Most Craigslist ads violate the Illinois Real Estate License Act

by Joe Zekas on 12/11/12

The great majority of the tens of thousands of Chicago apartment ads you see on Craigslist are placed by rental services, also known as locators or finders.

Only a few of those ads comply with a basic requirement of Illinois law: real estate licensees must have written authorization from a property’s owner or authorized agent to advertise a property for rent.

Section 225 ILCS 454/20-20 (a) (26) states that grounds for discipline include:

… advertising by any means that any property is for sale or for rent without the written consent of the owner or his or her authorized agent.

Section 1450.785 (d) of the Illinois Administrative Code makes it clear that this provision is applicable to rental services:

Permission of Owner. A rental finding service shall not list or advertise any rental unit without the express written authority of the owner or agent of each unit.

Only a very few landlords – typically the smaller ones listing their units exclusively with a single rental service – grant rental services the written authority that a rental service must have before placing a Craigslist ad for a property.

Landlords can quickly clean up the repetitive bait-and-switch ads on Craigslist by insisting that rental services stop advertising property they’re not authorized in writing to advertise, and by filing complaints against rental services that don’t comply. The sheer volume of rental service ads on Craigslist has a simple goal: to deceive and frustrate renters into using rental services.

Renters want a better experience on Craigslist. Landlords can ensure that they get it.

Ask your landlord to help clean up Craigslist by taking a stand against unauthorized advertising. Ask any rental service you contact whether they have written authority to run the ad you’re responding to. If the answer is “no” or “don’t know” or is evasive, move on to a more law-abiding rental service – if you can find one. If the answer is “yes” and you’re talking to a rental service, the odds are very high you’ve been lied to. Lying is a core competency of most rental services.

You’re going to hear a lot more from YoChicago on this topic in the near future, when we formally launch a campaign to clean up Craigslist rental ads.

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{ 9 comments… read them below or add one }

alan December 15, 2012 at 1:53 PM

Good luck douchbags.

Reply

Joe Zekas December 15, 2012 at 1:57 PM

alan,

I take it you work for a rental service?

You have something against complying with the law?

Reply

Danny Hranka December 22, 2012 at 7:36 PM

Wait im confused about all this Joe. I am a fan of your website, because it is very informative and some very interesting articles. I just don’t understand when you say that it saves renters service fees charged by locators. I have used locators since moving to Chicago, and I have found an apartment each time. I have used the same one twice in the last 3 years. The only fee I paid was a credit check fee, but it was the company’s fee. A year later, I rented through a management company, and they charged me a higher application fee then the company charged me. along with other fees. Now I found out that if I had applied for the apartment through a locator, I would have been charged the same fee regardless, because it was the management’s company application process, so what am I saving?

Reply

Joe Zekas December 22, 2012 at 8:13 PM

Danny,

The rental services charge the landlord a commission, typically one month’s rent, for bringing the landlord a tenant.

The rental services say they’re “free” to tenants since the landlord pays their fee. It doesn’t take much thinking to understand that the landlord pays the rental fee with rent the tenants pay, i.e. the tenants as a group are really paying the rental service fees.

Let’s do the math on a hypothetical but realistic scenario.

Assume a 400-unit rental high-rise with annual turnover of 100 units renting for an average of $2,000 a month apiece.

Two years ago the rental services brought in tenants for 25 of those units. This year they’ll bring in 50% of the new tenants. Result: $50,000 in additional expense for the landlord, which will be passed along to tenants in the form of rent increases, deferred maintenance, reduced services or rents maintained at higher levels than they would have been at in the absence of that $50K expense.

Divide the $100k the landlord pays rental services among the 400 units in the building, assuming a 95% occupancy rate, and every tenant is paying $263 a year, one way or another, for that “free” service – a “service” that the vast majority of them weren’t even aware of.

I used fairly conservative assumptions in this example. In a number of buildings, especially new buildings leasing up for the the first time, the actual cost to tenants is far higher than that $263.

I’m familiar with one new building that paid rental services for 80% of its new tenants. I won’t give a unit count because that would identify the building, but assume 250 units rented in the building at a $2,000 average monthly rent. Every tenant, including the ones who didn’t use a rental service, incurred a $1,600 expense.

Hope you’re enjoying those “free” rental services.

NOTE: An increasing number of landlords are only paying a half-month commission while others are paying a flat fee that’s typically less than half a month’s rent. Rental services work hard to steer tenants to the buildings paying a full month commission.

