Housing shortage brings bidding wars to rental market

Housing shortage brings bidding wars to rental market

A few weeks ago, a two-bedroom apartment in Chicago listed for $1,600 per month caught Eric Patterson's eye. While the apartment was at the top of the 43-year-old's budget, he works from home most days, and the extra bedroom would be perfect to accommodate his desk.

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 asking how much he was willing to offer for the apartment, as there were other prospective tenants who were willing to pay more than the list price.

"I replied back to her and said my offer was $1,600, because that’s what the rent is," he says. "I’m sorry, this is an apartment. I’m not going to get in a bidding war on it."

"It was shocking," Patterson adds. "I’ve never even heard of a bidding war on an apartment. It just sort of flabbergasted me."

From San Francisco to Chicago, Atlanta to New York, bidding wars are erupting across the country among unlucky renters like Patterson, with brokers and landlords able to choose those who are willing to pay sometimes hundreds of dollars above the list price 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 surged—particularly for one-bedrooms and studios, brokers say—and supply has remained historically low. In May, 18.5% of New York City rental listings ended up 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's up for negotiation: In some cities like New York, tenants are also outbidding each other on the commission they pay the broker to secure a decent place to live. Others will take the apartment "as is"—no painting or other maintenance updates required—or they'll agree to sign multiyear leases at the inflated price.

A two-bed, two-bath apartment in New York's Hell's Kitchen was recently leased for $400 over its list price, which was already almost $1,000 more per month than the last time it was listed two years ago, says Evan Osur, an associate broker with Living New York.

"Every apartment we get, we’re going over ask," says Osur. He'll request potential tenants to make bids once he's received more than one application for an apartment. "Most people are OK with offering more. It just comes down to the extent. Most people are willing to offer $100, $150 more [per month]."

At least in New York, Osur says there are few neighborhoods not affected by the practice, and these aren't all luxury apartments with tons of amenities and outdoor space. The pandemic and inflation have created a "perfect storm" of increased demand and decreased supply: Returning renters may be making more money thanks to recent wage increases. Landlords may also be trying to recoup some of the money they lost out on in 2020 when the economy was more turbulent.

And those priced out of buying thanks to astronomical prices and increased interest rates are remaining in the rental market.

"People who left for Miami are all of a sudden realizing they don't like 98 degrees and 90% humidity," says Osur.

Not every landlord wants to engage in the bidding wars. Jared Forman rents out 15 condos with his brothers in Chicago. He says that while they could easily charge their tenants more, having renters bid on their lease would be "demoralizing," and hurt their future relationship.

"I think nine out of 10 landlords don't really see the person behind it, they only see the dollar amount," says Forman. "If I wanted to collect more money, I'd charge more money. I view it like a marketing gimmick, a bait-and-switch...It’s not right to toy with people’s emotions."

Rising rents have hit record highs in each of the past 13 months, more than recovering from the COVID-19 downturn. That's already squeezing tenants, says Forman, and it's not right to pass on even more costs to those who are just trying to find a place to live.

"Just because you have the ability to take advantage of somebody, whether that be financially or emotionally because you have more leverage in the situation, we don't stand for that," says Forman.

It's been a bad few months for renters. But Living New York's Osur says things could get better soon. While it's impossible to say when the trend might stop, winter could finally see a slowdown in demand.

"If a recession does hit, if it happens and people don't have as much disposable money, prices will come down and that will rebalance the market," he says.

 

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