In multifamily property management, the optimization of unit amenity pricing stands as a critical factor in revenue management strategies. Yet, amidst the complexities of market dynamics and evolving resident preferences, common pitfalls often hinder the realization of optimal revenue potential. In this blog, we delve into the prevalent challenges faced by property managers in accurately pricing unit amenities, from overlooked features to conflicting configurations. By addressing these challenges head-on, property managers can unlock untapped revenue streams while enhancing the resident experience.
Amenity “Holes”
The most common error involves obvious amenity omissions, leaving potential revenue untapped. Examples range from units lacking floor amenities to specific units in a stack missing key features, like a balcony. These gaps may stem from initial configuration errors or past price adjustments. Addressing these gaps is a low-risk, high-reward strategy to boost revenue.
Missed Amenities
Entire amenity categories are occasionally absent, overlooking preferences for corner units or valuable features like ceiling fans and fireplaces. The absence of upcharges for these amenities, especially on each unit's floor, is a missed revenue opportunity.
Conflicting Amenities
Instances of conflicting amenity assignments, as illustrated in Figure 1, can introduce significant confusion and potential errors in the management of unit amenities. This scenario, where units in the 12-stack are simultaneously labeled with both "balcony" and "no balcony" amenities, underscores the need for careful consideration and physical verification of amenity configurations. Resolving such discrepancies is crucial for maintaining accurate amenity data, ensuring a seamless experience for both property managers and residents.
Figure 1: Conflicting balcony amenities
Over-bundling
In Figure 2, both east-facing and north-facing homes have obstructed views, appearing reasonable individually. However, the question arises: is it logical that a corner unit with both north and east-facing views is considered doubly undesirable than a unit facing either direction alone? This highlights the risk of over-bundling amenities, where combining various premiums results in total price-deterring prospects. Adjusting amenities may impact "gross potential rent," but it significantly reduces vacancy losses.
Figure 2: Over-bundled negative amenities
All Homes Have the Same Amenity
In cases where all homes share a common amenity like a balcony, stainless steel appliances, or, as depicted in Figure 3, a garage, designating it as a "zero-dollar" amenity is more effective. This approach incorporates the amenity's value into the base rent, providing greater flexibility for the revenue management system to adapt to market dynamics. While allowing proper tagging for external systems, this strategy optimizes space for responding to market changes in asking rents.
Figure 3: If all units have a garage, the garage can be set as a $0 and the value should be incorporated into base rent
Misuse of Negative Amenities
Frequently, arbitrary negative amenities, often labeled as "value adjustment" or "loss leader," are assigned to certain units, as seen in Figure 6 with "Special 1" and "Special 2." If a unit warrants a negative amenity, it should be clearly defined and applied consistently. If it was a hasty attempt to lower the price, removing it can unlock additional revenue. In cases where negative amenities result from prolonged vacancy, implementing a Long Standing Vacant (LSV) protocol is recommended to address the underlying issues rather than opting for a quick, arbitrary reduction.
Figure 4: Arbitrary negative amenities
Misuse of $0 Amenities
Amenities, such as upgraded countertops, are frequently assigned a $0 value when they likely hold some value, as depicted in Figure 4. While listed as zero-dollar amenities, these features may indeed contribute to the overall desirability and should be assessed for appropriate valuation.
Figure 5: Countertops improperly listed as $0 amenity
Inaccurate (or Missing) Square Footage Premiums
Inaccurate square footage premiums often impact revenue significantly. Instances include pricing identical bed/bath floorplans differently based on size or larger homes priced lower than smaller ones (see Figure 5). This affects leasing, with larger units leasing more quickly. Furthermore, some cases show square footage rents undervalued compared to the base floorplan's rent per square foot (RPSF), signaling potential revenue loss. Adjustments should align with market expectations for effective revenue management.
Figure 6: Larger Units priced lower than smaller units
Getting the amenity price right
To optimize pricing based on market response, assessing the popularity of amenities is crucial. Availability is a straightforward metric; if homes with a particular amenity are disproportionately available, it suggests market disfavor. However, this approach can be influenced by recent events like notices to vacate. A more robust metric is "days-on-market" (DOM), representing the time a home is on the market until leased. By statistically analyzing historical lease data, pricing managers can identify significant differences in DOM for units with and without specific amenities. This data-driven method reduces the risk of pricing missteps, preventing adjustments based on potentially insignificant differences.
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