How Airbnb Works

Renting a property with Airbnb happens entirely online. One of the keys to the company's success is its well-designed, eye-catching Web site. In the early days, the founders visited each of the New York rental properties personally to take good photos and write up colorful descriptions [source: Thompson]. That insistence on quality continues in Airbnb's streamlined and user-friendly online experience.

The first step in renting a property with Airbnb is to browse the thousands of listings on the site. If you know exactly where you want to stay, type in the city and neighborhood name along with your travel dates. If you only know the city you want to visit, let Airbnb be your neighborhood guide. There are detailed neighborhood guides for 21 of its most popular destinations from Tokyo to Miami to Mexico City. Within each neighborhood, Airbnb displays some of the top listings along with their nightly rates.

If you use the Airbnb search tool, listings are automatically displayed from least to most expensive. You can use a number of filters to customize your search results by price range, type of property (entire place, private room or shared room), and even by amenities like free WiFi, a kitchen or "kid friendly." Airbnb also displays search results geographically on a map. This is helpful if you want a place near the beach or close to downtown shopping districts.

Click on each listing to read detailed descriptions of the property and view photos. Scroll down to read reviews from previous guests and see how many "stars" the property and host have received in categories like cleanliness, location and communication. Pay careful attention to the host's cancellation policy and any extra charges like security deposits and cleaning fees. Also note the host's "house rules" about quiet hours and other personal preferences.

When you find a place that you like, click the blue "Request to Book" button. That allows you to send a message directly to the host requesting a reservation for your selected travel dates. To send the message, you must first sign in to Airbnb using Facebook or Google+, or create an Airbnb account.

Once the host accepts your reservation, you pay in full by credit card and your host sends a message with the exact address and other check-in information. Note that Airbnb charges between 6 and 12 percent on top of your nightly rate to cover its own fees. Airbnb holds on to your money until 24 hours after your arrival to make sure that the accommodations are acceptable. After your stay, post your own review of the property and host on Airbnb.

Now let's look at the Airbnb experience from the host's perspective.

Listing a property on Airbnb is like creating an online profile on a social network. First you need a catchy title for your listing. "1 bedroom apt" won't get nearly as many clicks as "Cozy 1-bedroom just blocks from Central Park." Then you need to write a full description of the property, selling the benefits of its location, its amenities and yourself. In fact, you will create a separate host profile to post a picture of yourself and share your story.

Pricing is a hugely important consideration. Airbnb allows you complete freedom to set your rates, but suggests that you search for similar properties in your area and price competitively. Not only can you set nightly rates, but you can offer weekly and monthly rates to attract longer-term travelers. It's free to list a property on Airbnb, but the company keeps 3 percent of every reservation.

Pictures are the heart and soul of a property listing. Airbnb allows you to post up to 24 pictures of your place and will even send over a professional photographer for free in select cities. If you take your own photos, use as much natural light as possible and include shots from several different angles, including outside the home.

As part of your listing, you can include any "house rules" for prospective renters. Indicate whether or not you allow alcohol, smoking, pets or children, and whether there are "quiet hours." You are also allowed to charge a security deposit and a cleaning fee. Airbnb lets you choose from five different cancellation policies that vary in strictness and flexibility.

Good communication is essential for booking reservations and maintaining a good rating. As a host, you are required to accept or deny a booking request within 24 hours. Your response rate is listed with your profile and hosts with bad response rates appear lower in search results.

During the booking process, it's up to the host to vet prospective renters. Airbnb has built-in tools for verifying a renter's identity using online social networks — plus guest reviews by other hosts — but it's the host's responsibility to ask questions that reveal if the renter is trustworthy and a good fit for the property.

Once the booking is confirmed and payment is made, Airbnb makes "payouts" to hosts via PayPal, direct bank deposit or check. Hosts are asked to meet the guests at the property and give a brief tour of the amenities. After the stay, hosts typically review each guest for the benefit of future hosts.

Airbnb has been wildly successful at connecting adventurous travelers with entrepreneurial property owners around the world, but some folks believe the company is basically a black market for hotel rooms. Keep reading for more on Airbnb's legal battles.

The highest-profile case against Airbnb is happening in New York City. To taxes on that income. By contrast, if you rent out your New York apartment using Airbnb, it costs you almost nothing.

Airbnb is popular enough in New York that hotel owners have taken a hit and brought their case to state attorney general Eric Schneiderman. According to a 2010 New York law, it's illegal to rent out your apartment for less than 30 days if you aren't present in the apartment. Many Airbnb hosts in New York rent out their apartments when they themselves go on vacation, making all of those temporary transactions illegal [source: Abbruzzese and Plautz]. The attorney general subpoenaed Airbnb to hand over its database of New York hosts, but as of 2014, Airbnb was fighting the request in court [source: Schneiderman].

Instead, Airbnb has vowed to police its own users, deleting listings and banning hosts who appear to be running "illegal hotels" [source: Abbruzzese and Plautz]. The profile of an illegal hotel would be an individual — or a corporate entity — renting out several units in the same building, all with long-term availability.

Some landlords have gone as far as to evict tenants, sensing that they can make more money off short-term guests rather than long-term tenants. In Berlin, city officials attribute the huge rise in apartment rental rates to Airbnb [source: Monroe].

In San Francisco and Portland, Airbnb has come under fire for not requiring its hosts to pay local hotel taxes. In 2014, the company reversed its stance and agreed to automatically charge a 14 percent hotel tax to all San Francisco guests and 11.5 tax to Portland guests [sources: Said, Rogoway].

In addition to fights over taxes and rental law, there have been some high-profile cases of Airbnb guests using their host properties for illegal purposes. For example, New York authorities uncovered a prostitution ring that rented apartments through Airbnb weekly and used them in lieu of hotel rooms [source: Sauchelli and Golding].

With a $10 billion valuation, Airbnb is getting bigger than some mainstream hotel chains. But if the company wants to attract more mainstream hotel customers, it will likely have to play ball with city governments and bring the sharing economy out of the Internet shadows.