Airbnb and the Impact on Real Estate Sales

apartment property with person holding smartphone showing airbnb logo

Airbnb has transformed the accommodation market and shaken up the property market in the process. The platform currently has 7 million listings worldwide across more than 100,000 cities, in more than 220 countries. 

Critics have spoken widely about the lack of regulation of the home-sharing platform, along with the impact on rental prices. All the while, supporters of the platform have praised the economic benefits in terms of tourism. 

So, what impact is Airbnb having on real estate sales and what do you need to be aware of as a real estate agent? 

Impact on Property Prices

Research suggests that Airbnb overall is increasing property prices. Just a 1% rise in Airbnb listings resulted in a 0.026% increase in housing prices. This may seem like a small increase, but take into consideration Airbnb’s growth in listings (approximately 28%), and the property price increase suddenly seems more significant. 

According to David Prosperio, USC Marshall School of Business Assistant Professor of Marketing and co-author of a research paper on the topic, this is a year-over-year price growth of approximately 5.7% per year. 

What’s driving the property market is an increased interest from investors, who see an opportunity to make money on the short-term rental market — much more money than is possible when renting out properties with long-term leases. 

The Impact of Increased Rental Yields

Research shows that an increase of Airbnb short-term rentals has driven rental prices in an upward direction by more than 3% every year, as landlords recognize the opportunity for revenue growth. Some critics say in doing so, the volume of long-term rentals is diminished for people who need a place to live. With rental supply far less than demand, along with price increases, housing affordability issues can be exacerbated.

Minimizing Your Risk When Selling Airbnb Properties

Airbnb is having an impact on the real estate industry, and the landscape for short-term rentals across the country is changing at a rapid pace. With 150 million users, Airbnb is no doubt a popular platform for travelers, and it’s well-known to investors out to get good returns on their investment properties. But, as a real estate professional, you need to be aware of the risks of selling an Airbnb property or selling property with Airbnbs surrounding it. 

Here are some tips to minimize your risks and protect yourself and your business:

Don’t oversell the benefits

Undoubtedly, Airbnbs can be a profitable enterprise, but real estate agents shouldn’t oversell the benefits when selling an Airbnb home. While there is a possibility to make considerably more money through short-term rentals as compared with renting longer-term, there are also many additional costs and risks. 

Finding one good tenant can be a challenge for landlords. With short-term or holiday rentals, there is a revolving door of people coming in and out of the property, which certainly increases the odds of coming across a less desirable tenant. Just this year, there was a case in Arizona, where 7 guests trashed a home along with more than 25 other “friends” who were not supposed to be at the property. In Michigan, a similar case had fatal consequences when a party of 300 people turned deadly and a young man was shot dead in the driveway of a rented Airbnb. 

Some cities also charge occupancy taxes. For example, in San Diego, an additional 10.5% is added on to the listing price of Airbnbs for reservations of 30 nights or less. 

Check local regulations and zoning rules

Real estate agents should be careful if marketing an Airbnb property for sale, as it may not even be allowed within local regulations and zoning rules in certain locations. Plenty of short-term rental owners are skating on the edge of local regulations, as cities and councils try to keep up with the increase of short-term rentals on the market. Just because a property is currently an Airbnb does not necessarily mean it has the appropriate permissions.

Some restrictions on short-term rentals that cities may impose include a requirement to live in a property for a period of time before renting it out. Others limit the number of rented days allowed. Some may go so far as prohibiting short-term rentals altogether (however, this is rare). 

Other regulations that buyers of Airbnb properties need to be aware of are homeowners’ association regulations, restrictions on subletting in apartment buildings and/or restrictions imposed by their finance company or bank.

As a real estate professional, it’s best to not give advice outside of the scope of your expertise. Simply advise the buyer to contact the local city office to find out what local regulations apply.

Disclosures — Getting it Right

As an agent, you may have an obligation to disclose, even if you’re not selling an Airbnb property. For example, if you’re selling a property surrounded by short-term rentals, you (and the seller) may need to disclose this information, as it could materially affect the value of the property and a buyer’s decision to purchase. After all, there is often a stigma associated with neighborhoods where occupants change every few days. 

Either way, you should encourage buyers to do their own due diligence before deciding to purchase. 

Insurance Protection for Real Estate Professionals

Real estate professionals face risks in business every day. To make sure your business is protected in case of a lawsuit, contact CRES on 800-880-2747 for a confidential discussion about real estate E&O, a Business Owner’s Policy and more.  With a CRES E&O + ClaimPrevent® policy, you’ll also get expert advice available any day of the week at no extra charge from experienced attorneys. 

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published January 22, 2020

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