Reply

Danny Hranka December 25, 2012 at 6:05 PM

I see your argument Joe. I am still confused though. Correct me if I am wrong (i am not the best with numbers), so basically, when the rent increases at a building, it is because they had a vast majority of their vacancies filled by tenants that used locators or brokers, and since they had to pay commissions equivalent to one month’s rent or lower, they try to offset those costs by raising rent, defer maintenance, etc.

So rent increases have nothing to do with the keeping with market levels? Competitive pricing? I mean what you said sounds like business 101.

It just does not sound accurate, because that would not explain similarities throughout the market, unless of course every single building in Chicago attributes their occupancy rates to apartment locators, which of course, also means that both are still in business.

Someone is being paid a commission, be it the agents who work directly for management companies, higher end realtors, locators, etc. Someone is being paid to find tenants, unless the owner himself directly shows every single apartment himself and pockets the money himself. This is a basic supply chain. And if 80% of a building’s occupancy was attributed to locators, what would their occupancy be if they did not use locators? Do they have the manpower to fill those vacancies?

Sorry about all the questions Joe, I am conducting research in the real estate markets of all large American urban centers with populations over 500,000. An interesting trend is growing urban populations, and shrinking suburban populations. Part of this research includes rent increases and correlation to increasing population, pricing strategies by large property managers, private owners with few number of properties. Daily price changes with high-rises. Forgive me for being crude, but I find your argument incoherent, and not supported by any hard data. Even if that one building did increase their rents because they had to pay the commissions of brokers. That fee was not charged by the broker, so they are technically free services.

Your argument is not consistent with what market research has shown. You give me some hard data, and not a hypothetical one, and I might change my mind.

Reply

Joe Zekas December 25, 2012 at 10:33 PM

Danny,

Put your straw man aside. I wasn’t in any way suggesting that rents and rent increases aren’t a function of a whole variety of factors, including competition.

The larger buildings have sufficient staff to show and fill their vacancies. The rental services simply bring the tenants to the door, and the buildings typically want the rental agents out of the way as soon as possible. Rental service fees are not offset by savings at the larger buildings.

Your conclusion that broker fees are “free” is as accurate as your “trend” of increasing urban populations and shrinking suburban ones, i.e. completely wrong.

The fees are an expense and every expense gets paid by someone. I’ll modify my example to account for the fact that in a startup the rental fees might have been paid out of a marketing budget built into the overall project costs and not fallen as directly on the tenants as my example suggested.

On an ongoing basis the expense is paid, one way or another, by all the tenants in a building or as a reduction in returns to equity. Someone pays, and anything paid for is not “free.” What market research could possibly be inconsistent with that simple fact?

Reply

Danny Hranka December 26, 2012 at 9:50 PM

Joe,

Thank you for agreeing with me, and yes, anything paid for is not free. You are absolutely correct.

I do have one more question though,

above you state ” the buildings typically want the rental agents out of the way as soon as possible”

How is your website different from services provided by brokers and real estate rental services?

You are doing the same thing right? I just noticed your list of apartment availability in each neighborhood, now I know you do not physically bring the potential tenants to the buildings front doors, but you are doing the same thing.

Now your service is free I am assuming, i.e the companies do not have to pay you? I asked because I also noticed you talk highly of the companies that advertise on your website.

I do agree with you 100% that craigslist is a mess. I do not agree with your approach at attempting to clean it up, however. Why don’t you go directly to the locators and tell them how to keep from breaking the law? Show them what an honest ad should say and look like. That would garner more hits to your website, which is already filled with a ton of great information that agents can use to better inform their clients. You can be competing with craigslist directly. I mean craigslist is for everything. Your website has a focus to it. The only problem is that it seems extremely bias, but I understand if this is your business. I think your main issue is with craigslist, more than the brokers in Chicago. Taking craigslist head-on is also a challenge, because we all know Mr. Newmark is a stubborn man.

(sorry I lied, that was more than one question)

Reply

Joe Zekas December 27, 2012 at 12:13 AM

Danny,

Inclusion in the apartment lists is free, and we’ve included everyone we can identify – except for a few very bad landlords.

My issue is with the rental service brokers, not with Craigslist. Chicago’s rental services are bad news for consumers and for landlords.

Some of the locators may be ignorant of the law. Most of them already know the law and have, for years, shown no inclination to abide by it. Those years are now coming to an end.

Cleaning up the rental services industry in Chicago is something that’s achievable. As to competing with Craigslist – not possible.

Reply

Jack January 4, 2013 at 10:58 AM

Good work Joe.

I tried to list my unit on CL in Chicago and received no hits (zero, zippo). Because there is so much filth and noise on the Chicago rental listing.

I listed my condo in Michigan on CL and ended up getting 7 showings in 4 days and a renter. Because the MI CL is clean.

Reply

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