Tenants can rent via an online auction
New digital platform HouseME says its auction process results in landlords achieving above-average yields. reports
Prospective tenants can now secure accommodation by submitting bids on their smartphones. And if they sign a lease, they will have to pay a maximum of one month’s deposit, instead of the two or three months that many landlords are now demanding. These are two of the features of HouseME, a recently launched platform that aims to challenge the traditional rental-agency approach to residential letting.
HouseME co-founder and chief executive Ben Shaw says the auction results in the rent on a property being determined by the market forces in a particular area. HouseME’s research has found that landlords often don’t know what the going rent in their area is, so they let out their properties for less than fair market value, he says.
“Some landlords do not realise how desirable their property is and how much people would be willing to pay to stay there,” he says.
The auction enables prospective tenants to secure a property they really want by paying more. In the traditional letting model, where a property is advertised for a set rent, prospective tenants who aren’t first in line lose out.
Landlords who use HouseME do not have to use an auction to determine the rent; they have the option of going the traditional route and advertising their properties for a predetermined rent.
About 60 percent of HouseME’s landlords choose the auction option, which, on average, results in them achieving yields of eight to nine percentage points above the reserve price (the price at which the bidding must start), says Shaw, who quit his job as an investment banker last year to start HouseME.
If a landlord does opt for an auction, HouseME receives 25 percent of any upside over the full term of the lease. For example, if the landlord sets a reserve price of R8 000 and the auction results in the property being rented out for R8 100, HouseME will be entitled to 25 percent of the R100, or R25 a month. The excess is in addition to HouseME’s standard fee of 2.5 percent of the total monthly rent (in this example, 2.5 percent of R8 100, or R202.50). HouseME is not, at this stage, registered as a VAT vendor.
Landlords do not pay fees directly to HouseME, but HouseME retains a percentage of the rental when it is paid every month.
Traditional letting agencies charge between seven and 15 percent of the monthly rent. However, unlike HouseME, they employ staff who can take on the responsibility of managing the property, including conducting the mandatory incoming and outgoing inspections of the property, handing over keys, finding tradesmen and supervising maintenance.
HouseME is not the first digital platform in South Africa that enables landlords to market their properties and tenants to find accommodation. But its auction mechanism is unique. HouseME also screens tenants, provides a rental guarantee, and gives landlords access to services to manage their properties and tenants.
Landlords manage their properties via a single “dashboard” on the HouseME website (www.houseme.co.za), while tenants use an app to find properties, bid at an auction and interact with their landlord. The app, HouseME SA, can be downloaded from Google Play or Apple iTunes.
Landlords do not pay to list their properties and tenants do not pay to search for places to rent.
HouseME performs a credit check on prospective tenants at no charge. Would-be tenants submit the required documents via email or upload them via the app. Would-be tenants have to be vetted only once to apply to rent the properties on HouseME.
Shaw says HouseME has such confidence in its tenant-vetting process that it provides a three-month rental guarantee. The deposit covers one of the three months, while two months are covered by an insurance policy that HouseME has negotiated with OneSure. HouseME absorbs the cost of the premium.
Shaw says HouseME creates a disincentive for tenants not to pay their rent, because poor payment behaviour will jeopardise their chances of finding another property on HouseME. With traditional letting, he says, problem tenants can move from one agency to another, and many agents don’t share their data on bad payers.
LANDLORD VERIFICATION
HouseME checks that a property is owned by the person who advertises it. Landlords must upload a document, such as a utility account, that provides proof of ownership. This is to prevent rental scams, where fraudsters advertise properties that they do not own.
Landlords must upload “high-quality” images of the property, and a HouseME staff member will visit the property. If the images are not of good quality, HouseME will send a professional photographer (at a cost of about R300) to take pictures and check that the listing is genuine. There are number of mandatory fields that landlords must complete when providing a description of the property.
Landlords set the dates and times when the property can be viewed.
In the case of an auction, a prospective tenant can see how his or her bids are faring in relation to the other bids. The names of the bidders are not disclosed. The app has a function that enables a would-be tenant’s bids to be increased automatically in specific increments up to a maximum price.
The landlord sets the reserve price and the date on which the auction will close. Shaw says that, in HouseME’s experience, landlords achieve the best results if the auction is held over five to 10 days. The auction starts the moment the property is made live on the website.
A tenant must pay a one-month deposit to secure a lease on a property. Shaw says the one-month limit makes it possible for people who can afford the monthly rent, but do not have two or three months’ cash to put down as a deposit, to become tenants.
Rental payments are processed by online payment gateway Virtual Card Services, which debits the tenant’s credit card before the end of each month. The rent is paid into HouseME’s trust account, and is then transferred to the landlord’s account by the end of the month. Landlords and tenants rate each other every three months. Shaw says the rating system encourages good behaviour by both parties. The rating system, combined with tenant vetting and landlord verification, is designed to eliminate the need for good tenants and landlords to have to keep proving their credentials. He says HouseME wants to remove the “inherent mutual distrust” in the residential letting market.
Over time, HouseME hopes to build a database of the best-quality tenants and landlords in the country, he says.
HouseME has partnered with FixForward, a social business enterprise that connects homeowners and businesses with “verified” tradesmen. Landlords who need to do maintenance or repairs can access FixForward-approved tradesmen from their dashboard at a discounted rate of five percent.
Although landlords do not have to use FixForward’s tradesmen, they will not pay a lower fee to HouseME if they find their own tradesmen.
FixForward may not have tradesmen who can provide every service that a landlord may need.
HouseME provides a standard lease agreement that complies with the Rental Housing Act, the Consumer Protection Act and the Electronic Communications and Transactions Act. Landlords who want to include their own terms and conditions can have them added to the lease as an addendum.
HouseME has partnered with Marlon Shevelew & Associates, which will provide legal services to landlords at a discount of five percent.
Shaw says HouseMe initially planned to limit its operations to Cape Town and Stellenbosch and branch out nationally in future. However, because of demand generated by word-of-mouth and social media, HouseMe is signing up landlords in Gauteng and KwaZulu-Natal.