This is the second edition of Undercover Broker, where we share interesting insights into the mysterious life and career track of a Manhattan apartment broker.  The first edition discussed the myths and truths of broker bait and switch tactics, how it happens, and why declaring your loyalty to one good broker might be the best move.

Today’s topic is far more important to the new or aspiring brokers who follow us.  How do brokers find their customers?  Many extremely intelligent  and capable individuals seem to shy away from the real estate profession because of this hurdle.  They fear that no matter how good they are at negotiating complex deals, visualizing remodeling efforts, or analyzing cashflow numbers, every transaction still needs a client.  In fact, having a client who trusts you tends to compensate for deficiencies in almost all of the other necessary broker skills!

How Brokers Farm for Clients (Excluding New York City Rentals)

So what do we brokers do to find these customers?  The standard myth is that brokers spend their free time farming for leads, where “free time” means any day we aren’t actively working with a client.  Supposedly, farming encompasses various sources, some of which include (from most desirable to least):

• Referrals from satisfied past clients
• Referrals from friends, neighbors, and business relationships
• Holding open houses and meeting buyers / renters who want something else
• Leads from your heavily-trafficked website / blog / news column
• Partnering with a seasoned pro who hands you smaller “teaching cases”

By now, you must be pretty depressed if you are a new agent, because if you actually got your leads from any of these sources, you certainly don’t need much help!  Ok, the next tier of farming is largely unsolicited asking for business, and it will certainly feel like dirty work at first.  Many new real estate agents dislike it.  You will be turned down by almost everyone, sometimes rather impolitely.  It may even feel rude at times, imposing yourself on people asking for their business, and the way I’ve seen some brokers behave, it IS downright obnoxious.  Here are some examples:

• Cold call owners who are doing a lame job on their own and offer to advertise it professionally
• Similarly, go to an open house and tell them how much easier their lives would be if you held the open house
• Also similar, find a bad newspaper ad from an owner, convince them it was so bad only you saw it
• Send lots of post cards to your neighbors about why they should use your services

If you weren’t afraid of turning sleazy and slimey before, the thought of doing the above must make you worried you even bothered to take the 75 hour real estate classes.

What Makes New York Different?

BUT WAIT!  Time Out!   You are in luck.  Maybe in every other part of the country, farming would be a huge part of the job, but fortunately this is Manhattan and you are an aspiring rental broker (or you are here to spy on what brokers do).  Amazingly, in Manhattan it is absolutely possible for brand new brokers, with no connections and no rolodex of clients, to add lots of value and gain leads from Day 1, without a single unsolicited cold call.  That’s because unlike real estate everywhere else, Manhattan rentals have two unique concepts:  open listings and previewing.

Open Listings

Brokers exist to help market properties, but the industry believes in pay-for-performance, aka commission paid when the transaction closes.  However, to ensure our efforts marketing a property can’t be stolen away, we brokers insist exclusive rights to lease / sell (and allows co-broking, an important and intriguing topic for another day).  At least, that’s how it works everywhere else in the country.

In Manhattan rentals, the market is instead dominated by the more peculiar Open Listing agreement.  That means the landlord is free to ask you to market their apartment and find renters, but they also intend to ask every other broker in the city to do the same.  The first broker to bring a renter and sign a lease gets the commission.   And to make matters a bit more interesting, the landlord also reserves the right to set up their own leasing office and find renters directly!  Oh what fun!

While that sounds like a horrible deal to the brokers, there is a bright side to all the open listings… it means there is a lot of non-exclusive inventory out there, begging for anyone with a real estate license to bring them a renter!  All you need to do contact a bunch of landlords, introduce yourself,  check out their available NYC Apartment Rentals, and build your own personal inventory.  In Manhattan broker speak, we call that previewing.

(to be continued…)

How do most landlords end up pricing their units? While we don’t come from the property management side, we’ve noticed a couple of trends in how apartments are priced. Generally, landlords seem to fall into four  types (though realistically, there is always some overlap).

1) Meticulous Market Analyzer

These are generally large luxury high-rises managers who own multiple buildings. They watch what other landlords are doing and try to follow up on the newest trends and incentives (months free, gift cards, pay-by-credit card, etc.). They may have their own on-site leasing agents, but also use other brokers to advertise. They’re willing to try new marketing strategies or complex rent deals. Of course, not all high-rise managers fall into this category, but we’ve found that most no-fee luxury high-rises are competitively priced (you might not get the BEST deal, but you probably aren’t being ripped off completely). Some of these companies are publicly traded, so they’re more open to free months (marketing budget) rather than lower rent (top-line revenues).

