Oliver, a New Apartment-Finding App, Cuts Out the Middlemen
techcrunch.com
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I can call my broker, leave the keys with the doorman (or the broker) and worry about nothing. I never have to be there to show the place (the broker is paid to do that) and I get a more qualified renter because the broker will spend time selecting them (which I otherwise have to do). The broker has shown so many crappy places that they will help the renter see that this is a fair, market value, deal. The best part, the renter pays for everything! And because they are able to shell out two months worth of rent for the broker's fee and deposit I get someone financially more sound and likely less crazy.
Oh and one of our places is a Coop, good luck filling out a 80 page form and going through the coop board interview without a broker! That's a full time job, all the same paperwork as if you're buying a place. My current couple of renters had to supply 12 (twelve) letters of personal reference, 6 each!
Another problem is that the renters "know" about the broker's fee but don't really consider it as part of the rental "price". Psychologically they don't add up those numbers, divide by 12 and say this is my rent. Apartment prices don't vary at all whether you are using a broker or not, at least not in my experience.
Huh, I guess that's why the value-adding broker decided to show my wife and I an apartment that was well over $1k over our budget, in a five-floor walk-up when we told him that due to my wife's knee injury, a walkup of more than 2 floors was a completely and total deal-breaker for us.
Not to sound combative, but I wonder how many potential tenants abandoned your broker by yelling at him on the 4th floor, from the 2nd floor, that we're literally physically incapable of seeing the out-of-budget apartment he was trying to show us, and then walking away.
We bothered trying to go up the stairs because we'd already spent 30 minutes getting to Harlem, and apparently it had a terrace. Classic sunken cost fallacy, compared with greed. Who doesn't want a terrace?
How beneficial is the "exclusive" part? If it's a doorman building so the doorman can hold the keys and give them to any broker who shows up, and you list it so any broker can show it, is that a lot worse for you?
Usually fees in NYC are 15%. The exclusive broker is going to make 7.5% no matter what. If another broker gets in, they might make 7.5%. If you're dealing with an exclusive broker you might be able to get a better deal, maybe 12% instead of 15%, they are more flexible on the price.
If you want an intro to my broker, I am dblock at dblock dot org ;)
People who live in these cities feel like the problem of rental brokers is worse than it actually is.
The big opportunity is to disrupt buy/sell-side brokers. Many, many companies have tried, and yet in 2004 when Zillow, Trulia, Redfin, etc. were getting off the ground, about 90% of people in the US used a broker to sell their home. In 2014, it was still 90%.
The internet has unchanged the position and power of brokers in the US for a variety of reasons - but a big one that all startups miss is the pain of getting accurate data.
In the last decade, the startups that have become ~$1b companies in real estate all support or augment brokers (Zillow, Trulia, Redfin, Costar, Loopnet, etc.) and companies that aim for massive disruption go out of business in a couple years.
Sometimes during a gold rush, you are better off selling pick axes to miners.
Also, founders, please please please stop using the Uber for X nonsense. This app doesn't deliver an apartment to your door and collect payment in a frictionless process. Find new metaphors. If the VCs can't understand your product without calling it the <unicorn_name> for <your_vertical>, then find some VCs that are smarter or figure out what you are actually selling and how to explain it clearly. This product could simply be: "an app that eliminates the real estate broker." Uber for rentals is just dumb. Did the founders graduate from TechStars yesterday and that was how they were coached to talk to the media? Über didn't call themselves the Y for X and Facebook didn't call themselves MySpace for X. That use of other companies to explain your business is just lazy. Still PR rant aside, I hope this app succeeds. I'd love for the majority of residential broker-bottom-feeders to join the buggy whip makers in the unemployment line.
For almost all the smaller buildings in New York (non-professionally managed), which is where you see these middlemen brokers:
* The brokers are given an exclusive by the landlords because the landlords are not professionals and often not in New York City. They don't want to do any work, they want the brokers to do the work of listing the apartment, showing the apartment, and checking the qualifications of the tenant.
* The landlord has to give the broker an exclusive otherwise the broker won't do the work, because the broker needs to get paid.
* Although the broker fee (normally 15% of first year rent) seems expensive and even extortionate to the typical fresh college grad renting their first apartment, the brokers as a whole are not making very much money, because they have to do an awful lot of work to get the exclusives (marketing themselves to landlords, so to speak) and an awful lot of work to coordinate keys, show apartments, etc. It is easy to see this because there is massive turnover in the broker business and almost all of the rental brokers you see in New York charging "extortionate" fees are, for the most part, broke.
* Which is why they seem so slimy: they're kinda desperate.
* A ton of apartments in New York are still under some form of rent control, especially the cheap ones in small buildings that kids want. That means that the maximum rent is set by law. So even if a tenant MIGHT be willing to pay a higher rent if they didn't have to pay the brokerage fee, they can't. The landlord of a $1800 rent stabilized apartment is going to get $1800/month whether they use a broker or not. So for this landlord, the broker is paid for by the tenant, and might as well be free. Considering how much work they do, and how much they charge, zero, it's a great deal for the landlord.
