It's hard to imagine the multifamily world without listing services.
Print listings were a dominant marketing channel in the industry from the mid 80s onward. With the arrival of the internet, those print listings ported to the web and became internet listing services (ILS).
Even after the internet became a staple in American homes, listing services still seemed like a sensible model: Why spend all the time and energy on building your own platform online when you could just pay a listing service?
But as the internet has changed that strategy has become less and less sensible. Two big things have changed.
In the first place, it's relatively easy these days to create your own marketing platform. Hosting isn’t expensive. Domain names are cheap. Tools like WordPress and SquareSpace make it easy to build websites.
Second, in the past apartment shoppers had ingrained habits that led them to look at listing services. If you needed to know about apartments, that is where you would find what you need.
However, by the early 2000s Google had found a better way to access information using the unique capabilities of the internet. As a result, people became used to going to Google when they needed any kind of information. This includes apartment data. Our own data suggests that there are more online searches for apartments in most American cities in a given month than there are vacant apartment units in that city. Put another way, the data would suggest that virtually every apartment search in most cities begins on Google.
The result is that, whereas in the past, the ILS controlled the audience and the platform for apartment marketers, these days Google controls the audience. ILS’s are only valuable to whatever extent they rank well on Google.
What does this mean for apartment marketers?
The listing service model is not a long-term marketing solution. ILS’s are only valuable for as long as Google decides they’re valuable. But if Google starts directing people to local apartment listings pulled from data within their own system and integrated with Google Maps then all the value that ILS's offer as directories will disappear since Google is a better version of the same thing.
That being said, even though Google hasn't totally moved in that direction yet—though they likely will at some point—there are still some significant costs to working with listing services even now. Let's talk about two of them.
Hidden Cost 1: You're competing with yourself.
These days, it is likely that your apartment community has a website of some kind. That hasn't always been the case in multifamily, of course, but anymore most communities have a website. But what happens when you have a website and you're advertising on a bunch of listing services? Answer: You're paying listing services money to compete with your website—which you're also paying for, presumably—for search traffic on Google.
When Google sees someone search for your community, they have to decide what is the most relevant thing to show them: the listing on an ILS for your community or your community’s website? Sometimes, especially if it's a newer website, Google will rank the ILS above the website. So you are spending money on a community website, but when people search for you by name, they’re ending up at the ILS.
Hidden Cost 2: A lack of differentiation drives prices down.
This leads to a second hidden cost: Think about pricing. If you have ten options to choose from and they all look similar, how do you decide what to buy? You look at price.
On the other hand, if you see a single product and you really really want it… you probably don’t mind paying a little extra, right? (How many of you are reading this on an Apple product?)
Higher prices come from differentiation. If you look uniquely valuable to a prospect, you can charge higher rent. On the other hand, if you are lost in a pile of a dozen different properties they have visited… well, you’re probably competing on price, which is going to drive that rent rate down.
How do you create that differentiation? A website is a great way of getting there. If you have a website that in itself makes your community look distinct, simply by being dedicated to promoting only your community and you deliver a great shopping experience via that website you now have some ways of distinguishing yourself from your competition. Now when someone is debating a purchase, they aren't just looking at the price tag. They're also thinking about the photos of your property, the relative ease of signing a lease with you relative to more complicated leasing processes elsewhere, etc. And because of those other advantages you have, you can probably charge slightly higher rent rates. Differentiation leads to higher prices.
Hidden Cost 3: Diminished demand drives prices down.
There’s another hidden cost that follows from the competition issue. With the ILS, you probably are getting fewer leads too. Why is that? Well, you only are going to have so many people looking for an apartment like yours in a given month. If the people looking for it find your community site via a Google search, then a lot of them are likely to convert into leads, provided they are the right sort of prospect.
On the other hand, with an ILS even the right prospects are still going to be seeing you and a bunch of other properties. So a lead who might be great for your community, might get pulled onto another community's page on that listing service. In other words, you’re losing leads who would rent from you, given the right marketing experience.
But, of course, you cannot really do anything to define that experience for the leads as long as you're using a listing service. Sure, you can pay flat rates on long contracts to increase or decrease your visibility. But you can't create a customized experience built around your community with an ILS.
Hidden Cost 4: Ad spend on Google is wasted.
There is one more point to make with all this: Suppose you’re having a hard time getting the leads you need. The ILS might offer to bump up your package to a “premium” level for a higher price. What will “premium” get you? Well, it will probably get you Google Ads campaigns. But where will those Ads campaigns send people? To the ILS website.
In other words, you can pay more money on top of what you’re already paying to simply give more people the same mediocre experience that everyone else is having. So you’re paying more to get fewer leads than you could on your own site and to get more leads who won’t pay as much in rent.
We looked at four particular hidden costs of working with ILS’s as your primary marketing channel.
First, ILS’s will take away traffic from your own community website.
Second, ILS’s will generally produce leads who pay lower rent rates.
Third, ILS’s will produce fewer leads.
Fourth, ILS’s don’t have a great premium strategy for when you’re in a marketing emergency. The strategy is just “give us more money and we’ll send you more mediocre leads.”
We should be clear on how these issues can add up in the real-world: If you have fewer leads, you have less product demand. Less demand means a lower price. Moreover, if your marketing strategy is producing leads who already don’t pay a high rent rate and now you’re also reducing demand, that will cause the price to drop even more. And those drops can add up!
If you’re a community with 150 units and all your units are renting for $15 less than market rate, you’re missing out on $2,250 every month! Over a full 12 months, that’s $27,000! And this is a relatively modest example--if you have a larger community, some vacancy, and the rent rates are similar or even further beneath market rate, then the losses are greater.
The trouble, of course, is that because ILS’s are “normal” in our industry, most people don’t notice these costs. We’re used to operating at certain occupancy levels, charging certain rent rates, trying to work with a limited number of leads. We don’t know there’s an alternative so we don’t know that what we’re experiencing is normal. And we don’t know that there’s a better way.