2) Leave it to the Brokers

Many landlords get help from exclusive brokers who market (and sometimes price) their properties. These are generally small to medium-sized landlords (though some large buildings also fall into this category). The broker might do some sort of competitive analysis to find a good pricing for the apartment based on the # rooms, size, amenities, etc. Most importantly, they’ll heavily market the property (sometimes, people DO take the first apartment offered).

3) We’ll keep prices the way they are (with some minor adjustments)

A lot of landlords just keep the price the same (or raise it slightly) when a tenant leaves. Why change something that’s worked? They tend to lower the rents in increments of $25 – $100 when the unit sits on the market for a while. As long as the unit is being seen and marketed, there is a small chance someone rents the unit out. While luxury high-rises are decently homogeneous, a lot of walk-ups and brownstones aren’t. A garden might be work $400/month to one person, and worth $0 to another. There might be someone in the world who’s looking for a bathroom inside a kitchen (and would be willing to pay a premium for it). Sometimes, this pricing mechanism causes strange quirks – such as similar units in a building being priced differently because one was on the market longer.

4) My (mortgage + maintenance) * X variable

Finally, there are some single-unit landlords who don’t price competitively, but relative to their costs. They plan to rent out their units to cover their mortgage or maintenance. Many times, these units just sit on the market for a long time until the landlord finally caves and lowers the price. Other times, if the mortgage is already paid off, there might be someone willing to rent it out at maintenance (as long as the tenant is solid and takes care of the apartment). Prices in this category could be very odd-ball (and the units are generally extremely hard to find + by referral only).

As one of the founders of RentHop, I’ve made it a point to infiltrate the Manhattan apartment broker ranks, inspired by Nickel and Dimed (Barbara Ehrenreich). I spend a few days each month as an undercover broker, tackling the full pipeline of previewing, advertising, showing, and closing deals!

In this edition of Undercover Broker, we discuss the bait-and-switch frustrations in-depth. You contact a broker regarding a particular apartment advertisement but then you never manage to see it.  Why is it that ordinary, ethical, and law-abiding humans wind up resorting to these tactics? The answer is, it’s your fault!  That’s correct, the legions of Manhattan renters who have come before you act just like you, and the most rational response is for brokers to behave as they do.  Please let me explain.

Picture for a moment a savvy and organized apartment hunter who sifts through hundreds of ads, makes dozens of calls, and squeezes in an entire day full of appointments with 12 different brokers, 30 minutes each. This is the absolute worst customer for a broker, and sadly, our savvy renter is likely to have a terrible day full of delays, conflicts, and bait-and-switch attempts.

Contrast this with a clueless renter who calls just one broker and agrees to block off an entire afternoon for showings. Not every broker is good, but I’d easily bet the less prepared renter will have the more productive day.

Some insight into a broker’s life will shed some light here. Most customers responding to an ad will not transact a deal. Brokers only get paid when a deal closes. Therefore, most customers are a waste of time! How does a broker minimize time wasted? Let me present the top four biggest time wasters:

1.)  No show customers.

2.)  Customers with poor financial qualifications.

3.)  Customer that are not serious about renting.

4.)  Customers working with many brokers.

And now, pretend you are a broker and a renter calls asking to see the apartment you advertised. Is there time-efficient, low cost way to avoid all of the four big time wasters above? Indeed there is! And this decade old secret is called, “Sure, come and meet me at my office.”

It’s brilliant.  The broker doesn’t waste any time until you walk in the door (avoid no-shows). Often they may ask that you bring your financial documents or at least fill a long form asking about your money situation (avoid unqualified people). Finally, if the renter has agreed to come to your office, chances are they have blocked off at least a few hours for you… and if they didn’t, you can be sure they’ll miss their other appointments (solves problem 3 and 4).

There are still more bonuses. The forms you fill out protect the broker’s commission should you ever get the slightest idea your broker doesn’t deserve to be paid. While you are carefully reading the fine print, the broker has time to search his database for all of the other good apartments fitting your criteria. He suggests a half dozen other places that are great potential fits, and one of his junior assistants will be happy to take you around to all of them (he’s too busy to be the one following you around with the keys for 2 hours).

