My husband and I have heard a great deal of hype about Airbnb in recent months and have considered using couchsurfing for years, so after the NYTimes article early last week, we decided to take the plunge. Within the day, we had listed our primary residence, a condo in Northern New Jersey and our summer home in upstate New York on Airbnb. We bantered back and forth about showing worldly strangers around places we know and love. As perennial scrappy start-up kinder, we thought about the passive income that could potentially come rolling in to fund new and old fangled ventures. And then, the reality set in--- we would be opening our home(s) to the world at large, literally.
At first we thought about logistics: what do we do about keys, what do we tell our doormen, what criteria do we use to choose our home's suitors? Then we thought about theft and damage, art and knick knacks from our world travels, my grandmother's furniture, my antiques, our identities. My husband began to fret about his books (his biggest worry). As far as keeping out nefarious elements, we were fairly certain we both had the gut instincts and research skills to sniff out the bad ones. However, rather instinctively, we realized we'd need to move out all important paperwork, jewelry and small valuables, making our home slightly less authentically 'homey' but soothing our worries about loss a little. 'Don't tempt a thief.' We had built a sanctuary, a corner of the universe that is all ours and we began to worry about violating it. "Push past it", we both thought.
Within two days I was contacted by a friendly entrepreneur from NYC, who has worked with the UN and Peace Corp. He wanted our summer home for this past weekend. "Ok", I thought with a sigh, this all would begin sooner than I had expected, "We better prepare the house and ourselves", I cautioned my husband. "Am I ready for this?," I thought to myself. I began working out arrangements with the potential guest and realized that we wanted a little more lead time to open the house to outsiders, so we turned him down. In corresponding with the epitome of the perfect Airbnb user and going up to our home this weekend, we both breathed a deep post-mortem sigh of relief that it didn't happen. As I skimmed the surface of the pool up in the mountains yesterday, and we had the chance to discuss the two week August request for our condo that came on Friday, I began to solidify my thoughts and concerns about this system. Suddenly, the romanticism of cultural exposure, new found friends, oodles of passive income, lollipops and rainbows washed away and the engineer in me was crunching the numbers while the entrepreneur and management consultant forced the hard realities to bubble to the surface. It was then that I realized that no matter how keen I am on the whole concept in a vacuum, for us, it did not pass the basic sniff test for reasonableness in reality. The risk reward ratio was too high and lopsided against us as homeowners. I decided then that I needed to write about it. Little did we know in our blackberry service deprivation the furor that was happening online.
I have faith in the basic decency and goodness of people, but I also know that six sigma events occur beyond anyones control and despite the best of intentions. My biggest concerns boiled down, not to my personal belongings and violating my personal space, but to basic liability law. Let's start with the law of the land. Our town, and most towns as far as I have researched have laws on the books from nearly a century ago regarding boarding houses. It is variable by municipality, but in a general broad statement, renting out rooms is technically illegal. Many municipalities restrict it all together, while others require fire inspections, certificates of occupancy, egresses. All and all, it is effectively considered an illegal apartment. As far as renting out an entire apartment or house, more and more cities including New York and Paris (the two most popular according to the Airbnb website) are cracking down on non-owner occupant short term rentals. How much that could or would be enforced is questionable, like j-walking or public cursing, these could be laws on the books that are only occasionally used to set an example. But who knows, especially with the visibility and growth of Airbnb.
Then I began to consider the concerns of our neighbors. Certainly my building would not take kindly to, what they would deem, transient elements walking the halls. If pressed, they could probably either find something in the by-laws to restrict it or put it up for a vote in our almost entirely owner-occupied building. At best, we might make friends with people who live half-way around the world, but not with the ones we would see in the hallways everyday. At worst, our building could impose a fine, force us to take on more of the insurance policy for the common areas. Lord knows what else?
And that brings us to the crux of it: insurance liability. We have a fairly basic homeowners insurance policy on both of our homes, and since they both sit within a larger community, that policy is augmented by a larger umbrella policy that covers external parts and common areas, for which we share the expense with the rest of the owners. I began to think about the potential moral hazard of the boarders. Also, what if someone were injured in the home. Suddenly the big question came--- 'What if someone tripped and fell from the balcony of our condo (many stories up on a cliff over the Hudson, this would be sure death)? What if God forbid, a child drowned in the pool Upstate (they call it legally an attractive nuisance for a reason)?' Further, 'what if the worst imaginable thing happened, and someone died on our watch (and our property)?'
It would be tragic no doubt, and forever taint our home with a morbid reality. But also, thinking about the technical realities of responsibility, we (and our insurance company) could potentially be on the wrong end of a wrongful death claim. Not just that, but our umbrella policy might also come into play. And this is where the real hairiness begins. If this were a rental property, I would have investment property insurance rather than an ordinary homeowners insurance policy and I would probably require a long term renter to have proof of his own renter's insurance. Neither of which I would have to protect me as the landlord in the context of Airbnb. Knowingly renting out the property with the wrong coverage would be acting in bad faith, and unknowingly doing so would be considered negligent. Technically, I would be violating the terms of my insurance policy to have a boarder (according to my agent, who I called out of sheer curiosity) and hence there is the possibility of voiding a pay-out to the injured party and making my policy as a whole voidable. I would also probably be violating the terms of the umbrella policy, not to mention, the laws of the corporations and the land. I would be entering into the case with unclean hands in every direction and I would probably be opening up other owners, and the corporations themselves to liability, for which both parties would hold me accountable. In this stark and extreme picture, at best I go bankrupt, at worst, the common property is also seized and I face criminal and civil litigation.
As I see it, Airbnb is based on a shadow economy like Napster was. When the illegal actions were minor, rare, and peer-to-peer, everyone looked the other way. But once it became larger and commercialized is when government agencies and corporations began to take notice and issue. And the litigious issues aren't just liability and local laws, think about fair housing issues and the ADA. The word 'disruptive', as many people in the VC and start-up community love to use, doesn't really apply when the behavior is actually illegal and harmful to it's users.
Airbnb loses if it does not address the gaping holes in their business model. Say the unfortunate and unforeseen happens and Airbnb is taken to court--- say they do win the battle that their non liability statement is enforceable (which I'm not so sure it would), they still lose the war of consumer confidence. If they can rectify the legal issues, I'd say it's an obvious step that they get into the insurance brokerage and background check business. They can begin by providing riders to hosts for a higher percentage of the transaction (currently 3%) and supplying guests with renter's insurance for an additional fee, like the travel sites do with trip insurance. Then as far as creating a safer system, beyond personal reviews, they should consider implementing a basic background check for renters, particularly at the request of the hosts. Otherwise they are leaving a large gap in the personal liability of users, and hence, in their own corporate liability.
It all reminds me of something my mother would drill into my head as a little girl. I was six and had been recuperating from a strep throat and was given permission by my doctor to go back to school. My mother wrapped the antibiotics and Tylenol I would need for that day in tin foil and put it in a zip-loc baggy, with a note for the nurse. I was to bring it directly to the nurse when I got to school. My mother's warning was stern and emphatic, no matter what any other child says, "Do not give them these pills! If another child were to take them and something were to happen" she warned, "We could lose our house!"
I didn't entirely understand what my mother meant, but I obeyed and did not give another first grader my medication. So now that I have my own home, I completely internalize what she was attempting to explain and hence, as it stands I will not be giving my bed to an Airbnb guest.
Thanks for the lesson, Ma.