security-deposit awkwardness

26 Replies

I know that folks on this forum always recommend (rather strongly) requiring a security deposit along with applications for a rental property.  (This is the deposit for the application, *not* the deposit for actually renting the house!) This is supposedly to reimburse the landlord (that would be me) in the event that he puts alot of work into studying an applicant, only to have them say "Oh, I found something elsewhere, nevermind".

However, this deposit has ended up being very awkward in my case.  Prospective renters cannot even contact me unless they have email, I send out the application by email, and I strongly recommend that application and documents are returned by email... but that makes the deposit handling quite awkward... do I want them to pay postage just for that one document??  (not really) or do I go out of my way to meet them somewhere to pick up that check??

I made the mistake of trying to ask a couple of people who were viewing the house, to give me a deposit check at that time, but that went very awkwardly (which I sort of suspected it would).

My inclination is to just drop the application deposit entirely; if they go through the trouble to fill out the application and scan the documents that I require, I suspect that I can treat that is meaningful interest.  In the meantime, the rest of my research doesn't take all that much time, and doesn't cost me anything at all...

Is anyone here horrified by this idea?

I put everything in writing and give prospective tenants a sheet with move in requirements, eligibility requirements, and credit and criminal history check requirements. My sheet states the fee is $75 per adult. I haven't have any complaints. The positive  results of the requirements sheet is that non-qualified potential tenants don't waste my time or their funds.

Here is an example of what I pass out:

Minimum credit score of x
Criminal checks must not have any felonies
No misdemeanors within the last 5 years
No evictions
$75 per adult non-refundable application fee
Security deposit of 1.5x the rent
No partial payments accepted for move in rent or security deposit
Pets on a case by case basis

I don't have one in front of me but I think I covered most of it. That is straightforward and if the tenant cannot qualify then they probably wont want to apply. I think it saves both time and money as well as provides clear communication as to what is expected. Good luck.

There are several tenant screenings services online that can directly charge the applicant a fee, so you don't have to. We use mysmartmove.com . The landlord doesn't get any of the application fee, it's just to cover the cost of the credit check. But you don't have to collect any money personally, and you're not out the money for the credit check.

Originally posted by @Daniel Miller :

I know that folks on this forum always recommend (rather strongly) requiring a security deposit along with applications for a rental property.  (This is the deposit for the application, *not* the deposit for actually renting the house!) This is supposedly to reimburse the landlord (that would be me) in the event that he puts alot of work into studying an applicant, only to have them say "Oh, I found something elsewhere, nevermind".

However, this deposit has ended up being very awkward in my case.  Prospective renters cannot even contact me unless they have email, I send out the application by email, and I strongly recommend that application and documents are returned by email... but that makes the deposit handling quite awkward... do I want them to pay postage just for that one document??  (not really) or do I go out of my way to meet them somewhere to pick up that check??

I made the mistake of trying to ask a couple of people who were viewing the house, to give me a deposit check at that time, but that went very awkwardly (which I sort of suspected it would).

My inclination is to just drop the application deposit entirely; if they go through the trouble to fill out the application and scan the documents that I require, I suspect that I can treat that is meaningful interest.  In the meantime, the rest of my research doesn't take all that much time, and doesn't cost me anything at all...

Is anyone here horrified by this idea?

A security deposit(accompanied with 1st and sometimes last months rent) is when someone decides to become a tenant after the landlord has given them the ok following the application process. However, you mentioned an application deposit. Is it the credit check fee? If not what is the deposit for?  If it is for credit check you might want to call it that(generally being $20 to $40). I wouldn't ever pay a security deposit(usually the same amount as monthly rent) with application just to view the place. That's rediculous and will likely keep that unit/house vacant for a very long time. My coin.

