Application fee refund?

27 Replies

So I am renting an apartment and I showed it to several people who were interested and 2 of them filled out the application the fee is $40 non-refundable I use a local community program that runs the applications and the fee goes to them for the background and credit checks so both of the applicants were approved but one had a higher income and credit score so I chose to rent to that one now the other applicant is up in arms and demanding a refund but I don't believe it's my obligation to give a refund but I'm just wondering what other people would do. I'm just looking for a a little feedback.

Did you run the background check on both tenants? Did you make it clear that the fee was non-refundable? Does your state allow you to choose the better tenant rather than who applied first? 

When I was renting I had a company run my background check and put in my social incorrectly so it didn't even pull anything... Yet they wouldn't refund my fee just explained I didn't qualify and the fee was non refundable. 

I was second in line for a house and was told the app fee was non refundable, so I waited until I was sure the house became available before I paid.  The other applicant chose to go somewhere else.  I did this to avoid paying and then not getting the house.  You may want to spell it out to applicants that if they're 2nd, and the first takes it, they will not get a refund.

Quick buy another apartment! Tenant already approved...

I do the credit and background check in the order that the applicants applied.  If he/she does not qualify, I let them know and mail to them the credit score/report, so that they can use it for the next place that they apply (seems like the right and fair thing to do).  That way they are not hurting their credit with multiple checks.

Any applicant who has paid the fee and I do not get to them, because I have found a qualified applicant, I mail to them their application fee, since I did nothing to earn it.  Again, it seems like the right thing to do.  I have mailed many application fees back to applicants for this reason.  

In your case, since the applicant is asking for it back, if it were me, I would mail it to them, so that they can use it to find another place.  

Most applications fees are NON-REFUNDABLE, but  best to have it in writing on the application form, to protect yourself against such a thing as this in court. 

I would always advertise that the Application fee would be applied to the move in fees if they qualified. Otherwise, it was Non-refundable.  And, if two or more people qualified for the same unit, they would be offered another unit that was available.  And if they didn't want that unit, they would be put on the waiting list and have top priority since they qualified. 

Put everything in writing so that they can't ever say they didn't know.  They signed it.  Too sad!

Nancy Neville

I say refund it. They did qualify. And you chose somebody else. Thats not their fault.

Did you tell the 2nd applicant that there was another applicant they were competing with?  If you did and they knew the app fee was non-refundable then thats on them.

If they had no clue there was another applicant then I would probably refund them if they are making a big deal about it.  

Whenever we choose an applicant we run a credit check on them to see if they qualify and to see if they are COLLECTIBLE.  This credit check is not free.  We have to pay for that.  Generally people know that there are are more than one person interested in your property, therefore they know they take a chance on getting the place.  

Because you have already paid to check them out, why should you have to pay them back if they and another party qualify, especially when the application form says, Non-Refundable?  By you running a credit check on them, they are able to receive a copy of the report by writing to the reporting agency.  They can take that with them when they apply somewhere else and most likely avoid paying another Application Fee. 

Nancy Neville

Assuming laws in your area support you, you should still keep the fee even though this person may have qualified. The fact is that you still ran the service.

I do something a little different that so far has worked for me. Most of what I need to find out for initial red flags can be found for free online via the state's case search website, checking Facebook, and verifying references/landlords against property records. Usually, I find enough right there to deny someone and don't need to spend any money. If promising, then I move on to pay for the service.

I offer that the application fee is only due if they are accepted and sign a lease with us, and it would be due along with 1st month's rent and security deposit. Perhaps this works easier with my type of tenants because I have a lot that either turn in incomplete applications, not enough income, or it's easy to find something free online about them (C-class neighborhoods).

I would refund the money.  You should only run the background and credit checks one at a time and when you find a qualified tenant you should refund the other applicant's fees to them since you didn't run the checks.

The rental market is crazy right now.  I could make $4000 a month in application fees on a $800 a month rental if I wanted to keep the application fees of people that got beat out by another applicant.  This would be totally legal for me to do but it doesn't make it the right thing to do.  

@Meghan McGuire

I have to disagree with Shawn. You're running these checks because you want to pick the best tenant, not the first one that clears a background check. It costs money to run the checks, so a refund doesn't make sense. If your fee is over and above your cost by a wide margin and you're purposefully trying to make a profit, that's a bit different, but we're both in St. Louis and our fees are exactly the same, so I'm pretty certain you're not doing that.

It's the same as application fees for college -- there's no guarantee you're going to get accepted. You're not obligated to refund anything. Cost of business, move along.

@Meghan McGuire I use MySmartMove to screen tenants, and I have it set up so they pay MySmartMove directly. So the prospective tenant never gives me money.  This has helped me immensely with people being upset and wanting a refund. Many people think you are just keeping the money. We all know that isnt true. Eliminating yourself from the equation is going to help with this problem in the future.

I use Smart move, which just collects directly from the applicant. Personally, I think it is dishonest to collect fees and applications as if you were hiring an employee. I would accept/submit in the order they were received; hopefully you had already prescreened the applicant, and they met all your requirements before you sent them the screening credit packet. If I were going to select a tenant this way I would make it clear to them that I was going to take applications and credit checks in a competitive manner. That would allow those who don't want to " compete " for a rental to opt out.

@Meghan McGuire

You certainly aren't obligated to refund any of the money.

In my basic rental criterion sheet that applicants have to sign at the time of filling out an application I specifically say that their $40 application fee is non-refundable and they all understand that going into the deal.  

@Peter MacKercher

My point was that you could still do better by people.   

