By Tami Siewruk
Anyone who has known me, including our long-time Sales and Marketing Magic subscribers, can attest that “leasing with concessions” is practically an expletive in my vocabulary. Choosing whether or not to offer leasing concessions is often not a decision you or a supervisor makes rather it is one that the market dictates due to the fact that other communities made the decision and therefore forcing your community to follow suit.
The whole reason why companies and communities offer leasing concessions or incentives is to gain a competitive advantage, right? So, let me ask you this… if everyone in the market is offering leasing concessions, then where’s the advantage? It only puts us all right back where we started, on a level playing field. We all end up giving away the moon rather than educating our prospects and residents, and playing the never-ending game of one-upsmanship that some of us have been trapped in. Ok, Ok I’ll stay off that soapbox, it just drives me mad! Anyway, leasing concessions are one of those things that work well in theory, but actually create a world of, well, leasing concessions.
If you find your community in a concession situation, as many markets are today, I hope you’ll take the time to consider these factors with an eye for the “big picture”. Believe it or not there is a sensible approach to the issue of offering leasing concessions .
So if you find that apartment occupancy is falling below a profitable level, or you find yourself with more apartment supply than demand, perhaps this common-sense approach will help you as much as it helped me!
Review the Overall Leasing and Marketing Picture
1. Meet with the entire staff, and ask for feedback from everyone on what they feel is happening. (Actually, you should do this regularly anyway, whether you perceive a problem or not. Some of the best and most practical insight comes from your “front line”.)
2. Have your entire staff shopped along with your top three competitors. Use a third party independent company so that you’ll be able to compare the whole apartment shopping experience from your prospects’ perspective, and make adjustments if needed.
3. Meet with the staff again. Review the shopping reports together, make the necessary adjustments, and arrange for one-on-one training where it’s needed. In a few cases, we found that our staff was doing a great job, and our prospect’s experience in shopping our community was great, if not better than our competitors.
4. Review each apartment independently, and consider its pricing carefully. Make any necessary adjustments to the rent based upon the apartment’s strengths, weaknesses, and competition within the marketplace (compare your apartments floorplans to your competitors’ similar floorplans and pricing). In other words you need to do a side-by-side, floorplan-by-floorplan comparison of your apartments versus your competitors’ floorplans. Jennifer Nevitt of Bravo Strategic Marketing created a comprehensive and widely used method for doing exactly this.
5. Walk all of your vacant apartments with a critical eye for weaknesses. Create a training list with tips and techniques for overcoming objections and selling the strengths of each floorplan as compared to the competition.
6. In existing apartment communities, I would also take the “less desirable” locations and floorplans and determine if there is anything within budget that we could do to improve the interiors. I’ve used this technique repeatedly with great success.
7. Create / evaluate the model. We completely upgraded our model with added crown molding, optional paint color, special plumbing fixtures, special lighting fixtures and ceiling fans, closet organizers etc. In other words, we dressed the model up with all of the added options that were available for our residents to choose from. This showed our prospects what they could do with the apartment if they chose to. We priced each option by adding only a 15% mark-up to our cost. Five percent of the mark-up is given to the leasing professional who sells the upgrade, and the additional 10% is administrative income. We call this our “Custom Apartment™. Note: Use plumbing fixtures that are in keeping with the brand in the community so you don’t have seat and “O” ring issues.
8. Photograph the entry of your apartment community and your competitors’, and compare them. Make yours more inviting.
9. Look at your advertising. How does it stack up against your competitors? Do you sound different? What do you offer that they don’t? Are you advertising the floorplan with the highest availability? Are you showing both photos of your apartments, community and lifestyle photos too, or are you showing the same thing as the competition? Keep in mind that it is very difficult to have a good interior shot that actually sells.
10. Have you tried offering an incentive (i.e. a washer/dyer, ceiling fan, or upgraded fixtures). The best incentives are stay with the community long after the resident is gone, and create added value in the long run.
11. Pull your last two weeks worth of guest cards, and call each and every one. Tell the prospect that you’re conducting a third-party audit of the apartment shopping experience, and need to ask them three quick questions. Promise that you won’t take more than a couple of minutes of their time. The questions we ask are: 1. Have you made a decision on where you are going to move, and if so, why did you select that community? (If they say that they’ve chosen your community, communities, thank them, and move on to the next person.)2. Did you visit _________ apartments (your primary competitor), and if so what did you think about the community? Don’t be surprised if you find that who you consider a competitor really isn’t. 3. Is there a specific reason why you’ve decided not to lease there?
