Ending Informational Asymmetries

Or one, anyway; a tenant who got burned on an apartment with a flooding problem has started a site where tenants can post information about their previous digs:




My brother and I moved into an apartment in Queens in the beginning of the summer after I graduated college. We found a two-bedroom, first-level duplex, so it had a basement room. With the first rainstorm, we had over a foot of water in the basement. It ruined a lot of stuff, and we knew right away we would have to move again. We were furious. As we were moving all the water-damaged goods on to the sidewalk, we met another resident of the building. She informed us that the flood problem had existed forever. The previous tenant broke her lease because of the issue, and the couple living across the hall from us had originally signed the lease on our apartment, but had learned about the flood problem and fought their way into the other available unit, using the same broker we would eventually deal with. All of a sudden, the new tile on the floor and halfway up the wall started to seem a little odd. Simply put, we felt like suckers. The real-estate broker had pushed us into signing the lease, telling us he had another potential tenant ready to sign. Thinking about the problem a little bit, we realized it was a simple case of information asymmetry made worse by the incentives placed on the broker.

Property owners are the unambiguous experts for the units they own, and the broker's incentives align with the owner. It does most brokers no good to maintain a strict quality control on their inventory. The more apartments they have in the inventory, the quicker they can move large quantities of apartment seekers through the process to sign a lease, gaining a commission. Apartment seekers, meanwhile, can gather very little about an apartment they are considering. But those apartment seekers, and anybody living in an apartment in NYC, are experts on their own apartments. They know just as much, if not more, about a unit than the owner from having lived in the unit.

So we thought, 'Who better to ask about an apartment we're considering than the previous tenant?' All we needed was a simple way for apartment dwellers who had met experiences like ours to let the world know. The obvious medium is the internet, and the currency we're trading is information on bad apartments. To us, this information seems incredibly valuable. Property owners value the information and use it to apartment hunters' detriment. Apartment seekers should also value this information, as it will prevent individuals from entering contractual agreements they would later regret.

So we created a website, www.BadNYCapartments.com to serve as this information portal. It allows any NYC apartment dweller to share their valuable information about a bad apartment, and then lets visitors to the site search the database to access that information. We're also culling similar information from anywhere we can find, such as city agencies responsible for landlord maintenance violations, or some particularly bad apartments showcased on YouTube. Whether there's an accessible metric for determining whether we're leveling the playing field is hard to say, but we're excited about the prospect of using some economic tools to try to improve housing stock and restore accountability in the rental market in NYC.

Steven Dubner, who posted the link, says "I can imagine tens of thousands of people wanting to access data on bad apartments, but getting people to upload that data is the problem. What is their incentive?"

I infer that Dubner has never been burned by a bad landlord. In my experience, people who have are more than ready to share, at great length. For hours. At dinner parties. Or on the bus.

I understand that landlords maintain these sort of lists, blacklisting tenants who have burned them. Though there is obvious potential for abuse, given the lack of transparency, it's also necessary in an industry where a bad tenant can cause a lot of expensive damage, and cost you months of lost rent; most small landlords do not have such deep pockets that they can afford to go for months without getting paid.

It strikes me as equally necessary for tenants, who can end up with destroyed possessions, or worse. (This might be a good time to mention that if you don't have renter's insurance, you should get it; even the most conscientious landlord can have a freak flood or a house fire.) Kudoes to the fellow who put it together; I hope the idea spreads to other cities.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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