Several New York rental brokerage companies are under investigation by the city for deceptive online advertising practices.
The brokerage companies confirmed their Internet advertising records were subpoenaed recently by the city agency responsible for consumer protection. Although the Department of Consumer Affairs confirmed the subpoenas, it would not reveal the number or identity of the companies.
“The DCA is investigating several companies for deceptive online advertising,” said Shira Krance, a spokeswoman for the agency.
Currently, the two most-favored sites for apartment rentals are Craigslist and Backpage, the online listing service of the Village Voice. Craig Newmark, the founder of Craigslist, is cooperating with the investigation, Krance said.
The investigation was launched following increasing complaints from consumers about the proliferation of misleading ads on Craigslist and Backpage, according to City Council member Gale Brewer. Both listing services were host to a growing number of false ads — including bait-and-switch ads, “fee” ads posted in the “no-fee” section, and excessively repetitive listings.
These practices broke Craigslist user rules despite the site’s adoption of a $20 fee for broker ads and monitoring by the Craigslist staff.
The companies that received the subpoenas in mid-January were given approximately 15 days to respond to the requests and appear at the agency with the information in hand.
All of the firms that were served subpoenas had originally appeared on a list prepared during an investigation in October 2006 into misleading apartment advertising on the Internet.
The investigation was a combined effort by City Council committees on oversight and investigation, consumer affairs, housing and buildings, and technology and development, which resulted in a report released in October of last year, “Brokered Deception: The Hidden Perils of Online Real Estate Ads.” Brewer, who represents the Upper West Side’s District 6 and is the head of the technology committee, received numerous complaints about deceptive ads from her constituents. In response, Eric Gioia, a Council member representing Queens’ District 26 and head of the investigations committee, organized the investigation and the resulting report.
While the document generated by the investigation is of public record and is readily available on the Internet, it is not clear if all the firms listed in the report were later subpoenaed by the DCA.
A spokesperson for the consumer affairs agency declined to identify the recipients or whether they were identical to those that had been previously investigated.
An industry insider speaking off the record indicated that the subpoenas were exhaustive in their requests for company information related to the ads, including when they had been run, which properties they pertained to, the calls that were received in response to the ads, and which brokers had placed them.
“I would be trembling in my boots if I received one,” said one broker/owner who did not receive a subpoena, but still asked not to be identified.
The deceptive ads that the City Council was targeting carried hidden broker fees but had been placed in the “no-fee” category of the online listings, a frequent abuse that violates New York State advertising law. The practice also runs afoul of Craigslist rules that state specifically that only no-fee apartments can be placed in the online community’s no-fee section.
Manhattan Apartments Inc. received a subpoena but could not supply all of the information that was being requested by the DCA. Nevertheless, they have responded through their attorney to the agency’s request within the deadline specified, said Jerry Weinstein, president of Manhattan Apartments.
Manhattan Apartments “welcomed” the investigation because they have nothing to hide, said Jonas Sigle, who is in charge of the company’s technology and infrastructure. Sigle said that his company had been proactive and contacted Craigslist three years ago to work with them to cut down on misleading ads that were sometimes posted by “rogue agents” who would not obey company policy.
Since then, the firm has adopted new procedures. Combined with Craigslist’s fee arrangement, these procedures reduce false ads by about 99 percent, estimated Sigle.
The system links Manhattan Apartments’ internal database of listings with its mechanism for creating ads. That information is downloaded automatically for any broker creating an ad, and fee and no-fee information is hard-coded so that brokers cannot alter the fundamental data regarding the listing. Although brokers can place ads outside of the automated system, there’s an incentive to use it because the company buys Craigslist ads in bulk and at a discount.
If brokers go around the system to place a no-fee ad for what is really a fee apartment, they end up paying more and doing more work, said Sigle.
The company has turned the agency’s request over to a lawyer who is compiling the information. Said one Manhattan Apartments employee who asked not to be identified, “It will be hard to reproduce those ads, since they disappear on Craigslist within a week or so.”