So every time one of these fresh-eyed college grads shows up in New York, decides that the rental brokers are making bank and need to be disintermediated, and writes an App that will Connect the Landlord Directly to the Tenant, no landlords sign up for it. The bottom line is that the brokerage function is not ripe for disruption because, slimy as it seems, there's just not that much money being made.
More formally, if you assign a reasonable hourly wage for a real estate agent, say $25 an hour, then the sum of all agents working each year plus their business expenses exceeds the sum of all commissions collected each year! The lost time is wasted on unqualified tenants, competing over the few qualified tenants, negative ROI marketing (featuring on NYTimes.com or posting bad photos), etc.
If you believe in the net loss theory, then all the startups that always pitch "broker services a la carte" are doomed to fail. That is, brokers offer some bundle of services and a startup tries to unbundle and charge a fair price per line item. That thinking treats brokers as commodities when we can see clearly that great brokers earn 10x a mediocre broker, suggesting there is probably some skill.
I'm just one example, but I sublet from an individual owner in a co-op (in the Village). For giving the unit to a broker (for free, since the broker usually collects on the renter, not the landlord), he didn't have to fly up here from Miami and show the unit, figure out how to run a credit check, schedule my interview with the co-op, have me fill out a pile of forms, etc. Instead, he simply received a copy of the contract, signed and returned.
Point being: NYC has a ~1% vacancy rate, so there's little incentive for things to change on the sell side. Anything that requires a landlord to change their behavior is a tough sell.
A slightly higher rent is washed away in 1 month of not having the place rented out, it's definitely not worth any risk of not being able to rent a place out for a higher rent, so you charge what the market takes right now in a rush.
NYC rents are pretty nutty, but it is still a market, and pricing pressure is still very aggressive in this market. The volume that exists in the market, and the similarities and substitutability of apartments (one walkup is largely like another) all serve to apply more pricing pressure.
When we started RentHop over 6 years ago, we had the same idea. Open table style scheduling for showings, and that brokers were worthless middlemen that should have gone extinct at least a decade ago.
One of the best pieces advice we got during Y Combinator was Paul Graham telling us to go out to NYC and be brokers for a few weeks, if only to confirm a broker adds no value and figure out the easiest parts to automate away. After personally showing apartments nonstop for a month (and losing a lot of weight), we quickly discovered the great brokers are adding lots of value and we completely pivoted the model (the short answer is great rental brokers earn 10x a mediocre broker, so there must be SOME skill involved... in sales the dispersion is 100x or higher).
Of course, that was 7 years back and maybe enough has changed: landlords do more of their own marketing now, smart phones and on-demand apps are even more pervasive, brokerage firms are in more turmoil than before, agents are more tech savvy, etc. Urban Compass tried to pull it off 2 years ago, but they decided to go for the bigger sales market.
I wish Oliver luck, they are technically competitors, but I've always wanted to see online scheduling work for real estate and to date no one has cracked it sufficiently well.
I'd love having new middlemen that do about that same nothing for 20% of the price.
Do people who use a broker ever regret it? Or do the objections stem from other less competitive markets where such a thing would not be as beneficial?
I can't exactly say I regret it because the alternative was settling for a much worse apartment, but I absolutely despise brokers and the current system.
My biggest problem is that whether you take your time and have a broker show you 30 apartments over the course of a month, or whether you find the place on Craigslist and the broker literally opens the door and does nothing else, you pay the same fee of 10 - 15% the annual rent. I've been in the latter category and it's infuriating, you're paying literally thousands of dollars per hour. Why can't you pay this person a reasonable hourly rate for their time?
Another problem though, even if they did charge hourly rates I'm sure those would be unnecessarily high anyway, just because for whatever reason these people need certifications and a certain number of hours training so it takes an investment to become a broker. That's also insane to me, for renting in NYC to someone who's lived in the city for a while, a broker's "knowledge" has absolutely zero value (buying/selling a house might be a little different, but even then I'm skeptical). The only advice a broker has ever given me is trying to convince me that a terrible apartment, which they had obviously been trying and failing to rent for a while, was worth considering.
I'm glad you had a good experience. But the system is completely insane!
Edit: this was in Boston, which tends to have a pretty competitive rental market, and brokers are pretty standard. I had a more positive broker experience when I went with a broker who showed me around to a variety of apartments rather than using one because they had an exclusive on a particular apartment that was interesting.
Apartment hunting in NYC is one of the sleaziest businesses out there. The brokers make bankers look clean. I applaud any effort to cut them out of the system.
In other markets with more available inventory and less renters, the fee is usually paid by the landlord. I have been on both sides of this equation in different markets and paid both ways and in each case found the service worthwhile.
Occasionally the landlord pays the fee (for example, sometimes a former tenant will agree to pay a full or half fee in exchange for breaking out of the lease or a landlord will pay during the slow season), but it's a minority. Among my friends, it's certainly more common to end up paying a broker fee than to have the landlord pay it (personally I've had it happen to me both ways.)
When I moved to NYC I ended up using a broker. We saw like 12 apartments in 2 afternoons. I liked one and had it by the end of the week. As it happened, before it was generally advertised and while it was still being renovated.
This was a HUGE time saving. And this right here is the key thing. How much is your time worth?
