Through its ownership of listing sites and reservation software companies, HomeAway straddles a line that marked a cultural gap between professional managers and self-managing homeowners.
That gap is on the verge of disappearing. This is good for managers, homeowners, renters and HomeAway—as well as the entire vacation rental industry.
The gap began when the Internet spawned listing sites that allowed homeowners to advertise their own vacation rental homes under the rubric “rent-by-owner” (RBO), bypassing managers.
These listing sites provided resources for homeowners interested in self-management and for financially stressed homeowners struggling to cover the expenses of second home ownership. Today, they offer:
- Credit cards payment options
- Taxes collection and remittance options
- Online bookings
- Reservation confirmations
- Payments tracking
- Housekeeping or maintenance service options
On the other side of the gap, some professional managers wondered whether the RBO movement threatened their livelihood. Some managers viewed RBOs as a danger to be avoided or fought.
Mangers and RBOs on both sides rallied to promote or protect their interests:
- Some early RBO listing sites refused listings by professional managers.
- Some self-help resources portrayed professional rental managers as cheats and unnecessary.
- Some managers lobbied to exclude RBOs from local chambers of commerce.
- Web site discussion groups for both groups made polarizing statements about the other.
The reasons for friction are easy to understand. Technology evolution shifts money from one group to another, creating opportunities for some and problems for others.
In reality, the shift occurred because Internet technology changed the way consumers shop. This was first reflected in the popularity of online travel agents such as Expedia, Travelocity and Priceline. Today, consumers have transformed listing sites into the most popular market places for vacation rentals.
Today managers needn’t worry about being displaced. And RBOs needn’t view managers as competitors— their real competitors are other homeowners. Managers exist to serve homeowners (all homeowners are potential customers). Today’s RBO may be in a managed rental program tomorrow.
Managers perform services that save homeowners from tedious and stressful tasks of dealing with customers and servicing homes. Homeowners typically use managers when they can afford to do so, except where they make rental management their “job.” (My next blog is about the impact of rent-by-owner on professional managers).
Managers need not worry that renters do or do not recognize the advantages of professional managers. Not only does this worry treat RBOs as competitors (potentially alienating future customers), but it channels energy (a scarce resource) to an unproductive end and assumes that managers’ future success depends on a public-awareness-of-rental-managers campaign that would cost tens of millions yearly.
Managers, while this may initially sound heretical, your success doesn’t require renters to appreciate managers or even know that a home is managed. It is gratifying and helpful when that occurs. But it is not critical. Thank goodness—it means homeowners and managers are in harmony—not conflict.
Why? Rating systems –which matured after RBO appeared—have emerged as an indirect champion of your brand as a professional manager. Your systems are designed to deliver high quality, consistent service. When that works, your homes get good reviews.
- Renters increasingly rely on peer recommendations to find a reliable vacation rental.
- Rating systems allow renters to identify which homes are well maintained and appointed.
- Managers will always thrive where their systems generate good renter reviews.
- Plus mainstream listing services identify managed homes as such for renters who look for this.
If a RBO home next to yours gets good reviews, it is usually because that homeowner is working very hard to do what you do. That homeowner deserves to get rentals. That same homeowner may eventually tire of working so hard, or have no time to do so, and hire you to do some or all of his work.
Today, there are still some RBOs and managers who distrust each other. Some RBO groups worry that:
- The presence of managed homes on RBO sites dilutes their bookings; or that
- Management companies have marketing and resource advantages.
Some rental management companies worry that:
- Listing sites divert homes from rental management programs;
- RBOs steal renters by under pricing managed homes;
- RBOs attract renters by failing to collect (charge for) lodging taxes.
Many of these worries once had some basis in fact. But today the impact appears minimal.
Booking Dilution. Today, leading listing sites market managed and self-managed homes side by side. I see no evidence that this can/should be avoided or that it dilutes or diverts bookings from one group:
- It is consumers who decide the popularity of listing sites-- consumers are patronizing the sites that offer the widest range of product and price.
- Renters love to use the Internet to shop—they have so many options that no single company could thwart consumer shopping preferences (aggregator services today search multiple sites).
- Renters use the Internet to find and compare all available homes—Internet shopping technology is the driver of integrated market places, not listing site policies.
Resource Advantages. It is obvious that professional managers have marketing and service resources advantages—this is a common sense result where managers spread the service costs among multiple homeowners. That’s why so many homeowners hire managers. But hardworking RBOs compete well.
- Renters simply want a well serviced home that meets their needs and is competitively priced.
- No RBOs can be at a disadvantage if they service their home well and price competitively.
- In my experience, renters tend to find the good homes—even where lesser homes have superior marketing exposure.
- A manager’s pooled resources (e.g., backup cleaners) confer advantage where this results in better or more consistent service (reflected in the reviews).
- RBOs lose rentals to professional managers and vice-versa when they are not able to provide high quality service. Many RBOs will eventually hire managers for some or all services.
Tax Collection. Interestingly, I have seen no evidence that professional managers are losing bookings to RBOs who ignore tax collection requirements, at least not in measurable dimensions. This is due in part to local tax authorities who are ramping up tax enforcement and to efforts to educate homeowners. Also, renters appear most concerned about finding the right home at a competitive price—it takes a lot of extra work to identify a homeowner who won’t charge tax (homeowners can’t advertise that fact).
- One of the most successful professional managers on HomeAway sites tells me that his bookings are not remotely affected by RBOs who do not charge tax. He says he is not interested in renters who take bargain hunting to this extreme and that it is his attention to inventory quality and marketing that brings him bookings and growth.
Underpricing. It is true in theory that some self-managing homeowners try to offer lower rents and feel empowered to do so because they do not pay a professional manager. But I see no evidence that self-managed homes end up with lower rents or that they divert renters from managers based on price:
- Professional managers initially set rents at levels that renters are willing to pay—given all the competing homes that are being offered in the area. They then adjust rents as necessary.
- RBOs commonly set rents based on comparable managed homes. Even though they don’t pay managers, most RBOs can’t afford to charge too much less rent than renters are willing to pay.
- A percentage of RBOs do try to under price managers in an effort to attract renters.
- This stimulates discounting by managers. Managers track bookings pace from one year to the next and are quick to discount prices when current year bookings are slow, equalizing rents.
- For every discounting RBO, there is a hungry homeowner demanding that his rental manager discount his rent so he can snag a renter or a manager who discounts to fill vacancies.
- The net effect is that rental home prices adjust the way that stock prices adjust. They simply rise and fall on a weekly or daily basis in response to shifting balance between supply and demand.
Stay tuned for my next blog will summarize the impact of the rent-by-owner trend on professional managers.