Kudos,

Mary

Here's what we do for our few SFHs: anyone can come by, check out the place and fill out an application. We encourage them to fill out an application, since they made the effort to come by. We inform them that there is an application fee, but that we aren't in the business of collecting application fees from everyone who walks through he door. The fee covers our cost of a background and credit check (through NTN). No one has minded paying it. We further say that we are only interested in collecting the fee if they are serious about the home. We collect the fee by check or by credit card. I don't think we've ever collected from someone we didn't ultimately rent to. You seem to be landlording from afar. I suggest getting a Square account (free) to take CC numbers over the phone (if the tenant is willing to), and a PayPal account (free) for those that don't want to give their CC number. We have also been paid by Chase QuickPay (receiver does not need a Chase account), and I'm sure many other big banks out there have similar programs to send money to external clients. The CCs will cost you a small discount fee, but it beats not collecting anything at all. Chase QuickPay is free to the receiver (not sure about he sender, but I suspect it is). If you have a website (sounds like you do), I really like Stripe as an online payment processor.

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I emailed my pre-viewing list to initial applicants, before even telling them the address of the house (I didn't put the address in my ad, this time around; just general area).  My checklist more or less included what you list above.  It was *very* effective in dealing with people who didn't qualify (including several Section 8 applicants); about half the people who made an initial query, did not respond further once I sent my initial expectations message.  

However, the application fee still ends up being awkward, for all of the reasons that I listed in my original post.

BTW, here's my initial email:
Greetings <name>;

Following are basic requirements that I will be looking for in applicants:

> 3 * monthly rent in income (> $10,000/month)
> established credit scores of >600 for all applicants
> established rental history for all applicants (I *will* contact past landlords)
> current permanent employment
> no past evictions or bankruptcies

Please review these and confirm that you meet them all. If so, contact me again and we'll set up a meeting time at the house. I plan to show the house this Saturday, July 18.

Dan Miller

Okay, maybe I've misunderstood what I've read here in the past, so let me then clarify.

I've been showing the house to anyone who passes the initial email requirements check.  At that time, if they want to apply, I tell them that I will email them an application, and encourage them to return all documents via email as well, to save postage and handling expenses.  I also inform them that if I am satisfied with their application and data, I will then perform a background/credit check via SmartMove.com, and that *that* process will cost them $35, non-refundable, but that I will only move on to that step if I am otherwise ready to rent to them.

However, I thought I had read here, many times, that many of you charge a refundable fee to accept and process an application; this is separate from the background check fee, which I don't even handle.  It is this refundable fee for processing the application, that I'm talking about skipping.... have I been misunderstanding what I read??

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Yeah, after more reading, I think I just confused the background/credit-check fee with a separate fee for processing the application itself.  that's cool... I'll just drop this pre-application fee, it was never necessary anyway.

It can be overwhelming, sometimes, reading all the inputs in this forum!!  y'all have so much experience, and there are many different suggests, all worded a little differently; I'm so grateful to you, but can get a little overwhelmed at times!!  and sometimes, I just read things that aren't really there...

You could consider changing the way you do applications. Bring paper applications to the showing and have them fill it out and provide the application fee as a check during the showing. 

I charge 45 dollars and then use rentprep.com plat package to handle all the checks and calls/verifications for me. If you get multiple applicants and one passes then offer to mail or destroy  the checks of those that didn't get processed. 

Actually, @Byron Bohlsen , I suspect that method wouldn't have worked at all for me, at least this time around... every one of the viewers (at least, the ones I was interested in) told me they had other houses to look at before they chose... although, perhaps that was a sign that they didn't like my house that much in the first place, though several indicated that they liked it alot...

@Daniel Miller

Just looking over your list of requirements, you can't mandate someone is currently employed in California, assuming that's where your rentals are located. You can set a minimum income, but in many places, including California, you can't discriminate against where that income is coming from (provided its over the table). That means someone on a fixed income, child support, etc. can't be turned down simply because they're not employed. 

Other than that, I'll echo what others have said. Charge folks once you accept their application, and only for the amount it costs you to run the appropriate checks on credit, criminal history, etc. I've found application fees substantially above cost (such as @John Thedford 's $75 per applicant) for anything other than high end properties can be a major turnoff for prospective tenants. 

Hi @bradley bogdan (don't know why I'm not getting the name options this time)... what do you see in my questions, that require California residency???  I just said "current permanent employment" ... or is that what you mean, that I shouldn't require documented employment??

