Why Your Airbnb Listing May be Illegal and What You Can Do About It

Before renting out your home to earn extra income, brush up on the local rental laws and rules.

U.S. News & World Report

Is Your Airbnb Listing Illegal?

White interior of living room with colorful pillows

Before listing your property on Airbnb, familiarize yourself with local short-term rental laws, zoning restrictions and regulations from municipalities and associations.(Getty Images)

The 2017 Super Bowl in Houston ushered in an estimated 150,000 guests. Those visitors weren't just a boon to local hotels, but also to residents renting out rooms and properties via short-term rental platforms such as Airbnb, HomeAway and VRBO.com. More than 8,200 people reportedly stayed at an Airbnb property alone.

And according to Christopher Nulty, Airbnb's head of public affairs in the Americas, 50 percent of the listings that were booked for the Houston Super Bowl were hosted by people who had never rented out their property on the site before. For the 2018 Super Bowl in Minneapolis, 70 percent of available listings on HomeAway were booked by October 2017 and average rates were listed for more than $2,300 a night.

It isn't just major events that are encouraging homeowners to rent out their properties. There is money to be made year-round, particularly in vacation hot spots such as ski resorts and Disney parks. In fact, the HomeAway 2018 Customer Satisfaction Survey found that the average homeowner renting on the site made $32,000 a year.

But before you list your property, you'll want to familiarize yourself with local short-term rental laws, zoning restrictions and regulations from municipalities and associations. Read on to learn more about various regulations you might encounter, and what you should do if you ever find yourself booked in an illegal rental.

Understand current regulations. Short-term vacation rentals are nothing new. For example, VRBO.com's roots can be traced back to 1995. But the industry took off with the founding of Airbnb in 2008. John Manning, managing broker at real estate firm RE/MAX On Market in Seattle, says he was one of the early adopters in the short-term rental business and he's seen how cities have stepped up regulations in recent years.

"As a short-term rental owner, I welcome it," he says. From Manning's perspective, government licensing not only ensures rental properties are operating within established ground rules, but also creates stability in the housing market. Without regulation, people might be quick to snap up properties to rent out, which could reduce the affordability and community atmosphere of local neighborhoods.

A challenge for owners is the myriad regulations that have sprung up across the country. While some municipalities like New Orleans restrict short-term rentals to certain zoning districts and require them to be licensed, others prohibit them in certain properties. For instance, the New York State Multiple Dwelling Law prohibits rentals of less than 30 days in buildings with three or more apartments, unless the owner also resides there.

But not all communities are trying to squash short-term rentals. San Francisco changed its law in 2015 to expand the legality of short-term rentals. Today, its regulations limit rentals to 90 days per year if the host isn't present and requires the collection of a hotel tax.

Rent legally. Before renting, homeowners must understand their local laws. "It's hard to provide a clearinghouse [of rules] for everyone because there are many, and they change so quickly," says Melanie Fish, a HomeAway spokesperson.

However, that hasn't stopped some platforms from trying to help owners navigate the laws in their area, Nulty says. Airbnb works to direct property owners to local ordinances, when known, during the site's registration process. The company also helps link those new to the short-term industry to more experienced users through groups called host clubs. "We have more than a thousand host clubs around the world," Nulty says. Club members share information on local regulations, along with tips for managing guest expectations.

Still, owners should reach out to their local government directly to check for updated ordinances and policies. "It's really as simple as calling the clerk's office and having a frank discussion," says Mark Hakim, counsel with the law firm Schwartz Sladkus Reich Greenberg Atlas LLP in New York City.

Also, keep in mind that local governments can easily identify illegal short-term rentals. Officials may patrol neighbors and look for extra cars in driveways and other telltale signs of a rental, or look up their municipality on popular rental platforms and cross-reference those properties with those registered to operate in the community.

In addition to checking local ordinances, review any homeowners association, co-op or lease agreements for your property. Lastly, check state and local tax requirements and make plans to collect and remit these taxes if the rental platform you use doesn't already take care of that on your behalf.

Get proper insurance. Owners of short-term rentals also need to be sure they have adequate insurance coverage. "When you own something large, that puts a large target on your back," Manning says.

Some rental platforms automatically provide insurance for owners who list and book stays through their site. Airbnb, for instance, offers $1 million liability coverage and $1 million in host protection. HomeAway and VRBO.com also offers $1 million liability insurance. The key for any of these policies to be effective is that the property must be booked and paid for through the rental website. If you're renting your property through a method or platform that doesn't offer insurance coverage, you'll need to buy your own. You may also want to buy your own coverage to fill in any gaps left by the complimentary insurance policies, including property issues such as mold or pollution.

Ana Robic, chief operating officer for North America Personal Risk Services at Chubb, a property and casualty insurance company, says a typical homeowners policy won't cover any losses that occur while a property is being rented. Some companies may let existing policyholders add coverage for home-sharing, while others may recommend a commercial policy if the property is used mainly for rental purposes. "Every insurance company is going to treat it differently," Robic says.

What to do if you book an illegal rental. Despite efforts by online platforms and government agencies to educate people on the legal requirements of short-term rentals, hosts continue to list and rent out illegal properties. Though rare, it helps to know what to do should you find yourself in an illegal rental.

First contact the owner. Then, call the listing company for additional help as needed. HomeAway offers an emergency relocation service that can be used in these instances. "It's important to call customer service immediately," Fish says. "Don't wait until after your trip."

Finding another property or hotel on your own might seem like a smart idea, but the company may not reimburse you unless customer service has been consulted in advance. For instance, Airbnb's Guest Refund Policy offers either a refund or reasonable efforts to book comparable accommodations, but it requires you to contact customer service within 24 hours of discovering the problem.

In some jurisdictions such as New York City, only the police can remove someone from the premises, Hakim says. If a landlord knocks on the door and tells you the rental is illegal, "Certainly, you don't have to vacate immediately," he says.

But a heated confrontation isn't in your best interest. "You are better served by finding temporary housing immediately," Hakim says. Also, keep in mind that a property owner can't legally require payment for an illegal unit, and your credit card company or a civil court may be able to help with reimbursement should the owner refuse to issue a refund, he adds.

While renting out your house can be lucrative, it will require some work on your part. Make sure you understand your local requirements – and comply with them – and have proper insurance should anything go wrong.

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