Do You Charge A Renter's Application Fee

Do you charge a potential renter to run his credit/background check or do you absorb this cost?

Comments(11)

  • davmille25th February, 2004

    I use PMs and they all charge about $25 for a background/credit/criminal check. Although the tenants don't like it, they don't put up a big fuss about it. If they refuse to pay, it would just make me wonder if there was some reason they didn't want the check run on them.

  • bgrossnickle25th February, 2004

    You have to charge an application fee to cover the expense of the credit report. If the tenant like the place, is serious about moving in, and has the money they will pay the applicaiton fee.

    I also take a $300 holding deposit at the time I take the rental application. This means that they are really serious. The 300 is returned if I turn them down. If they are approved it is non-refundable and applied towards the security deposit. I do not want to waste my time running credit reports, calling phone numbers, doing reverse looking up phone numbers, looking up addreses at the property appraiser site, call landlords, etc without knowing that they are commmited.

    Brenda

  • Sandbahr25th February, 2004

    In the city where I live there are more than 900 empty apartments at any one time. If I would charge an application fee
    I don't think that I'd get any tenants. No one else around here charges one. As a matter of fact, I'm one of the few landlords around here that even does any kind of background check or even calls former landlords etc. I think it all depends on your market. Around here you just absorb the cost. If you ask enough questions and let the renters know your standards you will weed out 75% of them anyway.

  • Bruce25th February, 2004

    Hey,

    If you do not charge an application fee, you will get dozens of apps. that are worthless. You will waste your time and money on tenants that have no desire to rent your house.

    Here is how to use an application fee successfully:

    1) Charge $35 (or whatever) per application.

    2) On the bottom of the application mention the fee MUST accompany the completed application. If you don't do this, you will get apps without the fee.

    3) Mention that if the tenant signs the lease the fee is deducted from the first month's rent. This will get you around the objections you will receive about charging a fee.

    4) When you get the apps, first check all the financials (salary, debt, etc.) before you submit if for credit/background checks. Many times the tenant will not qualify, based on your rules, so do not waste the money.

    5) Put the app fee in your pocket.

    I can not imagine asking for $300, as a holding fee, when I get the app. Most people would balk at this. My houses are all in the $750-$950 range.

  • alexlev25th February, 2004

    If you don't feel comfortable charging an application fee upfront, try one of these two approaches.

    1. In some areas you may be able to contact the local utility company to find out what the applicants payment history was like at their last place of residence. This won't give you their entire financial history, but you'll know if they were ever late paying their utility bills and that says a lot about a tenant.

    2. Do a preliminary approval using the application and references. Select a finalist and a runner up. tell the finalist that you've chosen them and the only thing you need to do is to check their credit history, for which they'll need to provide you with a particular sum of money. Tell them that if everything checks out okay, they can move in. If it doesn't you call the runner up and do the same thing with him. You'll actually need to inform the applicants of this process before they start filling out the apllications. And this apporach may end up costing you a bit more time than asking for the money up front. But applicants will be much more willing to pay you this money if they know that you've approved them and just need this final check before you let them move in. This way no one will think that you're just trying to milk a fee from them with no real intention of letting them move in.

    Good luck.

    Alex
    [addsig]

  • rkgsx26th February, 2004

    We charge a $35 for a credit/background check.

    We have 3 scenarios for what becomes of the fee:

    We apply the fee to the person's security deposit if they pass the check and take the apartment.

    We keep the fee if they pass the check and then turn the apartment down.

    We return the fee if they fail the check.

    We are up front in our ads what we charge and what we check for & this seems to weed out a lot of potential bad tenants.

  • InActive_Account26th February, 2004

    We charge a $25.00 fee. Just to pay for the credit report. That is charged if they get the unit or not.

  • Bruce27th February, 2004

    Hey RKGSX,

    I am not sure I understand the benefit of your policy in returning the app fee if they FAIL the check.

    If I am a "bad" tenant, and you tell me that if I fail the check (credit, rent background, etc) I get my app fee back, what is my incentive NOT to give you an application?

    You would pay to do the check (at whatever your cost is) and then give me my money back; it seems like a losing proposition to me.

    Am I missing something?

  • hibby7627th February, 2004

    If you can get away with it in your market, then do it. In some you can, in others you can't. If you're in a soft market and have a nice place that you're renting for $100 under Fair market rents, and people are beating down your doors then go ahead and do it also.

    I think rkgsx has a good idea.

    This gives people the motivation to disclose everything on their application so that they're not out the $25, because it's their loss, not yours. Additionally, if they decide NOT to take the apartment then you still get the $25 (if I read it right). Gives them an incentive to call you back and follow through. I think I'll start doing that.

  • Bruce27th February, 2004

    Hey Hibby,

    MAybe I am not reading this right, but that is not what it says.

    If they fail the check, they get their money back.

    So if they DON'T put bad information on the application and they fail the check, they get their money back.

    There is NO incentive to NOT fill an application, even if you are currently being chased by the cops. You get your money back.

    The landlord is out $25 (or whatever the checking costs them).

    You do NOT ever return app fee money, unless you do not process the app (the house has been filled).

  • rkgsx27th February, 2004

    We made the decision to refund someone's money for two reasons:

    If we reject them, we felt it would lower the chances of being sued for "discrimination".

    We were thinking along the lines of this scenario:

    "I'd paid you 35 bucks to run my credit. My credit is fine. I know you didn't lease me the place because I am X (where X is the supposed grounds for the suit). I'm going to sue you for discrimination"

    We're up front with people and tell them we're checking credit and criminal background. That weeds out most people up front. Refunding their money if they still get rejected would hopefully make them less angry.

    The second reason is the case where two or more applicants fill out an application within a short amount of time of one another. Our rule is that if their credit scores are identical, the person who made first contact about the apartment gets it. We felt it was then fair to return the other applicants money.

    Does this strategy maximize my LLC’s profits? No.

    Does it help protect me from getting sued? Maybe.

    Does it help me sleep at night knowing that I’m making my best effort to run a fair and unbiased RE rental company? Definitely.

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