One thing that I'm a little uncomfortable with, is the issue of Section 8 applicants... I had one applicant who was Section 8; she provide a letter of recommendation from her current landlord, and documented that the county paid $1875/month, and she provided $250 out of her other income... that isn't even *close* to my rent... I hope I'm not legally obligated to reduce my rent for Section 8 applicants; that would make the whole task impossible for me...

@Daniel Miller

"I'm sorry, this rental will not pass a Section 8 inspection." - If you know it won't or alternatively you can process their application as you are processing others and if theirs is complete before others and they pass then they get it. Highly unlikely they will get through the Section 8 process before you rent to someone else in Fremont (if that is where it is) and you don't need to go to Section 8 rates. To be considered, they need to provide a complete application and if part of that application is the completion of the Section 8 process then they have not submitted a complete application until they have completed the process.

I think Bradley is trying to say that you can't require that someone be employed for their income because in CA we can't discriminate based on where applicants receive their income to pay rent, provided that the income is lawful and documented. It really isn't a necessary requirement anyway. Are you going to turn away a pensioner because they aren't currently employed even if they meet your 3x (or whatever your number is) rent requirement for income? (Interesting, never considered whether employment status is a protected class in CA - I would take it out until you know for sure).

Hi @Mark B. and others!!

Okay, I understand what you're saying!!!  Sorry, I'm a bit dense sometimes...

Okay, I'll pull that in the future... I was trying to come up with a pre-screening letter, but saw multiple suggestions in emails (and articles) here, and had to do a bit of ad-libbing to put together one version.  I'll remove the employment entry in the future.  All I really care about, at the core, is (a) do you have enough income, (b) have you been reliable in money handling (as represented by credit score), and are there any other major surprises in your background (hopefully, addressed by SmartMove)...

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I have everyone fill out electronic applications. There are 2: one "in-house", wherein I can verify employment info, salary info, etc, and one from Smartmove, wherein I get access to their credit/criminal/eviction history. There's no charge for the in-house one, and a $35 charge for the Smartmove one, which they pay directly to them. I collect no money until I say "OK, great, you're in", and they sign the lease. 

I don't do paper applications in any manner. I suppose if someone really elderly or completely technologically-challenged really wanted in, I would have to consider the issue, but it doesn't seem to be a problem for me. I also keep a website that I put my available homes on. Everything is electronic. To me, there's little reason to go the paper route. The exception is the lease, since I want an actual ink signature on it. That has to be old-fashioned paper for me, but courts will accept electronic signatures. 

Originally posted by @Mark B. :

@Daniel Miller

"I think Bradley is trying to say that you can't require that someone be employed for their income because in CA we can't discriminate based on where applicants receive their income to pay rent, provided that the income is lawful and documented. It really isn't a necessary requirement anyway. Are you going to turn away a pensioner because they aren't currently employed even if they meet your 3x (or whatever your number is) rent requirement for income? (Interesting, never considered whether employment status is a protected class in CA - I would take it out until you know for sure).

 Yup, sorry if that wasn't clear. I appreciate that you (and many others here) think it would be ridiculous to discriminate against two folks with the same level of income based on what lawful source it comes from, but it happens a lot more than you think, hence the revisions to California's Fair Employment and Housing Act in '99 to include source of income. 

I won't say it happens all the time, but I regularly have landlords tell me that they would much rather someone who's employed, or tell me they won't rent to someone on disability, etc. I haven't had any clients dependent on child support, but I could see that being a more regularly discriminated against source of income. 

All in all, just wanted to point out that, to cover yourself, your shouldn't have "employment" as a rental criteria. :-)

@Bradley Bogdan

The reason they say that is because employment income is garnishable if it gets to the point where they have to collect. Many, if not all, of the government entitlement income types are not so the likelihood of recovery goes way down.

Originally posted by @Mark B. :

@Bradley Bogdan

The reason they say that is because employment income is garnishable if it gets to the point where they have to collect. Many, if not all, of the government entitlement income types are not so the likelihood of recovery goes way down.

