the current markets reach 20% market share the HVA franchise network will buy almost 20,000 houses a year. Ultimately, 20% market share nationally could result in 50,000 closings annually. The Research and Development Department continues to identify ways to refine the market share methodology. However, HVA knows that the current methodology is not only valid, but it's a valuable tool for measuring market performance. 20% market share is a significant goal for HomeVestors, and one that will make our brand an unreachable target for our competitors. This brings us back to Team HVA. The best way to achieve 20% market share (or better) is to work with all franchisees in your market. One of the strategic advantages of Team HVA is our ability to work as a team. Get together, establish goals for each franchise in the Ad Council, and develop action plans that will help each franchise achieve the goals. Working together is the one advantage that when fully leveraged will produce the most results for every franchisee. . . . Vice President of Team Development Ken Channell leads most of the training offered to HomeVestors franchisees.
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