HomeAway’s new fee has homeowners, renters angry

Published 12:36 pm Friday, June 3, 2016

HomeAway.com, the online vacation rental site that dominates the market, has riled customers who say the company has engaged in fraud and deceptive marketing tactics, which have made the getaways of their renters more expensive.

At issue is a new “service fee” that HomeAway imposed in February on renters who book through the company’s site. The move has infuriated property owners, some of whom pay HomeAway thousands of dollars each year to list on the site. They say HomeAway, which owns VRBO.com and VacationRentals.com, is “double dipping,” using its near monopoly power to gouge renters with excessive fees.

“I was blindsided by the fees,” says Ivan Arnold, a Los Angeles-based investor who lists five homes on VRBO.com. Arnold is the lead plaintiff is a class-action lawsuit filed against HomeAway in March, claiming fraud and breach of contract. “It’s had a devastating effect on inquiries and bookings. We already pay them to list; they shouldn’t go after our renters as well.”

Arnold paid $1,848 as a subscription fee to list just one of his properties on the site for 12 months, court documents show.

The booking fees came after a change in ownership late last year when travel giant Expedia bought HomeAway for $3.9 billion, using the acquisition to position itself to compete more aggressively with Airbnb, another short-term lodging website.

The new owner added the booking charge, levied on all renters of HomeAway sites. The fee is 5 to 9 percent of the rental cost and can pile hundreds of dollars onto the price of a vacation rental. Renters have balked.

By April, the backlash over the fees had hit HomeAway headquarters in Austin. Tom Hale, chief operating officer, left the company after slightly more than a year in the job. He had become the public face of change, and homeowners had focused their anger on him.

“We appreciate his contributions over the years,” a company spokesman said, declining to comment further on his departure.

HomeAway vigorously defends the fees and says most of the money will go to marketing, says Jordan Hoefar, corporate communications manager for HomeAway. He adds that booking on HomeAway’s system is safe and secure and should give travelers peace of mind.

“Our book-with-confidence guarantee protects travelers against fraud, double bookings,” Hoefar says. “We guarantee the vacation experience.”

Controlling the process

Its critics see something else in the change: a troubling trend at HomeAway as it seeks to limit owner-renter interaction in order to control the entire rental process.

“I have seen a dramatic drop-off in bookings,” says Larry Grossmann, a Missouri investor who owns four condos in Gulf Shores, Ala. “Renters are angry with the fees.”

In recent years, two basic revenue models for short-term rental companies have emerged. HomeAway’s rival, Airbnb, allows the homeowner to list a property for free. In exchange, Airbnb controls the booking process and does not permit the homeowner and prospective renter to communicate outside Airbnb until the payment is made. Airbnb takes a percentage of the rental (between 6 and 12 percent) and distributes the rental proceeds to the homeowner once the tenant checks in.

HomeAway’s model has always been the opposite. Homeowners pay a listing fee and the service has been free to renters, who contact the owners directly. They then agree to a price and can either make the transaction among themselves or use HomeAway’s online booking service. This approach allowed homeowners and renters to get to know each other before committing to rent.

“We like to talk to the 1/8prospective3/8 tenants before we rent,” says Eric Karla, owner of a cabin at Sonora Pass near Yosemite, Calif. “We can vet them. We like to know who is going to be staying in our places. We cannot do that with Airbnb.”

The original HomeAway model worked well — really well. Homeowners could find tenants at a fraction of what property managers or Realtors charged, and they controlled the whole rental process. It was similar to a nicely designed classified ad site. You post your house, someone sees it, contacts you, rents the house. Clean, simple, profitable for all.

(Full disclosure: I list a property on VRBO and have always been happy with the results. I’ve yet to see a large drop in bookings, though this is not my rental season. I do not use HomeAway’s online payment system and am not a party to the lawsuit.)

By 2014, HomeAway’s revenue had grown to almost $500 million. Along the way, the company acquired more than 20 competitors around the globe and now lists more than 1.2 million homes worldwide. More than 800,000 of these properties use HomeAway’s booking service, according to the company.

While HomeAway and Airbnb dominate the short-term rental business, HomeAway has traditionally been much stronger in vacation rentals. Airbnb typically has attracted shorter term urban dwellers. The two companies increasingly are encroaching on each other’s turf, but HomeAway still is considered much stronger in the family rental business.

“I get so many more inquiries from VRBO than Airbnb, “ says Grossmann, who lists on both sites. “It’s not even close.”

‘They were deceiving us’

HomeAway’s dominant market position and steady cash flow caught the eye of Expedia. It, too, has grown through aggressive acquisitions, gobbling up Orbitz and Travelocity, among other rivals.

HomeAway declined to comment on the pending litigation, but a company spokesman, Adam Annen, said that discussions about the new fee were in the works “months and months before the Expedia acquisition.”

That comment really rankles Arnold. As recently as November 2014, HomeAway CEO Brian Sharples told shareholders that HomeAway was “going to be free to travelers.” He then pointed out that TripAdvisor and Airbnb have “chosen to charge big fees to travelers. We’re letting everyone know when you come to our platform, you don’t pay a fee.”

“A little more than a year after saying this, they started charging fees,” Arnold says. “They were deceiving us. I would never have renewed my listing agreement if I had known about these fees.”

Property owners are not required to use HomeAway’s booking system, so they can steer their renters away from the service fee. But HomeAway seems to be strong-arming property owners into using its booking system.

A property owner’s listing position is critical to successful renting. The higher your listing position, the more inquiries and bookings you get. High listing is prime beachfront in this business. When an owner declines to use HomeAway’s booking system, his listing drops in position. This is a not-so-subtle way of forcing owners — and their renters — to adopt HomeAway’s payment system. Owners who use HomeAway’s online booking system pay $349 a year to list — and those who don’t will pay $499 under a new pricing structure that takes effect in July.

“I only use Home Away’s booking system because I need the good placement listing,” Karla says. “If I get repeat renters, I will have them pay me directly so they can avoid the fee.”

But Karla does not expect that to last.

“I’m certain that VRBO will remove our contact info shortly from our listings. If a potential guest is aware they can avoid a $499 fee by making a phone call to you and arranging a check payment or PayPal, they will do it,” he said. “The word is getting out there, and I really can’t imagine how HomeAway can avoid going to the same platform as Airbnb to ensure they get their fee.”

It’s easy to see why HomeAway would want to include the service fee. Last year, the company recorded about $14 billion in transactions. Five percent of that is real money and would more than double its annual revenue.

Patty Craver of Bethesda, Md., has used VRBO for a number of family vacations.

“I think it’s unfair for VRBO to charge owners and renters,” she says. “The fee would be a factor in my decision to use them, but if I found the perfect property I would probably still rent it. Fees are everywhere these days.”

Most homeowners — given HomeAway’s market dominance — have little choice but to stay with the company.

“I am investigating other options, but I am not going anywhere,” Grossmann says. HomeAway “is still the number one source of revenue, even with the drop-off.”

Still, others, like, Arnold, have vowed not to do business with HomeAway again. In fact, he has put two homes in Palm Springs up for sale. He believes the new fee structure will destroy the rental business.

“VRBO was such a great site, “ he says. “They made money, we — their customers — made money, renters were happy. That’s all over.”