Are Application Fees worth it?

General Landlording & Rental Properties
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Are Application Fees worth it?

Krista Dodson
Real Estate Agent · Midlothian, VA · Member since 2016 · 39 posts · 19 votes

Our rental unit (5/3 SFH) has typically been a group home with 4 unrelated adults. I have never run background checks or credit checks on tenants, and the only screening I've done in the past was verifying employment and calling previous landlords (unless it's their parents). This summer, our entire house is turning over, and we've decided to start running background and credit checks. We started using Cozy to manage leases and applications, and it has a built in credit check and background check that will charge the applicants $40 to run. I love the idea, and have used it on a sublease tenant before. But I'm getting lots of questions about it, because the potential tenants assume that it's $40 per group, not $40 per individual. Once they realize that it's $40 per individual, they're not completing the application process.

I love having the security of the process, but is it worth it? What do most people charge for application fees??

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Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
9y

@Krista Dodson We charge $25 per applicant.  It is a way to weed out the dreamers.  If someone is qualified to rent the apartment and really wants to live there they will pay the $40.

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  • Kim Meredith HamptonBusiness Member
    Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
    9y

    @Krista Dodson everyone I know charges Per Person regardless if they are married, single, roommates. You are treating everyone the same across the board. This way you don't get yourself in trouble with discriminating

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  • Russ M.
    Investor · Brookfield, WI · Member since 2014 · 110 posts · 99 votes
    9y

    We user smartmove and yes, each person must pay to have their check done.  Wisconsin is very clear in that you can only collect a $25 application fee to be used towards the cost of a credit report.  By having the tenants pay for their own credit report this avoids us losing money just to get a tenant.

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  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    @Krista Dodson We charge $25 per applicant.  It is a way to weed out the dreamers.  If someone is qualified to rent the apartment and really wants to live there they will pay the $40.

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  • Krista Dodson
    OP
    Real Estate Agent · Midlothian, VA · Member since 2016 · 39 posts · 19 votes
    9y

    I did check the Virginia Residential Landlord Tenant Act, which states that an application fee "shall not exceed $50, exclusive of any actual out-of-pocket expenses paid by the landlord to a third party performing background, credit, or other pre-occupancy checks"

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  • Rick S.
    Fort Collins, CO · Member since 2014 · 397 posts · 161 votes
    9y

    @Krista Dodson check if you can set it so they can apply for free but only pay the fee if you run the background check on them.  $25-40 is typical, however some landlords will offer to take the amount off the first rent payment if the person is accepted.  

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  • Krista Dodson
    OP
    Real Estate Agent · Midlothian, VA · Member since 2016 · 39 posts · 19 votes
    9y

    @Rick S. Yes, that's how it's set up. The application has been filled out for two of the four in the first group to apply, but when they were asked to pay the fee, they stopped there. It looks like I can "request" the background and credit checks. So I did on the two that filled out the applications. But I haven't gotten a response on those yet. 

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  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    For sure. I'm going to guess we do aprox 40 apps a month? That's $40/each. And our cost is $18 to do all the checks. So we make $12 per app or almost $500/month. Or $6,000/year. If we didn't charge for apps that $6k/year profit would be an $8,500/year loss Always charge app fee dude. Even if you don't "run" anything. Your time in reviewing still has a value. Even if you say "I don't own enough where it matters " that's bad thinking. Operate now like you have 1000s of units so as you grow, you have process in place
    2Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    9y
    Russ Mattson are you sure that WI is only legally 25 dollars? I just paid a hundred for an application fee a couple weeks ago for an apartment in Lomira, WI
    0Reply
  • John Knisely
    Real Estate Agent · Media, PA · Member since 2017 · 361 posts · 250 votes
    9y

    Definitely market dependent, I haven't had turnover yet (on inherited tenants) but I do plan to use a service of charge an application fee if I am doing all of the checks myself manually. Like others have said, eliminate the tirekickers. If a potential tenant can't pony up a $30-$40 application fee then I definitely would worry about the $900 in monthly rent.

    I am considering "refunding" the application fee on the tenant I select though as a positive incentive for the "winner" of my selection process.

    1Reply
  • Mark I.
    Rental Property Investor · Mount Prospect, IL · Member since 2017 · 46 posts · 12 votes
    9y

    @Cody L. Can I ask what service(s) you are using at $18 total cost? 

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  • Jonathan Jaime Velarde
    Rental Property Investor · Thousand Oaks, CA · Member since 2017 · 147 posts · 48 votes
    9y

    Treat it like a business and have them pay for their checks if they are serious about living in your property. If they are uncomfortable paying $40 to get a living arrangement they will probably shrug their shoulders when it comes to other things around your property and will fail to keep good communication throughout their tenancy. 

    I think it is definitely worth it to have the screenings to cover yourself and your property!

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    9y
    A group home officially? For what population? This will tell you if it makes sense to run background checks. If it is a general population sure run them. If not and these are social service placed residents you might consider whether your background check is going to tell you something you don't already know. Also consider the sophistication of your tenant pool, do they understand how you are doing the check and what it is for. Is it the last step on acceptence?
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  • Steve Nowak
    Boston, MA · Member since 2013 · 99 posts · 28 votes
    9y

    Not allowed in Massachusetts.

