The New York Times: Getting the Agent Without the Fee
by Michael M. Grynbaum (published February 6, 2009)
YOU’VE heard of no-fee apartments, but no-fee brokers?
It’s a counterintuitive idea for New York real estate, but then again, these are counterintuitive times. And Lee Lin and Lawrence Zhou, young Wall Street types with degrees from M.I.T. and Wharton School on their walls, think they can make it work.
Last August, the pair founded RentHop.com, a Web site that provides free access to no-fee apartment listings throughout New York City. Each listing includes the name, telephone number and Web address of the landlord or management company — all the information an apartment hunter needs to sidestep brokers and their usual 15 percent fee of the annual rent.
But the site will also allow users to schedule an appointment with an agent — namely, Mr. Lin, 28, or Mr. Zhou, 26. (Mr. Lin recently received his sales license; Mr. Zhou plans to take his real estate exam this month.) They plan on showing apartments on weekends, in between their day jobs at hedge funds.
“If people use our site and directly contact landlords, more power to them,” Mr. Lin said the other day in Mr. Zhou’s 500-square-foot Midtown studio, where the two friends logged about 200 hours over evenings and weekends designing the site. (A beta version is online, but several features, including the ability to schedule a showing with the brokers, have yet to be completed.)
But Mr. Lin believes that busy New Yorkers will still turn to a broker to avoid the logistical hassles of finding an apartment, like calling landlords, scheduling showings and compiling paperwork.
Because they are showing only no-fee apartments, where the landlord has offered to pay the broker’s commission, Mr. Lin and Mr. Zhou can collect a percentage of each deal while charging their clients nothing. They also hope to earn advertising revenue generated by Web traffic.
“This is one of the best times to be launching this site,” Mr. Lin said. “Renters know this is a renter’s market, and management companies are increasing their incentives all around. So the stars have aligned for this to take off.”
Whether RentHop is a workable business remains to be seen. But it represents a fresh tweak on the traditional model of the New York rental market, a system that has been in flux since the Internet began to reshape the industry.
Brokers who once enjoyed a stranglehold on listings, pricing details and landlord contacts must now compete with Web sites like StreetEasy.com and Craigslist that empower consumers with much of the same free information. The shake-up has paved the way for entrepreneurs to experiment with new business models that further level the playing field for apartment hunters.
Web sites that offer no-fee listings are nothing new, but virtually all of them charge a hefty subscription fee. (Exceptions include the online listings of individual management companies, like Jakobson Properties and the Rockrose Development Corporation. RentHop hopes to provide an aggregate of these listings.) Craigslist also has a section for ostensibly no-fee rentals, but it remains something of a minefield: a study commissioned by the city in 2006 found that nearly a third of those listings did in fact charge a fee to potential tenants.
The RentHop creators say they will provide a curated selection of no-fee apartments that filters out any attempts at a bait and switch. Mr. Lin and Mr. Zhou, who hatched the idea for their site last summer over sushi, began by cobbling together about 1,500 listings from cold calls to landlords. Ideally, they said, the site will achieve the breadth of an established Web site and remain at no cost to the consumer.
But for now, the site is something of a bare-bones production. There is a clever Google Maps module that allows users to navigate listings using an interactive map, though the interface can be clunky, and many of the listed apartments have few or no photographs.
To help expand RentHop’s listings, Mr. Lin and Mr. Zhou recently linked up with Pari Passu Realty, which has its own innovative Internet-enabled business model. Pari Passu takes less than 20 percent of the commission on rental deals and charges agents a flat $99 monthly fee; in the traditional brokerage model, agents split the pot 50/50 with the brokerage house.
“One of the harder parts of my job is convincing people that it’s true,” said Larry Link, one of Pari Passu’s two full-time employees, who recruits sales agents for the five-year-old company. Pari Passu makes do by requiring agents to work from home; it also shares office space with a law firm owned by a co-founder, Michael Greenberg. With 90 agents on staff, the principals say they are operating in the black.
Mr. Lin and Mr. Zhou caution that they are not yet ready to quit their day jobs. Neither wanted to disclose his employer. “If it becomes superpopular,” Mr. Lin said, “we’d be perfectly willing to show apartments all week long. At that point we would probably need to get some help” from additional agents.
Veterans of the business argue that the no-cost model is nearly impossible to pull off.
“In order to bring quality, comprehensive neighborhood information — to keep that information updated, verified, to offer end users real customer support — you can’t do that for free,” said Ralph Barocas, co-owner of RDNY.com, which charges $219 for 60 days’ access to thousands of no-fee listings. The 14-year-old company also has a Midtown office for its customers, which is something that RentHop has no immediate plans to provide.
And even the best-designed business plan is only as good as its execution. Despite elite diplomas and blue-chip résumés, the RentHop creators admit they have little experience in sales.
“It will be fun showing people around and meeting new people,” Mr. Zhou said.
Mr. Lin laughed when asked about his abilities as a salesman. “I may be too logical, too nonemotional,” he said. “That’s a skill set that has not been in my past area of expertise.”