Updated for 2016
I hate seeing good people get ripped off because of lack of options, resources or poor direction. Having worked for a short term rental management company briefly in the past and seeing what goes on behind closed doors I have a first hand view of the hidden expenses that most companies don’t tell you about when giving you their sales pitch.
The first thing one does after placing an offer on their vacation rental is shop about three or four property management companies to find a reputable one who is going to get their home rented out while they are gone even though this should be done before you put an offer on the house). The first question many people ask the sales rep for the management company is “How Many Weeks Can You Book My Property?” They are most likely going to quote you an impressive figure that sounds good to you and entices you to want to turn your home over to them. Before you start celebrating and getting excited you MUST know that 98% of the time this figure may not apply to your home. It most likely applies to one or two particular homes they have under management that are rented like crazy and often because the owner is very active in the process. This doesn’t mean you are going to see those numbers. Request booking reports on a home similar to yours to see what it’s really doing.
This next part is the one you’re really going to love. . .so you want to know what type of rates they will be charging for you home? They give you a print out with their rental rates on it quoting you low season and high season rates. STOP! The rates that you are looking at on that paper are RETAIL RATES not wholesale rates (think ordering a product in bulk direct from a supplier vs. buying one in a retail store). Retail rates are what you will see IF the management company is able to book the stay directly through their website or marketing efforts. This only happens on average 30% of the time!!!! The main way management companies get their bookings is through travel agencies (tour suppliers). The tour supplies book their guests in your home at a discount of up to 50% off the retail rates! The concept behind this is that they supply so much volume that it makes it worth it, and often time it does but it also uses and abuses your vacation rental!
So when they pull their rate sheet out and start quoting you these impressive rates you now know it’s a sales pitch and you need to ask them, “What are your tour supplier rates and what percentage of your bookings come from that source?” Once you get that figure you then have a basis of what you can expect for your own bookings. I also like to subtract 20% off of whatever they quote my clients because most of the time it’s exaggerated anyway.
Lets do a pretend case study as if you were just quoted this by a management company for your short term rental. Here’s how you could break it down. (These are just example figures not real figures)
Here is an example for a 3 Bed Single Family Pool home in high season per week:
$665 (Retail, this is what they quote)
– 40% (because we assume it’s going to be mostly wholesale bookings)
-25%= (This is an average figure of what management companies charge per booking)
$300 (This is what you are left with on a wholesale booking before ownership expenses)
So you can see it’s less than half of what was quoted on your retail rates.
Now that you are armed with knowledge you can negotiate lower management fees on wholesale bookings. Don’t be afraid to let them know that if they put wholesale bookings in your property it’s going to be at a reduced commission to them.
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