Written by Lisa Trosien, President of ApartmentExpert.com

The Internet Listing Services (ILS’s) haven’t had it all that good lately. They’ve been getting some pretty close scrutiny on the Multifamily Insiders website, as well as some discussion at national conferences including NMHC Tech and the Multifamily Brainstorming Conference.

Just to make sure we have full disclosure here, I have worked for many of the ILS’s, either as a paid speaker or a paid consultant. Am I currently under contract with any of them? No.

In the interest of fairness, I want to add a few points to the ILS debate. These points are all based upon my opinion after having numerous discussions with the ILS community over the years.

1. Ratings: All of the ILS’s are very much aware that renters want ratings. However, they (the ILS’s) have received significant pushback from their advertisers (NOT their renter/users) on the whole idea of ratings. The majority of their advertisers have been vocal in saying that they do not want ratings on the ILS sites. Rock, meet hard place for the ILS’s. Years ago, some of the ILS’s used to advertise on Apartment Ratings. Why? The site receives a tremendous amount of renter traffic, exceeding some of the smaller ILS’s on some occasions. Their advertising on this site was dropped however, again due to pressure from advertisers.
2. It appears, to me at least, that the majority of the ILS’s are continually striving to keep changing, upgrading and improving not only their product, but the end user experience. Apartment Guide was the first ILS to come out with an iPhone application. Apartment Finder launched their Community Sherpa product, in an effort to help property management companies pursue a social media strategy. For Rent just launched the first augmented reality application for the ILS’s, yet another way to improve the renter experience.
3. Most companies who choose to work with an ILS never try to leverage their relationship. The ILS’s have a wealth of knowledge about your renters at their fingertips such as the top ten search items for your market. Have you asked what these are? If not, why not? Have you asked them how renter behavior changed due to the recession? Rent.com even released a white paper on the topic, loaded with great information on number of searches and more. ILS’s can tell you how many properties the average renter views, how many they contact, what features are most helpful to you in gaining more ‘page views’ and more. (Coupons can increase your leads by 18%; including accurate pricing can increase them by 30%).
4. One of the biggest criticisms of the ILS approach to the rental market is the fact that all property ads basically look the same. And I agree, that’s clearly an issue for companies that have been able to successfully build a brand. Unfortunately for those forward thinking companies who’ve managed to do this, they are in the minority (on an national basis) and in their case, they might not be the best properties served by an ILS. Taking an extraordinary approach with their extraordinary brand is smart marketing on their part. I will throw in one caution, however. For potential renters coming in from outside the immediate market, the personality that these companies have established might not be immediately discernible to someone who is simply searching for an apartment home with geography, size and price as their qualifiers. In that case, the ILS model would serve them and I believe, serve them well.

Lastly, I must say that I fully appreciate and support the discussion that has been started by folks on the ILS model. Pushing the ILS’s to improve the experience for both renters and property management companies and owners is only going to improve the performance of the product. In NO WAY am I
criticizing those who have been willing to ‘take up the charge’ so to speak. They have actually publicly stated what many were ‘whispering about’ for years and for that and more, I applaud them.

Let’s keep the debate going and help to increase leads and leases for all of us.

Lisa Trosien
President
ApartmentExpert.com

Is revenue management just a “black box?”  Have the technical challenges been solved in creating a software that can optimize the rent yield in apartment communities?  What’s the math behind revenue management?  A new technical white paper answers these questions and many more.

In a recently published white paper, “The Implementation of an Apartment Dynamic Pricing System,” Dr. Jian Wang, vice president of research and development for The Rainmaker Group, describes in great detail the implementation of an apartment dynamic pricing system with particular emphasis on setting optimal rental rates for new leases. The system he describes “has been helping several leading apartment operators offer prospective tenants a menu of rent options for the last six years. It sets the optimal rents everyday, which are presented in the form of unit type, move-in week and lease term.

Click here for entire white paper

Apartment operators struggle with a myriad of issues, one of the most important is setting rental rates for new and renewal leases. Traditionally, rents are typically set with the goal of achieving market share, maintaining occupancy and remaining profitable. Rents are determined by various factors including market condition, competition, condition of property, and vacancy rates. Management experience also plays a role in determining rental rates.

Revenue Management (RM) has emerged as another way to determine lease rates for apartment operators. This methodology uses data-driven pricing to find the optimal price for individual apartments based on current and forecasted market conditions.  Apartment Revenue Management Systems (RMS) is a rapidly growing trend for setting rental rates in the apartment industry. Once limited to the airline and hotel industries, RMS has seen significant growth in the apartment industry since multifamily-specific software hit the market several years ago.

The article includes a study of the characteristics of apartment rental firms compared to hotels from a revenue management perspective. The characteristics that apartments and hotels share:

• Both are perishable products (they are worthless until they are occupied again)
• Both have constrained supply (there’s only so much to go around)
• Both are effected by advance consumption decisions (customers reserve product before using)
• Both have censored demand observations due to product availability and/or pricing constraints

However, the apartment industry does distinguish itself with the following characteristics:

• Longer lengths of stay
• Fewer transactions
• No repeat customers
• More renewals
• Riskier decisions
• No group booking
• No walk-ins
• Concessions

Dr. Wang outlines his expert view on the design of an optimal multifamily revenue management system with modules including:

• Data Aggregator – links the property management systems and the RMS
• Statistics Operator – estimates a number of business statistics based on the aggregated historical data
• Demand Forecaster – predicts the remaining unconstrained demand for a finite planning horizon, which will be fed into the Rent Optimizer module
• Supply Forecaster – predicts the number of units available for lease for a finite horizon of future weeks
• Reference Rent Calculator – estimates reference rates
• Rent Optimizer – calculates optimized rents from which the optimal rental rates are derived in the Rent Recommender module
• Rent Recommender – module that recommends optimal rents by disaggregating optimized rents

Dr. Wang has more than 16 years of experience in mathematical modeling, system architecture, and implementation in engineering and software vendor industries. He’s a demonstrated leader in operations research and is published in several top journals.

Click here for entire white paper