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.