Two hours later, you a suitable apartment and saved a ton of time and hassle. But, because you are human, you feel some last minute buyer’s remorse. You cry foul, accuse the broker of bait-and-switch, leave bad reviews on Yelp, curse all brokers, etc. It’s a shame because the broker was acting in both of your best interests; you just didn’t realize it.

So now that you’ve seen the full story, you know the number one way to avoid getting bait-and-switched…

To Avoid Bait-and-Switch: Do not meet the broker at his offfice.

But if that’s the only take-away you get out of this piece, then brace yourself for a sad and painful apartment hunt. You will end up just like our savvy renter who schedules appointments with a dozen different brokers and wonders why they all treat him so poorly.

My advice — Suck it up and allow yourself to be baited and switched

Do yourself a favor. Pick just one or two decent agents, and give them at least a few hours to show you all of their best apartments. Make an appointment, agree to meet them at their office, and agree that you won’t use another broker for any of the buildings he shows you.

At least then, the broker will appreciate that you are a serious customer and can truly tailor your search based on your initial reactions. Again, if a broker knows you are a solid customer who won’t flake out, you will get superb service.  Treat brokers as showing robots and they will return the favor!

That said, I’m all for an option where I pay less for some showing robots, but to make that feasible and worthwhile, a whole lot of other things need to happen. I shall cover it in a future edition of Undercover Broker.

That’s all for now.  If you are currently looking for New York City apartments, feel free to check out our website or email us directly.

RentHop extends a very special welcome to Equity Residential!   They are an absolute top-of-the-line luxury property manager and owner of 13 buildings in the New York City Metro area!

Some of the more famous holdings include:
(All prices current as of 1/28/2010)

Parc Cameron at 41 West 86th St in Upper West Side, currently offers studios for $1845, making it one of the neighborhood’s best doorman/elevator deals.

Trump Place, also in Upper West Side at 140 Riverside Boulevard, is a luxury highrise  with apartments ranging from $2,280 studios to $5,780 two bedrooms.

70 Greene, one of Equity’s latest additions to the NYC area collection, is destined to become an icon in the Jersey City skyline.   With incredible amenities, 592 square feet one-bedroom apartments for only $1,905, this is truly one of the best bang-for-buck luxury buildings.

Hudson Crossing  at 400 West 37th stands apart from the other doorman highrises in Midtown West with superior location.  Residents are exposed to the many dining and cultural opportunities found in Hell’s Kitchen beyond 9th Avenue yet remain walking distance from Madison Square Garden, Macy’s, and Times Square.

RentHop, as always, is committed to finding the best New York City apartments deals and publishing the information on our much beloved apartment search engine.

Hey Everyone,

Happy New Years! We’ve recently implemented a few new features for the site – along with a small makeover of certain pages. First, we’ve included WalkScore for each listing. WalkScore (provided by www.walkscore.com) is a nifty little widget that shows what’s in your area (from shops, groceries, to movie theaters and gyms). Now, you can figure out how “walkable” your neighborhood is.

We’ve also enhanced the accuracy of our neighborhood mappings (in fact, one of the founders spent quite a bit of time learning about Elderts Lane perfectly). Hopefully, improperly assigned addresses will be a thing of the past.

In terms of the NYC rental market, will rents be going up in the future? While the 2008 recession hit sales (and rents) hard, 2009 might have signaled the beginning of the recovery. If anything, S&P has risen over 26% this year. While vacancies are still higher than normal, we’re finally seeing some owners cutting back on incentives. In the past, many owners offered BOTH paying a broker’s fee or one month free (in which case, you might be indifferent or better off if you showed up with a broker). However, now-a-days, there seems to be a trend towards one month free OR owner pays the broker’s fee. We’ll write a more robust post later, but there definitely seems to be the beginnings of some upwards pressure. If you’re just starting your search though, you shouldn’t worry too much. We’re still in a renter’s market.

Most regular blog visitors won’t have any idea what I mean when I mention YC Interview, Y Combinator, or any of the relevant advisors and partners. That’s fine. Before we entered the real estate world, we were software engineers, now more commonly called hackers. We were nerdy programmers who spent our years doing number crunching and math relevant to financial weapons of mass destruction and we thought it was all quite fascinating and thought provoking. It also more than paid the bills!