12. Have you determined if you have a leasing problem or a marketing /advertising problem?
13. Have you strengthened your resident retention program?
14. You must WORK your renewals. Remember that residents today are not only smarter (the industry has given them a good education) and knowledgeable about market conditions. They see the competitor’s signs. Don’t let them get taken away by an offer that’s too good to be true. In really competitive markets ( I dislike this so much but…) you not only have to give them an education on the cost of moving but you may need to offer them the same concession as people moving in, just to keep them. I have found that an open, honest conversation is the best approach. One last comment on renewals, Have you considered returning security deposits if they have been a resident in excellent standing for 2 or more years, have completed an apartment inspection and renew their lease?
15. You never have truly know whether or not you could have leased-up without concessions if you didn’t try to do it before offering concession if you simply follow suit;
16. Your staff is a powerhouse of product knowledge! If you have followed the approach above they’re more educated than ever before about their product and their competition;
17. Your competitors need to learn that you don’t offer concessions as standard practice, and that when you do, your doing it because they have forced your hand! We all know that price fixing is illegal but if your competitors learn that your company/community doesn’t give concessions as a standard practice ( a crutch for poor leasing and marketing) they just might reconsider and not jump to concessions as a standard practice. Call all your competitors and offer to fax or email you rental rates and concession packages to them weekly in exchange for them doing the same thing.
18. If you have to give something away, ask for something in return. Along with the free rent, ask the resident to sign a paying lease term of either six months or one year. In other words, their free rent period, although covered under the lease, should not be included when the lease term was calculated. For example: with one month free rent, the lease term should be 13 months. This will enable you to get a full year collection of rent without increasing your operating expenses the next year. If you don’t do this, (as you may be aware), your turnover expenses are divided into 11 months instead of 12, so the concession actually costs you more than a months rent.
19. Cover your bases. As even further protection, ask the resident to sign a concession agreement, stating that if their lease is broken for any reason, the entire amount of the concession is due and payable. Where the lease terms and conditions are met, there is no liability.
20. Sometimes it makes sense to spread the concession over the first six months of the lease. I have not used this method, but I have heard of many companies that have used it with great success. I think it’s a great idea, where the market is receptive to it. Because if you decided to offer concessions in order to be competitive, you have to consider that part of your competitive edge involves how and when the concessions are delivered. In some cases you’ll find, the market is the most receptive to a one-time offer; and you’ll find this to be true in many areas where residents view the concession as a welcome means of offsetting moving expenses – but I think the six month idea is a great one if you can pull it off.
21. You really can increase rents even though you are offering concessions. In fact, it’s probably easier to increase rent in some places, where the market is focused on the short-term benefit instead of the long-term effect. This rings especially true when you are offering the better product. I have heard of an apartment community in Dallas that leased 100 plus apartments (70%) in two months by giving away 1.5 months rent. Unfortunately, they didn’t increase the rents while doing it, not to mention that they weren’t under the gun because they didn’t even have the apartments out of construction yet. Don’t miss the opportunity to raise rents when offering concessions, whenever you can do so sensibly.
22. Before you make the decision to offer the market standard for example one-month free on a one-year lease(13 months), and 2 weeks on a 6-month lease. You may want to test using the dollar amount such as I have. For example: Try $500 on a 6-month lease and $1000.00 on a one-year lease (which is less than a half a months rent and a months rent, respectively).
23. Only offer leasing concessions on floorplans with the highest availability. In addition, and this is key, continue to adjust your rents upward as you lease apartments. Remember that in many market conditions people are looking for the short-term benefit instead of the long-term effect.
24. Consider a graduated rent level depending on the date the moves in date. For example: The apartment is ready for move in on April 1, if the resident moves-in the first week it rents for $100. If they move in the second week it would rent for $110. I have never used this approach myself but have heard of several communities doing this with great success.
25. Establish a rotating bonus plan based upon leasing certain apartment types. For example, “All A-1’s leased this week are bonus-ed at $100!” I typically select the apartments that have either been vacant the longest or have the highest availability. Establish team goals with bonus incentives. Any opportunity to foster teamwork is too valuable to pass up!
26. Provide weekly articles of interest that focus on dealing with leasing concessions, over coming objections, closing and follow up. I email our communities a new article every Monday morning. Keep the tone encouraging and motivational.
If you’re caught in the apartment leasing concession trap, or have to give in to it, please take the time to consider the HOW, WHAT, WHEN, and WHY of it all before you follow your competition over the rail of that proverbial bridge! Depending upon your own unique situation, there is an economically sensible approach to offering leasing concessions.