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Automatic Pricing for Vacation Rentals: Does it Work?

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One of the most challenging aspects of effectively running a rental property is understanding how to price it. When the price is right, your rental is much more likely to get booked and generate more revenue — the ultimate goal of investing in a rental property. You’d think that having one standard nightly rate would work just fine, but this couldn’t be further from the truth. 

Things to Consider When Setting Rental Prices

There are tons of factors to take into consideration when pricing vacation rentals. Things like long-term vs short-term rental properties, the neighborhood, high season vs low season, and local events happening at the time should be factored into the pricing model. Saying that pricing your unit is a mind-boggling endeavor is an understatement. If you choose to do it on your own, setting nightly rates is a job in itself. 

Luckily, there’s a solution. More and more property owners and rental property managers are turning to automatic pricing to set their nightly rates. There’s no question that automatic pricing tools for setting nightly, weekly, and monthly rates on listing sites comes in handy. But the real question is, does it work?

  

Common Mistakes Made When Pricing Vacation Rentals

Before determining if automatic rental pricing will work for you, it’s important to understand the common pricing mistakes when setting your rental rates. If these are mistakes that you have been known to make, automatic pricing might be able to help you. 

Here are 5 of the most common mistakes when it comes to pricing your rental property on your own:

  1. Valuing the property based on personal opinion
  2. Comparing your rental to the wrong properties
  3. Focusing on short-term rental goals and not the long-term ones
  4. Failure to use a dynamic pricing model (one that changes based on what renters are willing to pay)
  5. Straying away from your specific property market value

The best way to avoid these mistakes is to understand that pricing your property is a balancing act. In other words, you should set the price as high as possible without running the risk of turning off your potential guests. You need to find that balance, that sweet spot when it comes to your property’s nightly rate. 

 

How Automatic Pricing Works

There are a variety of automated pricing tools on the market, all generally working in the same way. Take Airbnb’s pricing tool as an example. USA Today says that “the concept is simple — take into account market conditions such as season and availability of other Airbnb rentals in the area along with other factors in order to determine pricing…”

To put things simply, an automatic pricing tool does all of the work in setting your nightly rates by considering all of the important factors to create the ideal rate. It does this by using a series of algorithms to take into account things like time of year, special events in the area, and price comparisons to properties similar to yours.

 

The Benefits of Using an Automatic Pricing System

No matter if you’re renting out your Airbnb beach property or managing hundreds of rentals in Florida, an automatic pricing system will determine the best possible price for your rental at that specific time. Airbnb, VRBO, or home sharing — it doesn’t matter; with automatic pricing, you know that your rental is set to the optimal price. 

With the right price, your property is much more likely to stay booked and keep a high occupancy rate, but this is not the only perk. When you invest in an automated system, you’ll save loads of time. You won’t have to constantly log into the property listing site to set each week’s prices. This can actually be very time consuming when done on your own, so you’re better off leaving it to the robots.

 

Are There Any Disadvantages to Automatic Pricing?

The main disadvantage of using an automated pricing system is that the nightly rate might be lower than you would set yourself, perhaps even significantly lower. It’s important to remember that there’s a reason for this lower rate. Sure, you won’t be getting as much per night, but the automated pricing tool chooses the price based on the best overall outcome. 

Let’s put it in terms of solid numbers to give a clearer picture. Imagine that an automated pricing tool sets the rate at $70 per night during a slow month. You yourself would set it at $100, but with a lower rate, the rental is more likely to stay booked and keep a higher occupancy rate overall. With a rate of $70 a night, your rental stays busy with 85% occupancy. At $100, the occupancy is only 50%. 

When you do the math, you’ll be getting about $1,750 per month with the $70 rate and only $1,500 when the rate is set at $100. The automatic pricer thinks about the best rate that will keep your place booked, but it’s not necessarily the price you would like to see. 

 

What’s the Final Verdict on Automatic Pricing? Does it Work?

If you’re still on the fence about whether to automate pricing or not, it’s time to make a decision. Automatic pricing for vacation rental properties is 100% a good idea, and yes, it does work. 

Try to let go of the fact that the nightly rate might not be what you were hoping for. Of course, there is a point where a rate is just too low and not even worth a booking. To avoid extremely low rates from being set by the automated system, you can use a price baseline to set a base value for your property. 

It might be hard to admit that a computer can do the job better than you, but it is often the case for setting vacation rental prices. As long as you choose a proper automated pricing system for your specific type of vacation rental, the optimal price will always be set to keep it booked — and keep the rental income rolling in. 

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