Localize to SEOize
Of course. But keep in mind that laser-targeting your marketing area has two important benefits that naturally increase your overall marketing efforts, plus generally not diminishing the possibility of missing an opportunity.
Here's why: (1) Strictly from a 'prospects' viewpoint, a realtor who specializes in an area is going to be perceived to be the expert in that area. The more you zero-in on your target area (say, include short video's or photos in your blog or website that feature your local haunts and secrets that 'only the locals know for sure') the more the prospects will return to your site. The more they return, the more they develop a relationship with you, and the more likely they will call you to do business.
(2) Better local site content is rewarded by the search engines, and thus your site will generate more 'organic' traffic and ultimately help develop more of what happens in #1 above. Do you know what your SEO traffic patterns are? Do you know where your visitors are originating from? Do you know where they visit on your site, the most popular pages, how long they stay? Visit www.google.com/analytics to learn how to access a free site-traffic analytics service.
(3) Trust is developed when you are perceived as an expert, and your trusted relationship will carry you into other markets, beyond your imagination.
(4) Teresa has a few additional thoughts (pardon the monkey-cam):

