Housing shortage leads to bidding wars in the rental market
A few weeks ago, a two-bedroom apartment in Chicago listed for $1,600 a month caught the eye of Eric Patterson. While the apartment was at the top of the 43-year-old’s budget, he works from home most of the time, and the extra bedroom would be perfect for his office.
Patterson sent in his application and waited to hear from the agent who showed it to him. A few days later, he received a text message asking how much he was willing to offer for the apartment, as there were other potential tenants who were willing to pay more than the list price.
“I wrote back to him and said my offer was $1,600, because that’s the rent,” he says. “I’m sorry, it’s an apartment. I’m not going to get into a bidding war on it.”
“It was shocking,” adds Patterson. “I’ve never even heard of a bidding war for an apartment. It just flabbergasted me a bit.”
From San Francisco to Chicago to Atlanta to New York, bidding wars are breaking out across the country among hapless tenants like Patterson, with brokers and landlords able to pick those willing to pay sometimes hundreds of dollars. above the price displayed each month for a rental. .
Once strictly the purview of those looking to buy, the practice of bidding wars has become more common over the past year as demand has increased, particularly for one bedroom apartments and studios, according to brokers, and supply remained historically low. In May, 18.5% of rental listings in New York ended in bidding wars, with an average premium of 11.1% over what the landlord originally asked, according to Douglas Elliman.
And it’s not just the rent that has to be negotiated: in some cities like New York, tenants also outbid the commission they pay to the broker to secure decent housing. Others will take the apartment “as is” – no painting or other maintenance updates required – or they will agree to sign multi-year leases at the inflated price.
A two-bed, two-bathroom apartment in New York’s Hell’s Kitchen recently rented for $400 above its list price, which was already almost $1,000 more per month than the last time it was rented. was registered two years ago, says Evan Osurassociate broker of Living New York.
“Every apartment we get, we’re going to ask for more,” Osur says. It will ask potential tenants to make offers once it has received more than one request for an apartment. “Most people are ok with offering more. It just depends on the measure. Most people are willing to offer $100, $150 more [per month].”
At least in New York City, Osur says there are few neighborhoods untouched by the practice, and they’re not all luxury apartments with tons of amenities and outdoor space. The pandemic and inflation have created a “perfect storm” of rising demand and shrinking supply: returning tenants can make more money from recent wage increases. Homeowners can also try to recoup some of the money they lost in 2020 when the economy was more turbulent.
And those that have not been bought thanks to skyrocketing prices and rising interest rates remain on the rental market.
“People who left for Miami suddenly realize that they don’t like 98 degrees and 90 percent humidity,” says Osur.
Not all owners want to engage in bidding wars. Jared Forman rents 15 apartments with his brothers in Chicago. He says that while they could easily charge their tenants more, having tenants bid on their lease would be “demoralizing” and hurt their future relationship.
“I think nine out of 10 owners don’t really see the person behind it, they just see the dollar amount,” Forman says. “If I wanted to raise more money, I would ask for more money. I see it as a marketing gimmick, bait and switch… It’s not good to play with people’s emotions.”
Rising rents hit records in each of the past 13 months, more than recovered from the COVID-19 crisis. That’s already squeezing renters, Forman says, and it’s not fair to pass even more costs onto those who are simply trying to find housing.
“Just because you have the ability to take advantage of someone, either financially or emotionally because you have more clout in the situation, doesn’t mean we don’t tolerate it,” Forman says.
The past few months have been difficult for tenants. But Living New York’s Osur says things may be looking up soon. While it’s impossible to say when the trend might end, winter may finally see a slowdown in demand.
“If a recession hits, if it happens, and people don’t have as much cash available, prices will go down and that will rebalance the market,” he says.
This story was originally featured on Fortune.com