Now we have entered two very different lives. The first, the world of Manhattan real estate, is a huge mystery to almost everyone. Why does every industry veteran say that Manhattan is just “too different” to conform to real estate models in the rest of the nation? After 5 years in real estate, half spent in Manhattan, I’ve discovered several of the unique stumbling blocks and will write about them in a future post.

We also plunged straight into the world of technical entrepreneurship, where we have been humbled for months at discovering how much we didn’t know about the startup side of hacking. We needed an effective way to fully immerse ourselves into the founder lifestyle to make up for our gaps in knowledge. Among many other great reasons, this was why we decided to participate in YC.

I’ve written a quick, CSS-less brain dump of advice and thoughts on interviewing with YC.

It’s been a busy Summer and we’re thrilled to be mentioned so frequently in the news these days! Most recently, our company was featured in the Reuters Entrepreneur’s Edge section, which included a 5-day journal exclusive of our day-to-day activities, a video pitch to potential investors, and some feedback from industry experts! Prior to that, Wired online wrote a long piece on the history of Craigslist and how other websites have generally found ways to compete or cooperate with the online classified behemoth. In the New York City apartment space, RentHop has become an important player for landlords, renters, and brokers everywhere. There is no question that Craigslist still contains a larger selection of listings, but the frequency of spam and bait-and-switch postings continues to persist. Recent articles on various technology websites such as TechCrunch discuss how RentHop enables rich search features to help our users quickly filter listings and find high quality apartments, both with and without broker fees. In particular, Mashables was a big fan of our excellent map-based search, featuring a location-based, amenity filtering search over our listings inventory.

We’ve all heard the news about concessions being offered by landlords, but what are they? Most rental deals have been in the form of “months free” at the end of the lease or “OP – the owner pays the broker 1 month of rent (which sometimes eats into months free)”. However, more recently, we’ve seen other incentives being offered, ranging from free gym access to gift cards. We’ve tried to compile a list of Manhattan apartment rental deals for luxury highrises. Definitely check out the FAQ section about how some of the concessions work and how they can impact your bottom line.

I’m happy to announce our newly released map-based apartment search!  Location-based searching for apartments has been a personal favorite feature of mine from the very beginning of RentHop’s days.  We have always believed that Craigslist listings simply lack enough structured data for useful and rich mechanisms.  While the Craigslist loose-form posting makes life slightly simpler for the landlord, it also opens the door for the deluge of fake and obfuscated listings we see today.

Even though RentHop has begun allowing small landlords to post their listings, we have removed all the usual incentives for unscupulous posts:  any listing without a real address will not show properly on the search, we sort listings based on the completeness of data (photos, amenities enumerated, full contact information, etc), and most importantly no one visiting Rent Hop plans to pay a broker fee!

For listing on our map, we only show the buildings that contain geo-encodable addresses.  Posting containing vague locations such as “Studio in the West 50s” won’t show up properly in search results.  We have revamped the entire original map-search to include much faster search logic, a more intuitive navigation interface, and compatibility with more browsers.

Feel free to give map-based apartment search a try!

We’re committed to making RentHop the simplest place for everyday landlords to advertise and post apartment listings. We are pleased to deploy our latest feature, the user profile page! This area includes some administrative features such as modifying email and contact information, but the truly exciting features benefit all types of RentHop visitors.

Favorite Listings

If you are a registered renter, you now have the option to save interesting apartments to your favorites list when browsing the no-fee apartment selection. At any time, you can click on the My Accounts link on each page to review your favorite listings. You can have RentHop notify you whenever a favorite listing drops in price or if a new apartment similar to a favorite listing becomes available.

Manage Posts

For landlord users, the profile page is a home base for tracking your listings. You can edit all aspects of the listing, post new listings, or deactivate existing listings. This is also a good place to rearrange the order of the photos or add new photos to the listing, and chances will be saved to the site immediately. Note that the 5-photo restriction still holds, and to post more than 5 photos per listing, you will need to request a free property manager account.

Pre-populated Data

For users who repeatedly use RentHop features such as scheduling viewings or posting apartments, registration and login will remember your contact information and address so that you won’t need to always retype the same data.
To login to the account page, go to http://renthop.com/user/login