Auctions are coming to rental markets. That’s good news for landlords, but bad news for apartment hunters in America’s most expensive cities.
Around the country, rental prices are reaching dizzying new heights. ApartmentList reports that the median rent for a 2-bedroom apartment in San Francisco and New York hit $4,500 in April—more than 100% of the median monthly household income in the US. Housing experts recommend families spend no more than 25% of their income on housing, but residents of expensive locales often don’t have a choice. And while buying a home is one way of escaping the relentless pace of rent increases, renters priced out of purchasing are generally left with a shorter, pricier supply of apartments, which has sparked desperate bidding wars in cities such as New York, San Francisco, and Los Angeles. Middle-class families are often beat out by bidders willing to pay above-ask prices, in cash, months in advance.
All good things for landlords, which is why many are turning to auctions as tool for the rental market, too. Launched to the public this week, San Francisco, California-based Rentberry is already offering rental auction services. Founder and CEO Alex Lubinsky says his site simply streamlines a process that is already common offline. “We spoke to hundreds of landlords and tenants across the USA,” he wrote via email. “Bidding is happening already.” The site is currently available to renters and landlords in New York, San Francisco, Boston, Chicago, Austin, and Los Angeles.
Theoretically, rental auctions should make rental markets more efficient, and transparent, by allowing bidders to submit bids and to compete directly. Rentberry renters can submit multiple bids (all visible to other prospective renters) and landlords are able to choose any tenant, not just the highest bidder. The site, free to use, also eschews pricey application fees in favor of a clean $25 charge once a rental agreement is signed. Credit checks and background checks are free.
But in tight markets, that “efficiency” comes at a cost—literally. Lubinsky says landlords using Rentberry during the site’s beta period were able to command, on average, a 5% higher rental rate than they would have by renting offline.
Lubinsky says hundreds of landlords have already signed up for Rentberry, while competitors such as Bidforrent are already in the market. But landlords may face a backlash. In Melbourne, Australia, the feverish rental market has prompted calls by tenants unions (paywall) for auctions (sometimes conducted by phone) to be banned.
The SF Tenants Union said rental auctions might run afoul of laws if abused. ”We believe [online auctions] may violate the [federal] Fair Housing Act requiring you to accept the first qualified applicant who meets your rent requirement,” a spokesperson wrote via Twitter. “This is to avoid discrimination.” No federal or state agencies appear to have been banned the practice as of yet.
Lubisky denies this conflict, saying it’s up to landlords to follow federal regulations ensuring fair treatment in housing. Rentberry is ”just adding transparency to the process, which is [currently] done in the shadows,” he says. He also points out that in less-competitive rental markets, bidders have more leverage to negotiate favorable terms than, say, in San Francisco or New York.
“It’s not just about going higher,” Lubinsky says. “It’s about making flexible offers.”