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You can’t sit with us: These resi startups are looking to cut brokers out of the action

With more Americans renting, tech firms are offering cheaper services

From left: A robot and Padspin founder Jeff Segel
From left: A robot and Padspin founder Jeff Segel

Like the way robots have replaced factory workers, tech startups are looking to make what has been an essential part of the real estate industry obsolete — the broker.

Tech startup Padspin is looking to bypass brokers entirely. The New York-based firm offers services for outgoing tenants, those seeking an apartment and landlords — and for a fraction of what a broker would charge.

Prospective renters on Padspin pay a fee of about one percent of the annual rent, while in New York City and Boston, tenants pay brokers as much as 15 percent of annual rent, the Wall Street Journal reported.

“There’s not enough data regarding apartment inventory available to the average person,” Jeff Segal, founder of Padspin, told the Journal. “Brokers monopolize that data and charge a massive ransom.”

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With rents soaring in a growing renters market, other startups such as RadPad Inc. and Zumper Inc. are also looking to offer new tools for prospective tenants, connecting them directly with landlords while cutting out the middleman — agents and brokers.

In 2011, Americans spent $451 billion on rent. That number pumped up to $535 billion last year, according to research at Zillow.com. The jump is partly due to the increase in renters across the US — 43 million last year compared with 34 million a decade earlier, according to a December report from the Joint Center for Housing Studies of Harvard University.

Brokers counter they play a critical role, especially in markets like New York. Last year, there were 58,492 licensed real estate professionals in New York City.

“Brokers can really help outsiders and locals navigate our complicated real-estate world, which is very different from any other place,” said Tony D’Anzica, a broker and a director for the Manhattan Association of Realtors. “If you want to live here, you have to pay for it.”

Real estate tech startups are not lacking for investors either with $1.5 billion pumped into the industry last year, according to venture capital database CB Insights. However, there is downside with high failure rates for startups, anywhere from 75 to 90 percent, as The Real Deal reported in its January issue. [WSJ] — Dusica Sue Malesevic