I've lived in other cities where apartment hunting is typically direct (either to the owner or, more commonly, to the owner's management company). In certain areas and at certain times an apartment showing might have 50 people show up, 20 of whom put in an application.
This is an incredible waste of everybody's time. Companies need to vet more applications (or just arbitrarily pick some to scrutinize, discarding the rest). Apartment hunters need to go to more viewings and fill out more applications.
A good broker should be able to find you an apartment relatively quickly and, as it happens in NYC at least, for a good price. If not, they're not doing their job.
There are also buildings in NYC that are all rental and fit the model of complexes in other cities where there is a management company that manages all of them. You can simply inquire as to availability (or even find it on a website).
The problem in NYC at least is that there's a lot of pokey apartments that don't fit this model (mine was in a walkup of ~15 apartments over 5 floors).
I got a good deal on my apartment and amortized over the time I was there, had I paid for the broker (I didn't), it would've been a good deal.
Many services exist that allow you to trade your money for your time. Brokers are one of them.
It turned out, the broker was working for the apartment owner, not for me. Once I had signed paperwork, I discovered that the renovations were done: the apartment was going to be as I had seen it, not as it was promised to me by the broker. No stainless steel appliances, no reflooring in the kitchen. I had read the lease carefully and thought of this possibility, but I thought, like you, that the broker was working for me.
As is, the incentives don't encourage brokers to work for renters: their only incentive is to place as many people in as little time as possible. Next time I shop for an apartment I'll do so with a real estate lawyer on call. If you have to have a lawyer to make sure someone provides service properly, maybe they aren't really providing you a service.
Having done both, I saw very little value added when I went through a broker.
Anecdotally, when I moved to Cambridge many years ago, I managed to see a good number of rooms in one day, so I don't really see any time saving, except for the broker organizing it for you a bit.
But brokers and realtors have conditioned the public into believing that a 3% or 10% commission on the transaction is "reasonable". Which is certainly not when you are buying a million dollar property or renting for $5k/month. Also, when realtors are making more in commissions than doctors are in salary, you can be sure the market is distorted, and ripe for innovation.
I'm looking to move to NYC soon and I all I see are $1500 broker fees the tenant has to pay. Its pretty insane.
Here in Aus at least, we deal with Real Estate Agents, who act as a middleman between the owner of the property and the tenant. They handle pretty much everything (inspections, repairs, collecting rent, marketing etc) so the owner just receives money (for a commission of course).
Is this the same in the US? Where would a broker fit into all of this.
Landlords own the building. They may do everything themselves but often they hire the other three to help them out.
Supers (short for superintendents) often live in the building and are responsible for repairs and general upkeep of the property.
Property managers deal with the tenants: marketing, hiring brokers, approving/rejecting tenants, getting the paperwork signed, accepting rent.
Brokers are like job recruiters: they have access to more listings than you do as an individual and sometimes have exclusive agreements with individual properties. Their involvement ends once the rental agreement is signed.
In NYC most apartments are only available by going through a broker and the broker usually charges 1.5 months rent* (15% of the annual rent, though often this can be negotiated to 12%). This fee is owed even if you found the apartment listing yourself and all the broker did was spend 10 minutes showing you the place before you rented it!
*Edit: to clarify, the tenant is the one who pays this fee
I think they literally just look through rental listings for you then tell you which one you should look at, then you go to the Real Estate Agent as usual to rent it? Seems a bit ridiculous if so.
Yes, there are databases, and yes she looks through them. But good units get snatched up so fast that by the time someone has taken photos and written it up in the database and syndicated it out to all the firms, it's already gone.
The people who benefit most are those working with very difficult constraints. Imagine you are searching for a Studio apartment and can only afford $1,500 a month but the average rent in the area you are seeking is $2,200. Somewhere, there might be a $1,500 listing but it's going to go fast. If you have a broker you might have a shred of chance of 1.) even knowing about it 2.) getting access to the apartment the minute it's vacant 3.) getting a cash deposit submitted and 4.) passing all the landlord's test -- multitudinous because for every one person who barely has the credit to afford $1,500, there's 5 who can afford twice that standing in line behind them.
Landlords are also king here because of how skewed the market is and therefore will do little to no work as part of the process. Getting photos, getting keys and access, it's an absurd runaround, hugely time consuming and barely worth the 15% (of annual rent), only half of which the agent receives.
When Urban Compass launched in 2013 I thought they'd have the best chances not because the idea was any different, but because they were able to raise an $8 million seed and the founder had already sold businesses to Google and Twitter (they've raised $73 million so far). I just took a look at them now and it seems they're focusing more heavily on home sales as I'd guess the data platform can make more money in that market. They still do rentals, but definitely not exclusively.
I'm overgeneralizing, but if you're selling a home and you're not wealthy, you are terrified to make a mistake that could wipe out a big chunk of your net worth if you screw up the sale, so you use a broker. If you're wealthy, you don't care about the 6% fee, and luxury brokers have already sold you on the value proposition of extra marketing and hand-holding from the days when you weren't as well off and buying your first home.
(Assuming, of course, that they're not planning on publishing their data for the public good.)