 I think you're probably giving the majority of folks a bit too much credit there, in my experience, deeply held stereotypes about people associated with various forms of income is a much larger predictor of such criteria. I know Daniel probably didn't mean it that way, but many people who write it in an ad or on a list of criteria do. You're factually correct about the garnishments though.

Hi,

I did not read all the other posts, excuse any "overlap".

You do NOT have to take a deposit at application time. ONLY if you've decided you're going to rent to them. Here is our process.

1. We take a call. If they pass our 'pre screen' (i.e. make 3x rent in per month income, don't have dogs barking in background, aren't eating potato chips during the conversation, etc.) we then direct them to our online application. This is a little unorthodox, but we don't currently charge an app fee, so directing them to our online application allows us to quickly screen them. 

2. If their app passes muster, we set up a showing. If they like the apartment we explain that they need to put down a holding deposit equal to one month's rent which will "become" their first month's rent upon move in. We explain that this "takes the unit off the market" for 7 days and that we need to do a lease signing within those 7 days (we do make exceptions but by putting a limit, we get a sense of urgency going). If they change their mind, they lose 100% of the deposit (we've done it twice in 6 years). If WE decide to reject them for some reason, we'll refund them within 3 days. 

I would invite you to not let things like "postage" even mildly concern you. And another thought: Our rental business enjoyed it's biggest jump in profitability and success when my wife Deb took over the leasing job. She has zero problem with "awkwardness" -- and we've increased our rents 10% or more in less than 2 years as a result! Not to mention mostly blue and white collar vs. a smattering of blue collar and mostly assistance cases.

Originally posted by @Byron Bohlsen :

... Bring paper applications to the showing and have them fill it out and provide the application fee as a check during the showing. 

...

Never accept a check from somebody who is basically a stranger, and possibly will stop payment or have insufficient funds on deposit in the account to cover the check. Some will even write checks from closed accounts!

By accepting cash with the application and providing a receipt for the amount paid - you know you have been paid. 

To further @Steve Babiak 's point, if a prospective tenant dares to give you a bad check during application, you know that his/her rent checks in the future will bounce in the future (ie. bad tenant).

Originally posted by @Che Chiu Wong :

To further @Steve Babiak's point, if a prospective tenant dares to give you a bad check during application, you know that his/her rent checks in the future will bounce in the future (ie. bad tenant).

Well, you would certainly be wise to disqualify an applicant that tendered a bad check. I wouldn't find out that they pass bad checks that way ...

Thank you for all the varied viewpoints, that what I look forward to find here!

One problem that I had, was confusing the different 'fees' and 'security deposits' and similar things that I found discussed on this forum.  It appears that I invented an additional fee out of the various comments that I read; the different possible... ummm... options are:

1. an up-front feet at application time, to ensure that applicant doesn't change their mind while I'm processing application.

2. a fee for running a background/credit check, such as via SmartMove.com

3. the actual 'security deposit', typically equal to one-month rent, more or less.

Item 2 I don't have to collect; it's handled automatically by SmartMove; this has worked pretty well, certainly no applicants have objected to it; this only comes in if I've already researched the prospect's application and data, and selected them as my current prospect. (I just wish that the SmartMove results gave a little more info than they do, but that's a separate topic)

Item 3 is no argument, that will always be required, at time of rental-contract signing.

It is item 1 that I was asking about, and thinking of dropping, in the original post.  When I was originally active on this forum, getting ready to rent my dad's house for the first time, in late 2012, I thought that many people were strongly recommending fee #1 as well as fee #2.  This time around, as far as I can tell, *nobody* is suggesting that.  The latter matches what I was feeling as well, and I'll just run with it for now, it seems to be working well.  Yes, I could end up researching someone, then have them say "oh, nevermind, I went elsewhere", but that really wouldn't be the end of the world, and it's quite rare, at least so far.

How much are you charging as an application deposit? We just charge a flat $25 application fee per person that is to cover (most) of our costs for the background check. We tried at one time having no fee and just got a bunch of people applying with checkered backgrounds hoping that we'd miss all of that I guess. So we brought it back. But then again, we have an office and a leasing agent to pick up those apps and fees on site or have them drop it off at their convenience. There are some online ways to pay too these days that are pretty affordable from what I've seen.

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