How and Why to Collect Application Fees
by Robert McCain
This is something you charge an applicant for checking their rental application. Many state Landlord/Tenant Laws are specific about how much you can charge and when you can charge it.
In a nutshell, you can charge a “screening fee,” but only in an amount that covers your costs or is equal to what a tenant screening service would charge.
You have some leeway, but not much.
A fee of $25 to $35 is probably the maximum you want to charge.
Application fees are not meant to be a profit center. The fact that some landlords used application fees as profit centers resulted in the legislature adding this piece to the Landlord/Tenant Laws of many states
Charge the fee and you undertake a number of responsibilities to the applicant.
1. You have to tell them what you are going to check.
2. You have to inform them of their rights to dispute any information you uncover.
3. You have to tell them the name of the screening service or credit reporting agency.
4. Even if you don’t charge an application fee, but you reject them as tenants because of information you received from a credit agency or tenant screening service, you have to tell the applicant that you rejected him or her because of the information you received, and give him or her the name and address of the service or agency.
5. You need not tell applicants the specific results of the credit report or screening report, only that it caused you to reject them. They need to contact the agency for the specifics. You can, however, give them a copy of their “consumer report,” as defined in the Fair Credit Reporting Act.
6. You may not charge a fee unless you actually have a unit available to rent at that moment or expect one within a reasonable length of time.
7. If you charge an application fee but never screen the applicant, you have to give the money back “within a reasonable time.”
You have three excellent reasons for charging an application fee:
First and foremost, it pays for your time and expense of screening an applicant.
Your time is worth something. When you applied for the mortgage loan on the property you now own the lender undoubtedly charged you a fee for the credit report and the appraisal. They also charged you “points” to pay for the loan officer and possibly even a “document preparation fee” to pay for the cost of putting the loan documents together. They did that because they are in business to make a profit. So are you. Charge an application fee.
Second, and almost as foremost, it cuts down on the number of unqualified applicants you will get.
If a bad tenant knows you are going to pull a credit report and look for court records that would show evictions and felony convictions for drug dealing, he may not even bother to fill out the application. Bad tenants count on you not checking on them. Even so, some people don’t think that you will discover all their dirty secrets. They will fill out the application and pay the fee anyway. (Nobody said they were smart.) In that case, you have at least been paid for your time.
Third, it sends a message to your prospective tenant from the beginning that you run your rental business as a business.
That sets the tone immediately, telling them that you are not their best buddy, you are not an easy mark, but you are providing a service for them, are happy to do it, but expect them to keep up their end of the bargain.
Copyright Cain Publications, Inc., used by permission.
Robert Cain is a nationally-recognized speaker and writer on property management and real estate issues. For a free sample copy of the Rental Property Reporter call 800-654-5456 or visit their web site at www.rentalprop.com.
American Apartment Owners Association offers discounts on products and services related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
See our feature, Is Your Lease Application Falling Short?
To subscribe to our blog, click here.
Accessibility