Real Estate Realities: Why Fundraisers Need to Be Careful
Posted on Tue, Jul 13, 2010
Back in the early 90’s when I was working on the first wealth screening product for fundraisers to incorporate detailed real estate information, including multiple-property ownership, the median price of a house was $125K and just over 64% of Americans owned their home.
Over the next 14 years we enjoyed a heck of ride as the value of homes more than doubled and ownership reached 70%. This ride was even more extreme for people in states such as California and Florida.
Clearly real estate was an asset you wanted to know about when calculating a prospect’s wealth. And this was even more true of millionaires because nearly 100% of them owned their home.
Then came mid-2007 and suddenly we reached that roller coaster moment when the clicking stops and the fall begins. In the blink of an eye those reliable wealth estimates based on real estate values not only stopped being reliable, but they also became downright dangerous. This was especially true for prospects in the states that experienced the biggest increases in value.
Fundraisers found themselves using giving capacity estimates not even close to reality. There were exceptions in the middle of the country where real estate values had not increased nearly as much and mortgages were still primarily approved for people banks felt would not default, but elsewhere such was not the case.
Some comfort was taken in the thought it was the middle-class and not the wealthy being hit by the crisis. Not so fast! This chart is from a recent New York Times article entitled “Biggest Defaulters on Mortgages Are the Rich”:
The article talks about another problem with real estate and that is second home ownership. Pre-crisis this was a great indicator of wealth. Now it could be indicate your prospect is overextended.
For those people who saw real estate as an investment, you can see by the chart they are faring the worst.
So what is a fundraiser to do?
- Identify prospects who are rated primarily based on the value of their real estate.
- Create a special segment for prospects owning multiple properties.
- Look closely at these prospects to see if they have lowered or stopped their giving to you during the last two years.
- Find out if they are giving to other organizations using TrueGivers™.
- Determine what their current employment is using TrueLeaders™.
And don’t forget to take a look at any prospects with a wealth score. Real estate is a big factor in any scoring system used by traditional wealth screening vendors. That score may have been right a few years ago, but now it could be problematic.
Given all of this should you continue to use real estate? The answer is yes. Just use an abundance of caution and find other indicators, such as giving, to corroborate your capacity estimate.
David Lawson