How to price your Airbnb
A data-driven approach to finding the best price for your unique listing
As Airbnb hosts, only we know all the little details in our listings that make them superb places to stay. Those things that cannot be captured in a description, such as the view at sunset, or how tastefully you’ve decorated the space, should be taken into consideration when finding the right price, however many automatic pricing tools (including AirBnB’s own) only take into account the numbers of your listing, such as the location and number of bedrooms.
This leaves Airbnb hosts to price their listing by themselves, with very limited insight into how the main factors may contribute to what the price should be. In this article, we hope to share some of this insight, by breaking down the factors that influence the list price. We take a data-driven approach, based on current data for the Airbnb market in Seattle, WA. By relying on this data, we uncover both those factors that you probably already know have a large impact on price, as well as those that may be less clear. Furthermore, we are able to understand the key statistics on how impactful certain features are. For example, we all know that increasing the number of accommodates in your listing can increase the price, but by how much? Will doubling the accommodation size double the expected price, or is the truth a little more nuanced?
In this article, we present the results of a data analysis study applied to this exact problem, in a way that you don’t need to have a data science degree to understand. By the end of this article, you will walk away with key data-driven insights that make you a more informed host when pricing your listing.
Why not just use the Airbnb smart pricing tool?
The long and the short of it is that the tool simply sets your price too low. To gain some insight into the host thought process, a study by the Copenhagen Business School (Nunes et. al 2019) interviewed a collection of approximately 90 Airbnb hosts about the smart pricing tool and recorded their responses. The prevailing view among hosts is that the tool sets prices too low and that it does not work in the hosts favor. However, hosts acknowledged that the tool provides them with a reference to set a price and acts as a good “inspiration” or “starting point.” The paper suspects that the tool provides low prices because Airbnb profits from bulk transactions (higher occupancy rates), which is more likely when prices are low. But a high turnover rate of guests is more work for the host. However, the paper does not dig further into this hypothesis.
So now that we’ve seen that we’re leaving money on the table when using the Airbnb smart pricing tool, now let’s examine how we can best set our own price based on our unique listings.
Where can I start?
In order to get a rough estimation of what your current place could be worth on Airbnb, we recommend starting with Airbnb’s estimated income calculator (Note: this is different from the smart pricing tool we mentioned above.) It can be found at https://www.airbnb.com/host/homes. Using the number of accommodates and the city location of your home, it generates a rough estimate of the monthly income. According to alltherooms.com, the average airbnb occupancy rate for Seattle is 46%. This means that in order to get your nightly price, you can then divide their monthly income estimate by 14. This will give you a reliable starting point, that we can tune based on the nuances of your airbnb. For example, if the suggested monthly income for your property is $2400/month, a good place to start is $200 per night.
In this analysis, we use Sept 2021 Airbnb data from Seattle WA, sourced from insideairbnb.com.
The Airbnb Seattle dataset analyzed consisted of two parts: 1. Listings and their details 2. Reviews for each listing.
If we treat the number of reviews as a rough estimation of the number of Airbnb bookings and demand for Airbnbs, we can plot the number of Airbnb reviews and when they were posted to get a sense of how demand for Airbnbs has changed over time. In the plot below, we see the demand for Airbnbs in Seattle has been steadily growing over the past several years. There was a dip toward the beginning of 2020, presumably due to COVID, but demand for Airbnbs has been quickly on the rise again, continuing the pre-COVID growth trend. So the demand for Seattle Airbnbs is higher than ever and may continue to grow. The red line represents the date our data was scraped.
What types of properties are there, and which draw the highest rent?
The first step is owning a property that guests can stay in. Naturally, luxurious properties like villas and hotels are associated with higher prices. All factors held constant, villas tend to be priced $165 more than comparable listings in apartments, likely due to the addition of privacy and yard space.
If you haven’t purchased a property yet, then consider a unique property type like a treehouse or boat, which are associated with price boosts of approximately $112 and $50 respectively, all factors held equal. Guests will pay high prices for the experience of staying someplace they’re not normally able to! Seattle is located on the water and has numerous marinas to keep a sailboat.
If weird properties are not your thing, then no worries! The most common Airbnb property types in Seattle are residential homes and rental units, so you don’t need to rely on a unique property type to draw in guests. You can even keep the house for yourself and let guests stay in a guest suite or a guest house.
How important is location in determining the nightly price?
Location plays an important role for boosting the property value and attracting more guests. Cascade, Downtown, and Queen Anne are the most expensive areas in Seattle. These locations are very pricey to reside in due to walkability to many businesses, restaurants, bars, and other tourist activities. The graph below shows the location of listings in Seattle.
