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Application Fees 101

The best way to ensure that you rent to quality tenants is to screen them properly.

Unfortunately, this can often become costly, since every time you run a potential tenant’s credit, criminal, and sex offender history, you’ll have to pay to do so.

If you have multiple applicants for the same home or unit, your time and costs could quickly become burdensome.

Since renting to someone based on your best guess is not a good idea, charging a screening fee allows you to get a comprehensive understanding of their past performance and history without wasting your own money.

When you pay to screen someone and their history comes back riddled with missed payments and evictions, or even a criminal issue, you’ve spent money on someone you never would have rented to in the first place.

A fee can cover your costs and, in some cases, allow tenants to pre-screen themselves; tenants who know they will fail the background check often won’t be willing to apply at all.


Are Application Fees Legal?
Application fee laws will vary based on where you live. Some states, like Massachusetts, do not allow landlords to charge application fees at all.

Other states, including California, Wisconsin, Virginia, and Minnesota, have strict limits on the amount that can be charged and how the application fee should be handled.

Checking the laws in the state where your rental property is located ensures that a fee is legal in your area and that you are following all of the guidelines for your area.


Who Pays the Application Fee?
Each adult who will be signing the lease and who will be responsible for paying the rent should be screened. If you are renting to a pair or a trio of roommates, then you’ll need to screen each of them. For families with kids, you can screen both parents and kids over the age of 18 who will be living in the home. Anyone who is going to be responsible for the rent payments and who plans to live in the home should be screened, as well as charged a screening fee.


What Can You Charge?
When you run a prospective tenant's credit, criminal record, and other histories, you’ll be charged a fee.

You should pass this fee along to the applicant in the form of a screening fee.

If you live in a state that allows it, you can also include an additional amount to cover your administrative time as needed.

A quick look at housing ads in your area should give you an idea what other savvy landlords are charging.


Discrimination Laws
If you decide to charge a fee, you must follow the laws in your state and charge the same amount for every prospective tenant.

Changing the amount for a tenant based on gender, race, age, and a variety of other protected factors could get you into trouble.

Make sure you’ve chosen a set amount for your screening fees and state the same figure for everyone who applies in order to avoid breaking Fair Housing laws.


Application Fee as a Screening Tool
Charging an application fee can eliminate some tenants from the running immediately, since they will need to be truly invested in the idea of renting your property to hand over actual cash with their application.

Prospective tenants who balk at the idea of a fee are likely not that interested in your property or simply want to take a closer look.

Application fees allow you to eliminate repeat showings for “tire kickers,” prospects who just want to look around, but never follow through.

Application fees can also allow prospective tenants to take themselves out of contention.

If you screen for criminal records or sex offenses, some tenants will opt out of applying all together, knowing they won’t pass a screening.

 

Posted on Jul 17, 2015

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