Splitting rent is awkward
…but it doesn’t have to be. Splitting rent the efficient, unemotional way
San Francisco has some of the highest rent in the country, so when I moved here a year ago I had to find roommates, and someone was going to have to sleep under the stairs.
The Theory on Awkwardness
Deciding rent is uncomfortable because no one wants to get stuck with the bedroom with 3 doors, or pay an exorbitant amount, or have the room with no window, but inevitably, someone’s going to end up there.
This discussion becomes uncomfortable because
1. We can’t help comparing what we have to someone else
2. Everyone values rooms differently (making objective valuations difficult)
On our comparative nature
Fundamentally, we compare our potential room to other rooms. Talking about finances is awkward (although it shouldn’t be) since it feels weird to have to pay more or less than someone else, and all things equal no one should pay more than someone else (discriminatory pricing).
On different values
Everyone has fundamentally different values and different needs. This creates inconsistencies among individual valuing different rooms. Attempts to solve this (objectively pricing rooms based on square feet), by nature are inefficient, since choosing a room is subject to many more values that cannot be objectively quantified.
The Solution
After living in 10 places over the past 5 years, by far the most efficient process I’ve used is a modification of a first price, sealed bid auction https://en.wikipedia.org/wiki/First-price_sealed-bid_auction
First, everyone privately values each individual room at the maximum amount they’d be willing to pay, provided that the total of the values adds up to the total rent to be paid.
Second, everyone reveals their pricing at the same exact time (preventing any unethical players from changing)
Third, moving from the most expensive room to the least, the person that bid the most for that room receives the room at the price they value it at.
In the event of a tie, check if the individual placed a max bid on two rooms and let them decide which room they really want.
Fourth, there will inevitably be a surplus. Redistribute that evenly across all roommates.
This process works well for three reasons:
1. Everyone is anchored on a price because the sum of all bedrooms must equal the total. This prevents wildly inaccurate pricing (i.e. someone who says they won’t pay more than $300 for any room)
2. Personal values are reflected in the valuations
3. Everyone ends up paying less than the maximum they were willing to pay, so it’s a guaranteed discount.
It’s main drawback:
1. All roommates must be able to accurately assess each bedroom. (This breaks down with imperfect information)
Example
Given 3 roommates, 3 bedrooms, and a total rental amount due of $5100 ($1700/person)
Bedroom 1 is the largest, 2 has no windows, 3 is the smallest.
Place the bids
Roommate A bids: 2100, 1500, 1500
Roommate B bids: 1900, 1500, 1700
Roommate C bids: 1850, 1600, 1650
Pick the most expensive rooms first
Roommate A received bedroom 1 for $2100
Roommate B received bedroom 3 for $1700
Roommate C received bedroom 2 for $1600
$2100 + $1700 + $1600 = $5400
Decide discount
Leaving a surplus of $5400–$5100 =>$300 left over
$300/3 people = $100 off each maximum price
Satisfy roommates
Roommate A ends up paying $2100-$100 => $2000
Roommate B ends up paying $1700-$100 => $1600
Roommate C ends up paying $1600-$100 => $1500
All three roommates are satisfied, since they are paying $100 less than the maximum they were originally willing to pay.
Free Web Application
For those interested in using this process, I found a web-app that does the math for you. http://www.spliddit.org/apps/rent
Alternatives for this process
> Everyone pays the same amount (Rarely works out)
> Splitting rent by square foot in each room (Often a neutral opinion)
> Each room is bid on individually in order (this suffers from a lack of anchoring)
Shoutout to my current roomies for pioneering this process:
Akshat Agarwal: https://www.linkedin.com/in/akshatag/
Krishna Bharathala: https://www.linkedin.com/in/kbharathala/
Parth Chopra: https://www.linkedin.com/in/parth-chopra/