Also, while purchasing a property keep in mind that distance from downtown is another key factor that influences the Airbnb price. Since Downtown Seattle is the hub of economic, professional activities, and many attractions, properties closer to Downtown tend to be pricier. For 1 km additional distance from Downtown, the price of listing decreases around $4.
If your listing is in an area with high demand, such as the Downtown, Queen Anne and Cascade then you can maximize your return on investment. These high demand areas can drive price increases of around $30 more per night for comparable listings, compared to the rest of Seattle.
How about property capacity and its effect on determining the listing price?
Another important factor that influences Airbnb listing price is the property capacity. Accommodates, Bedrooms and bathrooms are most highly valued, so the more beds and baths the property, the more the listing is generally worth. An additional bedroom and bathroom are associated with a higher price of $20 and $36 respectively while keeping other factors constant. So keep in mind; that extra reading room may be great when it’s just you staying there, but many guests are traveling with larger groups and could use the extra space.
Okay. Now that we have the right place to rent, let’s work on how we can make the most of it.
What can I do to increase the nightly price of my current listing?
Certain guests require certain sets of amenities. While they may not seem important to you, certain amenities make the difference between your listing being booked or not. Even still, these amenities can be the difference for guests who are on the fence between multiple places.
Air conditioning, hair dryers, and hot tubs are all amenities that can be added to many existing Airbnb’s, and they have significant price increases when controlling for other variables. Even if they are things that you don’t need, others often prefer them when on vacation.
Allowing pets in your Airbnb is shown to bring in an additional $15 per night. However, it must be considered that allowing pets can cause the space to get dirtier, and can cause additional wear and tear on furniture.
Beyond these amenities, some of the most important ways to draw in more income are things that you can do as a host free of charge.
How to increase your list price (and reviews) for free
One of the surprising discoveries in this dataset is the impact that small, personal touches have on the nightly price. By delivering constant, friendly communication, you deliver a personal touch which is one of the best parts about renting an Airbnb. This personal touch contributes to the entire experience in such a way that it can have significant monetary value, just like a phenomenal view might. For example, sending a message to check in after the first night is a great way to let the guests know you care about their experience. By simply greeting the guest at the door, you can increase the expected nightly price of your AirBnB by over $15. The effects of these touches are felt later as guests who receive these levels of treatment deliver top-notch reviews, driving even more traffic (and income) to your listing.
“By simply greeting the guest at the door, you can increase the expected nightly price of your AirBnB by over $15.”
While we’re on the subject of reviews, let’s also touch on what information we can learn from analyzing the entire set of reviews for Seattle listings. Coming into this analysis, we had the hypothesis that hosts which communicated directly with their guests would drive more favorable reviews. How do we know which hosts communicate with their guests? We use the construct that guests who got to know their host are more likely to personally mention or thank that host in their review. In order to analyze this, we compared the sentiment of reviews that mention the host by name with those that do not, finding that reviews which mention the host are 15% more positive. In addition, we see that 40% of reviews mention the host by name, suggesting that communication can be a major driver of reviews. One of the best things you can do to drive reviews, therefore, is to communicate with your guest throughout their stay, then to reach out to them and ask for a review at the end.
In these reviews, we can learn what people like and dislike (and apply these learnings to our own listings.) The comments most commonly associated with positive review are:
- Friendly Host
- Clean Space
- Walking Distance to Attractions
- Stocked Kitchen
Conversely, the comments most associated with negative reviews are:
- Inaccurate listing
- Hidden Fees
Based on this, we know not to skimp on the cleaning and communication.
Seattle is a great place to host an Airbnb! Seattle is an attractive city to tourists and businesspeople alike, and its vibrant culture set against the backdrop of the Cascade mountains and Puget Sound make this a great place to live. We hope that by facilitating information for hosts, we allow individuals to share their slice of Seattle with guests while delivering a great experience and making a living for themselves.
The key takeaways from this article are as follows:
- By independently pricing your Airbnb, you can drive higher monthly income than Airbnb’s smart pricing tool
- When pricing your listing, the key factors such as location and number of bedrooms are important to consider, and can give boosts of up to $50 per night combined when considered appropriately
- Low-cost amenities such as hair dryers and allowing pets are great ways to appeal to more guests
- No-cost touches such as greeting the guest and checking in on them are incredibly important in driving positive reviews, which can increase occupancy and monthly income
We hope that this article has been useful to you!
Special thanks to my coauthors on this project: Sahar Osman, Sulliman Osman, and Joshua Swanson, as well as our mentors Mike Merrill, Jina Suh, and Prof. Tim Althoff.