Let's say you only have one rental criteria that applicants have verifiable income of 3 times monthly rent.  If the applicant is able to prove that then you run a background check and credit check.

Applicant background check is clean and credit is FICO 720.  Are you going to run 19 other applicants to see if someone has a FICO 760? And then tell the applicant they are approved but the apartment is no longer for rent because there was a better applicant? 

If you are going to do it this way then you should be very transparent about your policies and procedures upfront.  I would not waste my $80 ($40 for my check / $40 for wife) in applying to the rental. My credit score is only 760ish and I'm sure if you process 20 applicants there will be someone higher so I'm not going to waste my money. 

You get the best tenants by having stringent criterion and a thorough screening process. Run applicants through one at a time until someone meets your standards and at that point refund the other potential applicants fee since you didn't spend the money to run the background or credit check for them.  

I'm a big fan of the one at a time approach.  It cuts down on trying to return money to people and if you have a tenant's $40, that may limit their applying to other places as they may not have another $40 to put out for another application fee.  Also, I feel that it helps by eliminating the possibility of a discrimination lawsuit because you chose someone else.  You just turned down an applicant who met your requirements.  Was it because of race?  Was it because of gender?  Was it because of family status?  The applicant can now sue you in court for housing discrimination because they met your requirements and you refused to rent to them.  You may have chosen the other person based solely on income but they can still sue you and you would have costs defending that suit even if it is so baseless it's thrown out the first time it's in front of a judge.  Even if you did base it on income, you better hope there was no difference in a protected class between the two applicants, you could be in a real tough spot with that.  There is no reason to take on that risk when you can easily avoid it by running one at a time.  If you get two at once, make the determination based on income at that point in time and tell the other applicant.  Hold the second application and prescreen if you want, but don't take their money yet.

Normally I only take one application at a time but I had this situation come up where one person told me they were going to turn in the application (I'm told that many times and people don't show), another person called to say they were going to show up and they both did within 30 minutes of each other.  Then I notice that somebody left their application in the mailbox without telling me.  I prescreened them all and ultimately picked the one with the highest income and ran it first.  I called and explained the situation to the other two applicants, let them know what order they were in based on income and asked if the other people were approved, if the address on the application was a good one to mail their money back to.  Everybody was fine with that situation.

I had a situation last week where an unmarried couple filled out two applications and paid two fees and when I prescreened on Casenet, found out that they were evicted in December and now looking for a place for September.  I called them back and said they weren't approved and could meet me at a time when I was going to be at the property anyway and get their money back since I didn't need to screen them.  It wasn't the best of terms but I avoided bad terms by giving their money back.

Use Casenet and Facebook to prescreen and only collect money from one tenant at a time.  If you have a bad feeling about somebody, or are hoping somebody else comes back to apply, you can always say you have a pending application to buy some time.  I say give the $40 back and eat the cost.

You should just run one credit check at a time. If you have a cut off, anyone above it should be fine. And as for income, you have them declare it on the application form. You can verify it later and if they lied you can reject the application. The point of the application fee is to cover your reasonable costs of doing the credit check. Why not get a tenant that meets all the other criteria and wants the place and use the credit check as verification only? You can ask questions about evictions etc on the form itself.

While I love the idea of an applicant paying SmartMove directly, it may be more difficult for those of us with rentals in areas where lots of people have cash only (no debit cards or CC cards) nor do many of them even use the internet.

I agree with others. Return the app fee. As for the information about taking your credit report to show others is somewhat ludicrous. I highly doubt if a tenant brought you his credit file you would just circumvent your application fee.
Originally posted by @Nicole W.:

I love the idea of an applicant paying SmartMove directly, it may be more difficult for those of us with rentals in areas where lots of people have cash only (no debit cards or CC cards) nor do many of them even use the internet.

 I actually use this to eliminate people that I am not interested in renting to; someone who is too low income, unstable or technologically challenged such that they cannot pay or apply online, or have access to credit cards or checking accounts, is someone I personally am not interested in as a tenant. I realize in a certain bracket that wouldn't work but I don't do low income rentals.

Originally posted by @Sean Webb :
I agree with others. Return the app fee. As for the information about taking your credit report to show others is somewhat ludicrous. I highly doubt if a tenant brought you his credit file you would just circumvent your application fee.

I agree.

 I don't accept any information I don't obtain and verify myself, so someone bringing me a credit report would mean nothing.

Out of curiosity how many of you know how a credit score is actually derived? It's not how most people think it is. Scenario Is person A and B they are exactly they have the same job, same car payment, same income, everything is identical except one thing that will drastically change their credit score. Person A has $80,000 in unsecured open credit and person B has $5,000 in unsecured open credit. Person A will have a higher credit score because they have a larger amount of open unsecured credit. They are awarded a higher score because they can have so much open credit but are disciplined to not use it. However lenders may turn them down even though they have a higher credit score because they have to much open unsecured debt.
Originally posted by @JD Martin :
Originally posted by @Sean Webb:
I agree with others. Return the app fee. As for the information about taking your credit report to show others is somewhat ludicrous. I highly doubt if a tenant brought you his credit file you would just circumvent your application fee.

I agree.

 I don't accept any information I don't obtain and verify myself, so someone bringing me a credit report would mean nothing.

 My point exactly

@JD Martin I use it to a point as well now starting all the way with how I advertise. No signs in the yard. I only advertise via online services, so that would only bring me applicants who have at least some online presence (email and such). Still doesn't always mean they have bank accounts, but as you mentioned, that's dependent on class. It's a mixed crowd.

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