Can Tech Tools Make Apartment-Hunting in New York Affordable?
Moving to Manhattan? Here's a listing for a three-bedroom apartment in a doorman building in the East Village, offering 900 square feet for the low price of $3,384. It would be a steal, if only the houndstooth rug and surfboard art shown in the photos didn’t so closely resemble the décor seen in this listing for a one-bedroom across the river in Brooklyn.
This kind of thing is old hat in the hectic world of New York real estate, where demand outpaces the supply of units and where rental agents outnumber would-be clients—but a new crop of tech startups here aims to ease such apartment-hunting pains.
In the all-too-common scheme, a broker's first move is to publish a fictitious listing that seems (and is) too good to be true. The next is to inform the earnest nest-seeker that the (fake) listed apartment has just been rented and offer a guided tour of apartments that are smaller, or more expensive, and farther-flung.
“That’s the way the rental brokerages operate,” said Ori Goldman, a cofounder at Loftey, a year-old startup that promises to save renters money when they move. The tactic, Goldman said, is commonplace in a city where about 30,000 brokers—many part-time—compete to help renters sign about 5,000 or so leases every month. “The only way they know how to get clients is to bait and switch.”
Obnoxious as it may be, sorting through fake listings is only the beginning of the ordeal for renters, who often parade through other people’s apartments at odd times of day in a high-pressure race against their own expiring leases. At the hunt's end comes one last indignity: paying the broker, who in New York typically collects 15 percent of the annual rent on the apartment. That works out to an average broker fee of $5,600, according to Julia Ramsey, chief executive officer at Joinery, another startup tackling apartment-hunting pains.
“There are a couple ways that renters are getting screwed,” Ramsey said. “The sheer amount you’re paying a broker is probably the biggest one.”
Even traditional brokers say the process could be more efficient. Eric Benaim, chief executive at Modern Spaces, lamented the bait-and-switch listings, which he blamed on small-time players. Agents, he added, do lots of extra legwork showing apartments to renters who are working with more than one brokerage. "The average rental tenant isn't particularly loyal," he said.
Ramsey co-founded Joinery last year with Vianney Brandicourt, her former colleague at Google, to apply some sharing-economy idealism to ease the broker-fee burden. The idea is to give tenants tech tools to help them find their own replacements: When they're getting ready to move out, they post a listing for their apartment to Joinery's website, where apartment-hunters can view listings, schedule viewings, and fill out applications. When the process works, the first tenant collects a fee that's capped at 5 percent; Joinery takes a smaller cut. The landlord gets a vetted tenant, and the new renter saves thousands in fees.
To a large extent, the phenomenon the company is attacking is unique to New York, where two out of three households rents. (By comparison, even though the U.S. homeownership rate has sunk to a 50-year low, more than 60 percent of households live in homes they own.) In New York, high demand for rentals lets landlords subject tenants to extra expense and inconvenience without worrying they won’t be able to fill their units. As long as rents are rising, landlords have proven willing to let brokers capture commissions that might otherwise go to further rent hikes.
Those conditions have made New York fertile ground for startups trying to upend the rental industry. (There are also rental startups with national ambitions, including Apartment List, RadPad, and Zumper; they tend to be focused on publishing listings and processing digital payments.) In addition to Joinery, companies such as Flip and Padspin offer platforms to help renters cut brokers out as the middlemen in rental transactions.
Goldman, for his part, is betting that what New York's rental market really needs is an additional layer of intermediation between tenants and landlords. Renters who like a listing send it to Loftey, which serves as go-between with the landlord or listing broker. Loftey collects a piece of the commission, then passes on savings to renters by negotiating rent discounts or covering moving costs. The company, which launched last spring, is expanding from eight to 12 rental agents, Goldman said.
While Goldman complains about the fake listings he finds on rental sites, he says the commission system isn't as bad as it seems, because broker fees are a one-time charge. If more landlords eliminated fees and instead raised rents, tenants could wind up paying more. "That would be horrible for tenants and very good for landlords," he said.