Application fees refund

10 Replies

I’m currently advertising my rental unit. I’ve had about 20 calls and texts. I gave everyone a time frame to come by and look since I’ll be painting the trim and finishing up last minute details. 

I have applications ready to go and am charging a small fee. 

I’m only going to run reports on people who I get a good vibe from and who have the income to afford it. 

1. Should I return the application fees for those who I don’t rent to? I feel weird taking there money if they won’t live here. 

2. Should I just run checks one at a time until I find a good candidate? 

3. How do I tell those that I’m not interested in that it’s a no? 

I’m not good at this part.....

1) I don't charge an application fee until I've narrowed down my top pick and decide to run a credit/background check. Then I charge the fee to cover the checks. Usually, if you tell people upfront that you'll be running checks, they'll show you their dirty laundry. For me, the actual check is a last step security measure before giving the final OK to sign a lease.

2) Answered in 1.

3) I would come up with a standard template letter and send the same thing to everyone. 

First of all, I hope you have a definitive criteria on who qualifies, and not just a "good vibe". I require 600 credit score, 3 times rent for income, no felonies, no evictions (ever). If you're getting that many applicants where you are spending considerable time on applications, maybe you should be raising rents. I do preliminary checks from their paper application. Then, when that looks good, they pay $40 for background checks. 

If I were you, I would pre-screen people before showing them your property (i.e. ask them qualifying questions like "will you pass a comprehensive screening [credit/criminal/evictions]?"). After showing your prospects the property, then I would have them apply and charge them the application fee. I've never seen a refundable application fee, so I personally wouldn't recommend refunding that fee. As far as running checks, I would pick your top prospects and screen them. 
Like Anthony said, make sure you have a set rental criteria (how much they need to make monthly, min. credit score, no evictions, etc.). If you must reject an applicant, do it in a short and simple email: "Unfortunately we will not be moving forward with the application process...." 

There's a lot of good advice here. Let me summarize how we handle it, and stay on the right side of the HUD rules:

1.  Have a WRITTEN list of the criteria you expect of what constitutes a qualified tenant--be detailed. Have a written list of all the documentation you will require from the applicant.  Give all that to the applicant along with the application.  Plainly print on the application:  "APPLICATION FEES ARE NON-REFUNDABLE".  Have all those packages assembled and ready to hand out when you are showing so there are no 'mix-ups'.

2. Give that package to everyone that actually comes to view the property and asks for an application, regardless of your 'good vibe/gut feel'. Your guts will really be feeling it if you treat Mr. X any differently than you treat Mr. Y, and they complain to HUD.

3.  Run the background checks on EVERY application (with proper fee) you receive.  For those that don't qualify, have a form letter of non-acceptance (for example, you have a more qualified applicant, if that is the truth) and notify them in writing.  DO NOT treat any applicant differently than any other based on 'the vibe'.  This is a great business, but you MUST know and follow the rules/laws.

4.  Keep all applications, accepted or declined, on file for ever.

Deb, I agree with the comment which suggested that you should probably raise the rent, although I would do that next time around. Also, we don't charge an application fee at all. We only run background checks on someone after they have been selected but we don't notify other applicants until the selected person passed the background check. 

Originally posted by @Marc Winter :


3.  Run the background checks on EVERY application (with proper fee) you receive.  For those that don't qualify, have a form letter of non-acceptance (for example, you have a more qualified applicant, if that is the truth) and notify them in writing.  DO NOT treat any applicant differently than any other based on 'the vibe'.  This is a great business, but you MUST know and follow the rules/laws.

This seems like an inordinate amount of unnecessary work and paper shuffling. 

If someone’s qualifications on the app don’t meet your requirements (income not high enough, smoker, pets in a no pet rental, desired move in date doesn’t line up with when you want the unit filled etc) why would you waste time on a background check?  If someone seems undesirable for subjective reasons (car is filthy, person smells of smoke, pushy demeanor etc) why on earth would you then move forward to a credit/background check which may come back favorable and now you have to explain why you are rejecting them?  Running multiple background checks that couldn all come back positive, now how will you narrow it down?

Personally I don’t run credit/background check unless and until the rest of the application is favorable and meets my qualifications, the check is the last step and is pass/fail at that point.  I run one credit/background check on one applicant, if it comes back neg I would tell them the credit/background check didn’t meet my requirements and move on to the next applicant and so on. If it comes back positive the reason given to all remaining applicants is simply “thank you for your interest, I have already approved and accepted another applicant and the property is no longer available”. 

@Walt Dockery , we are licensed real estate brokers and property managers.  We manage hundreds of doors and must have a system in place.  What I have described is our system.  

With our system, we know we are in compliance with HUD regs/rules. Anyone may run their business the way they see fit. Licensed or unlicensed, stay on the right side of HUD--those guys don't mess around.