Rent Application Fees: Everything Landlords Need to Understand
It may have taken a lot of effort, but your property is finally ready to rent. You've got it listed and are now waiting for the interested renters.
Before you begin reviewing potential tenants, you need to set up the structure of your application. Not only do you need to collect specific information, but you need to decide about the related fees.
Rent application fees can cover your upfront expenses of vetting tenants. This includes things like running credit and background checks. To get the dollar amount right, you need to know your costs and how much you want to charge back to the prospects.
What are rent application fees?
Rent application fees are something you can charge as soon as a prospective renter decides to fill out an application. They're separate from any deposit a tenant will make when they sign a lease. Application fees get charged to everyone who's interested enough in your property to complete a rental application.
If you decide to charge an application fee, determine how much each rental application will cost you. This includes things like paying to run a credit check and/or background check. These fees can also cover the cost of your time to review each application and verify their information.
How much should you charge?
Rent application fees should only cover expenses associated with processing a rental application. As such, your total shouldn't exceed your actual costs. You should also check local laws to make sure it's legal to charge these fees and if there is a maximum fee allowed by law.
By totaling your typical expenses, you'll be able to come up with a dollar amount that would reimburse you to process each rental application. The average fee is between $35 and $75. However, if that range doesn't cover your expenses, it won't cover those of other landlords in the area, either, so it may be OK to charge more.
Other factors that influence fees
The location of your property and the local rental market can each impact your rent application fees. The more desirable the area, the more you can charge. This enables you to move quickly on applications and ensure your fees match your rent (which can also go up based on desirability).
Proper usage of rent application fees
Collecting these specific fees and not using them for their intended purpose can get you into trouble. Prospective tenants could see this as fraudulent behavior, which would raise red flags about what kind of landlord you'll be. This could then make it harder for you to find a tenant willing to trust you which makes your property harder to rent.
When do I collect them?
Rent application fees get collected at the same time a renter completes the application. Everyone who intends to live in the property must fill out an application and pay an application fee. Each prospective tenant gets screened by you, so each is responsible for paying the necessary fees.
Applications are usually completed after the prospective tenants view the property unless it's a highly competitive market. In that case, they may want to get their application in earlier, which is also fine.
Make sure your rental application mentions the fees and includes:
- The fee total
- How to pay the fee (check, online service, etc.)
- When it's due (with the application)
- That it's non-refundable
Even if you don't sign a lease with this prospect, you're still going through the expense of processing their application. That means you'll use the money for its intended purpose.
You can also add a disclaimer that says you won't begin processing rent applications without all associated fees paid in full and that failure to pay could send the application to the back of the line of those already submitted.
Are tenants required to pay rent application fees?
Rent application fees should come as no surprise to potential tenants. They should know they need to pay them if you've decided to charge for them. However, different states have different laws. As the landlord, you should be familiar with what you can and can't do in relation to rent application fees to avoid any legal issues.
For example, in California, the maximum rent application fee is $50.33 as of 2021. In Massachusetts, it's illegal to charge a rent application fee of any kind and in New York they must be $20 or less. A few other states set limits either for the exact dollar amount or by specifying fees can't exceed the actual processing costs. Most states, however, set no limit for application fees and legally state that they're non-refundable.
Should I ever give a prospective tenant a refund?
Although you've already indicated that these fees are non-refundable, there are situations where it's appropriate. It's up to you whether to refund the fees at all, but if you end up with rental applications where you don't run the background check, you really should consider it. The fee isn't going to its intended use, and you don't want to look like you're holding onto the money for profit.
This situation most often occurs when you get a large influx of applications, but find your tenant before you've processed them all. Those applications that came after your tenant signs a lease could get a refund on their fees. In order to avoid having to refund a bunch of people, you can limit the number of applications you're willing to accept at any given time. It's OK to open it back up if your current batch doesn't yield an ideal tenant.
Note: If you're planning on offering a refund if you don't end up processing an application, say so on the application itself.
Be transparent about your rent application fee
Rent application fees are the norm when you're a landlord. You don't have to feel uncomfortable charging for them as long as you're following local laws. Make sure you've told prospective tenants about the fees and included all the relevant information on the application itself. Then, all that's left to do is start collecting applications and begin the screening process to find your ideal tenant.