Give Me $3000 to List Your Apartment on Craigslist
An unnecessary job is finally going away and saving lots of people money in the meantime.
Realtors are losing. And it’s about time.
For the better part of a century rental brokers have been the nodes of the rental market, acting as gatekeepers and match makers. The pricing model for this service was completely nonsensical, incredibly expensive for both parties involved, and allowed anyone with a couple of months to get a license to operate. Prospective renters had to sign an agreement committing them to a standard fee of one month’s rent if they ever found a way into a listed apartment on their own. There is a terrible amount of overhead in this system, and the market gets distorted because of a lack of information sharing.
Who is winning? Craigslist. For any unit owner willing to put forth a small amount of work, they can save either themselves or the renter a huge amount of money. Craigslist adds value through providing the network and allowing the owner to become the gatekeeper. Listings are transparent without a middle man and are accessible to an entire community, not just individuals who happened to seek out a specific real estate agent. This creates greater traffic and a larger number of possible options for the owner.
The takeover has already happened in some places like the San Francisco Bay Area. While realtors exist in these cities, we’ve seen Craigslist eating its way from the bottom up, first taking out the low end and then now being used for all levels of rental prices. In other cities like Boston, where the realtor industry has deeper roots, progress is slower, but still steady.
It only makes sense that one day the entire industry of rental brokers will cease to exist. Many brokers in places like Boston are simply collecting their fee and listing the apartment on Craigslist anyway. If they are charging $3000 for this service, it’s highly unlikely that any owner or renter will tolerate this for long. In fact, this was the number one criterion for me when I moved to Boston for school: no realtor fees – on principle.
Craigslist has done a good job of keeping it simple and cheap, and that’s why they are winning. But there are risks. Craigslist added value by replacing the rental broker as the network node, but it never replaced the paperwork and “filter” elements of the broker’s job. If owners of properties get flooded with requests from individuals they’d prefer not to rent from (i.e. college students, low credit scores, etc.) they could get frustrated and pay a nominal fee for these services, and thereby reduce the draw to Craigslist. Either way it is likely that a digital service that offers these capabilities will charge far less than what a rental broker typical charges, and the broker market will continue to suffer.
I’m happy to say that a bloated, inefficient, and often frustrating industry is inevitably coming to an end. My experiences with renting an apartment through brokers have been miserable, and that was before I signed a multi-thousand dollar check that I was obliged to give them no matter how good their service was. We’ll see fairer market prices because brokers will not be incentivized to under-price a unit to make their commission faster (i.e. a broker can have a faster turnover rate, and rent more units, if they rent the same apartment for $2500 instead of $3000). Information asymmetry will be reduced, and the rental market will be able to function better for everyone involved.
Student comments on Give Me $3000 to List Your Apartment on Craigslist
I definitely agree that Craigslist has been a powerful force in the disintermediation of the rental market, and am also happy that more transparency and fairer prices are on the way. Brokers may be losing, but I’m not sure that Craigslist will be the ultimate winner.
Brokers are probably feeling some pain as they lose customers who used to pay for the listing service. However, I would argue that listing is only one small portion of the value that brokers currently create. In addition to the “filtering” that you mention in the post, brokers also go through the hassle of showing the owner’s apartment to a big number of potential renters. This takes time and effort. They also perform services like background checks and deposits collections. Craigslist doesn’t replace those functions, but is simply an open forum. That’s why it effectively takes over the bottom parts of the renting value chain. But because Craigslist isn’t specialized in the rental market, it’s unlikely that the platform will keep pushing brokers out.
Craigslist also doesn’t capture any of the value it creates for renters. (In fact, Craigslist has also become a channel for those very same brokers to publicize their inventory to a huge number of prospective renters). There’s no commission or listing fee charged to the brokers or owners who are seeking renters. However, Craigstlist has paved the way for companies like Zillow, who do monetize their userbase, and who are capturing value from the rental market, to change the broker industry. If I were to pick an ultimate winner (aside from renters like us who won’t get as ripped off), I’d pick Zillow and other specialized, for-profit digital real estate platforms.
Great post and interesting market.
Definitely agree, the death of the brokers has been foretold for long, but somehow they have managed to survive through the internet revolution. I think that the information exchange that they provide is something that will continue to be in demand for some more time.
I agree that to some extent rental brokers have now a harder time proving to people their true value, but don’t be fooled, I think brokers are here to stay. Mainly I see them remaining relevant in two aspects: 1) Relocations: Brokers add value in clustered markets where the client is not paying for a the broker’s fee and they need to find a place quickly (think of your visiting professors, company relocations, etc) 2) They provide invaluable value to the people hiring them in the first place, as a house owner wanting to look for a renter I have great incentives to list through a broker, eventhough I might get less exposure to my listing, I wont waste my time with disqualified applicants if a broker can filter them for me, also, I only need to find one tenant so in that send “the more the merrier” doesnt really apply, combine that to the fact that I (as a landlord) am not paying for the broker’s fee and BOOM! there you have it, the reason why these guys are still around.