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  • Ryan MurdockPro Member
    Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    @Krista Dodson As others have mentioned app fees are very market dependent. In some areas it's the norm while in other places nobody does it. How about this: Do the "pre-screening" for no cost. This is pretty much just quickly reviewing the app and seeing if anything jumps out at you that would disqualify them. If everything looks good have them pay an app fee or a full deposit on the unit itself. Run the paid checks. 

    If you accept them, don't charge for the screening and apply those funds towards their move in costs. If you deny them for something that the screening process revealed (bad credit, criminal history, poor references, etc) refund the deposit minus the app fees.

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  • Glenn McCrorey
    Investor · Cedar Rapids, IA · Member since 2013 · 494 posts · 407 votes
    9y

    @Krista Dodson  I rent to individuals with special needs in what a lot of people call "group homes" but the definition is not the same everywhere.  All my houses have between 3 and 5 individuals in them.  But, I don't rent directly to the individuals,  I rent to the company that provides the "services" to them.  I get paid by the company and do not run background checks, credit checks, etc. on the individuals.

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    Originally posted by @Mark I.:

    @Cody L. Can I ask what service(s) you are using at $18 total cost? 

     The screening tool (powered by transunion?) built into buildium. There are cheaper option but this is integrated into my pms so results are tied to their app which is tied to their tenant profile. 

    I'm big on systems and intergration 

    1Reply
  • Mark I.
    Rental Property Investor · Mount Prospect, IL · Member since 2017 · 46 posts · 12 votes
    9y

    ah, most of what I've been finding is in the 30 to $40 range. But they are also free services for everything else related to Property Management (except  payments) so I guess that balances out whereas buildium has a monthly cost

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  • Nicholas Cook
    Real Estate Broker · Portland, OR · Member since 2017 · 100 posts · 56 votes
    9y
    Definitely worth it. Let people know about the app fee in your ad. Not screening tenants is a ticking time bomb.
    0Reply
  • Steve D.
    Investor · Cincinnati, OH · Member since 2016 · 34 posts · 53 votes
    9y

    I collect $30 per person and use www.tenantbackgroundsearch.com

    If everything check out and they are accepted, I credit them the app fee on their first month rent.  

    I tell them this upfront and haven't had problems getting people to pay.   You are also weeding out the bad seeds because if they know they have bad credit, they won't apply and lose $30. 

    1Reply
  • Krista Dodson
    OP
    Real Estate Agent · Midlothian, VA · Member since 2016 · 39 posts · 19 votes
    9y

    @Colleen F. Not a termed "group home". More like a house that a group of people rent together. sorry for the confusion. Typically we've had a group of 4-5 unrelated single professionals between 1-3 years out of college. It's a really sturdy house about 15 minutes outside of DC, inside the beltway, so the tenant pool has never been an issue until now.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    No one from DC has chimed in, and that's what you need is a market specific advice.

    You need to do what the rest of the market is doing because thats your competition. What the rest of the market is doing is running credit on 1 individual and not the whole group. Just think how competitive out housing market is, if a bunch of young professionals are going to put in 4 or 5 applications for properties, and people wanted to charge to run the credit on each occupant, they'd be paying upwards to possible over $1,000 in applications. The market simply won't bear that.

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  • Dustin Beam
    Kansas City, MO · Member since 2015 · 609 posts · 321 votes
    9y

    I don't charge people to fill out a piece of paper. But if everything on the app looks good, I let them know they will have to pay for the background check. I let them know upfront what will disqualify them.

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  • Russ M.
    Investor · Brookfield, WI · Member since 2014 · 110 posts · 99 votes
    9y

    @Caleb Heimsoth

    The following is directly from (Wis. Admin. Code §§ 134.05(4))

    (4) Credit check fee.

    (a) Except as provided under par. (b), a landlord may require a prospective tenant to pay the landlord's actual cost, up to $20, to obtain a consumer credit report on the prospective tenant from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. The landlord shall notify the prospective tenant of the charge before requesting the consumer credit report, and shall provide the prospective tenant with a copy of the report.

    (b) A landlord may not require a prospective tenant to pay for a consumer credit report under par. (a) if, before the landlord requests a consumer credit report, the prospective tenant provides the landlord with a consumer credit report, from a consumer credit reporting agency that compiles and maintains files on consumers on a nationwide basis that is less than 30 days old.

    Note: Paragraph (b) does not prohibit a landlord from obtaining a more current consumer credit check at the landlord's expense.

    History: Cr. Register, February, 1980, No. 290, eff. 5-1-80; reprinted to correct error in (1) (a), Register, March, 1984, No.339; r. and recr., Register, December, 1998, No 516, eff. 1-1-99.

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  • Ryan MurdockPro Member
    Rental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Russ M. What about criminal background checks? Those cost money too. The language you posted addresses only credit checks. Just curious if there is more to that statute or if it's silent on anything other than credit checks.  @Caleb Heimsoth

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  • William C.
    Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes
    9y
    That's also just the "credit check fee". Are there other paragraphs that talk about application fees, or background checks or anything else? That's a really awful law to prevent landlords from recouping costs. Then again, credit reports are free these days through many places like credit karma, discover, etc..
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