housing market

Real-estate agents face real competition

real estate agent-action press
The new rent-control law could open the door to savings for tenants.
  • Why it matters

    Why it matters

    A new rent control law that came into force in Germany on Monday could shake up the country’s €6 billion real-estate brokerage market by exposing it to competition from low-cost internet services.

  • Facts

    Facts

    • Until Monday, tenants in Germany had to pay more than two monthly rents to property agents for securing a rental agreement — even when they didn’t hire an agent.
    • As part of a new law aimed at curbing the runaway rents in some German cities, the onus of paying real-estate agents has been placed on the landlords who hire them.
    • The cost of searching for a flat is likely to fall, but tenants may have to divulge a surfeit of personal information via new web-based flat-hunting services.
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    Audio

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In Germany, the job of real-estate agent ranks as one of the most controversial occupations, thanks to a law that for decades allowed this person to earn fat fees from new tenants for doing little more than unlocking the door to an apartment.

It was up to the tenant — not the landlord — to pay the agent a fee amounting to 2.38 monthly rents, even though the landlord usually hired the agent. That all changed on Monday as part of new rent-control legislation.

Not surprisingly, the country’s 55,000 estate agents are up in arms.

“The rent control law could be the moment that rocks an industry that worked under the same rules for 40 years.”

Lars Kuhnke, founder, faceyourbase

The new law, which puts a cap on rents in areas with housing shortages and aims to curb a rent inflation now among the highest in Europe, could turn the €6 billion, or $6.6 billion, property brokerage business on its head.

As of Monday, landlords have to pay for the real-estate agents’ services because they’re the ones who hire them. That’s a simple and fair principle, one might think, and it’s surprising that it is only being applied now. Germany’s real-estate sector was a prime example of a protected business sector in urgent need of reform.

The brokerage industry, alarmed at the prospect of plummeting income and new competition, has lodged a complaint with the Federal Constitutional Court, Germany’s supreme court. So far, the effort hasn’t met with success.

The industry has good reason to be worried. Internet start-ups are lining up to break the stranglehold real-estate agents have had on the market.

The web pioneers aim to revolutionize the allocation of apartments with the help of algorithms and social networks.

 

Rising Rents 1 highest rents for apartments in germany 01

 

A new website called nachmieter.de, which translates to “next tenant,” was launched on the same day the new law went into effect. It works like this: A tenant who is about to move out takes over the function of the estate agent and posts an advert for the apartment in a newspaper or on the Internet. If that tenant finds a successor, the landlord pays him a small reward.

Another website, Faceyourbase, started last November. It lets the landlord post an ad for his apartment, and prospective tenants can apply by sending in text and photos as well as links to their Facebook, LinkedIn and Xing profiles.

Handelsblatt has learned that Rocket Internet, a Berlin-based Internet company, plans a service based on algorithms that select the most suitable tenant.

The big question now is how the landlords will react to this plethora of new services. Will they opt to stick with estate agents and simply start paying them fees? Or will they choose the budget solutions sprouting in the Internet?

 

 

Highest purchase prices for apartment in Germany 2-01

 

Consumer protection agencies are worried that landlords might try to cover the cost of the brokerage fees with tricks such as charging more for fitted kitchens or walk-in wardrobes. That would be illegal. But it would also be hard to prove — and many tenants may think twice about protesting, especially if they’re competing with dozens, if not hundreds, of rival applicants for the same dream apartment.

Estate agents may find another way to circumvent the law. They could stop placing ads for specific apartments and instead advertise themselves as having a lot of expertise in finding homes in certain city districts or regions of the country. That means they would only officially become active and provide lists of specific apartments for rent once a would-be tenant had hired them to find an apartment. Under the new law, the tenant would then be obliged to pay the fee because he or she hired the estate agent.

Ulrich Ropertz, spokesman for the German Association of Tenants, said he didn’t think landlords would try find a way to pass brokerage fees onto their tenants. The rents being charged in desirable locations were already so high that there wasn’t much room for increases, he said.

Lars Kuhnke, the founder of start-up Faceyourbase, said: “The rent control law could be the moment that rocks an industry that worked under the same rules for 40 years.”

 

real estate agent2-DPA picture alliance-
Some but not many real-estate agents have provided real service. Source: DPA Picture Alliance

 

The Munich-based startup charges landlords €79 to place an ad for their property on its website. They can trawl through the information provided by applicants and select up to ten of them to come round for a viewing. The tenants each pay a €9.90 fee for a viewing and then a further €29.90 if they are chosen. That is far cheaper than the previous system of fees that could run into thousands of euros — but it does force tenants to reveal a lot of information about themselves.

Rocket Internet, meanwhile, plans a service similar to that offered by British firm Purplebricks.com. An algorithm seeks the supposedly best tenant for the landlord who pays a flat fee of €499. It’s possible that the algorithm also assesses personal information such as the Facebook friends of a tenant.

Mr. Ropertz of the German tenants association warned people not to divulge too much information about themselves on the Web. But he also knows that many people will be forced to if they want to secure an apartment. “The most self-revealing among the applicants will determine how much transparency will end up being the norm,” he said.

It can’t be ruled out that some tenants may end up hankering after the old days.

While the fee payment system is an important part of the new law, it’s not the main element. Mrs. Merkel’s grand coalition of her conservatives and the center-left Social Democrats launched the new law in response to soaring rents in desirable parts of Berlin, Munich, Leipzig and Frankfurt, which have risen by as much as 50 percent in recent years.

 

Rising Rents Brokers net turnoever in 2013-01

 

Under the new system, landlords in areas designated as having a particularly tight property market will be barred from increasing rents by more than 10 percent above the local average. Such controls were already in force for existing tenants but have now been extended to new contracts.

It is up to the country’s 16 federal states to decide in what cities the law should be applied, based on factors such as population growth, vacancy rates and rent increases.

Berlin, which has been particularly hard hit by soaring rents, was the first city to implement the law on Monday. Other states are still collecting data to pinpoint areas with heavy rent increases. North Rhine-Westphalia, Germany’s most populous state, expects to adopt rent controls on July 1 for some cities.

Other states will follow in the coming months.

 

Handelsblatt’s Miriam Schröder writes about companies, markets and focuses on the start-up scene. Silke Kersting reports for Handelsblatt from Berlin, focusing on consumer protection, construction and environmental policy. To contact the authors: schroeder@handelsblatt.com, kersting@handelsblatt.com

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