Application Fee Credit and Criminal Background checks

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Application Fee Credit and Criminal Background checks

James Kirby
UT · Member since 2019 · 53 posts · 14 votes

Hello Everyone,

      I am new to investment properties and I am currently in the process of closing on my first multi-unit property. I have been doing a lot of research on everything over the past several months and have a quick question on the Application Fees. I feel as though a lot of my time can be consumed by having the prospective tenants filling out applications and then having me screen the application (contacting previous landlords, employer, personal references, etc.) and only charging them for the credit and criminal background check. The question's that I have are:

1. Is it legal to charge them a $10 application fee (to cover a portion of my time) plus have them pay for their credit and criminal background check if they pass my screening ($40 through SmartMove)? (I can't find anything about the legality of application fees in Utah)

2. Does that sound harsh or uncalled for?

3. I have read other posts where all or part of the application fees have been given back to approved tenants that accept and sign the lease agreement. Is this something that you would do? If so, why? and how much would you recommend crediting back?

Thank you in advance for your time.

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Frank Chin
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
7y

I have never in nearly 40 years of doing rentals, charge application fees, and don't plan to start. The reasons are:

1.) I do open houses, one at most two, and usually have 20 to 40 showing up for each. Time wasters? Yes, too thirds of them are, and on more than one occasion, they helped me rent the place quickly. How? Renters, especially people relocating want to get it done quickly, and when they see a big crowd, asks, what are my chances? I quickly do a verbal assessment, i.e salary, credit, etc. and have them fill out the application. Many occasions, it would say be, May 3, and the renter says I want it by June 1, or July 1, and I would look around the room, say, I think it'll be long gone by then. They nod in agreement saying "you're right". So usually, they would go for May 15, or the same week. They have no idea some of the other lookers are time wasters.

2.) Not collecting any fees gives me flexibility to choose tenants. Early on, I find tenants wanting to pay something, hold the place, then all the hell breaks loose when I want to return it because another renter got chosen. Imagine the riots if I kept the money. More than once, they threaten to come to my house and beat me up. Others threaten to sue for discrimination because they were there first, so why else would I collect anything. So every one is told that the decision would be made in a day or two, and if they didn't hear anything, give us a call.

3. Financially speaking, I'm way ahead renting out the place in two weeks or within a week, particularly with monthly rents of $2,500. I at most spent $150.00 in fees checking out a few applicants, with a combined credit, eviction, and criminal check running $30.00/person. I'm ahead $1,250 renting a place out half a month sooner, and I'm not going to jeopardize it for being to cheap covering $60.00 in fees to run reports on two people, or $90.00 for three.

So, all in all, not charging fees worked well for me. Besides, not all landlords charge fees in NYC where I am. And time wasters, come one, come all.

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  • Mike McCarthy
    Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    @James Kirby in most (all?) states, application fees are legal. Whether people will pay them is up to your competition.

    I’ve taken on a process where I request and accept online applications from everyone I show the house to (to eliminate discrimination issues). Of course, only those who are interested will complete it. Then I review the applications, and if one of them meets my requirements, I have them pay the $40 for the credit & background checks.

    Basically, this helps out those who aren’t going to get the house from having to pay $40 per person, which I feel bad about.

    If the checks turn up anything unexpected, then I don’t feel bad about declining them since they should have disclosed that in their application!

    3Reply
  • David Stone
    Rental Property Investor · Davenport, FL · Member since 2013 · 285 posts · 220 votes
    7y

    If you're going to charge them for your time (and hopefully your state allows you to earn money for your time spent working in your own business), I would find a background check service which puts you in charge - one that you initiate the background check, not one where the tenant initiates the process.  Then you can charge what you need on top of the standard pricing and the tenant can write one check for that amount and include it with their application.

    Try: https://www.rentprep.com/screening-services/tenant-background-check-services-reviews/
    Choose one of the options that does not require tenant involvement.
    I have not used any of these personally (I use the service built into Rentec Direct property management software) but I sent this to a friend and they liked the RentPrep product.  Maybe search some of these and see which one fits your needs best.  Good luck!

    2Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Mike McCarthy, I appreciate the advice. I will make sure to accept every application to ensure that I eliminate any discrimination issues as well. I just dont like the fact that there are often times that a credit check and criminal background check may come back "okay" but personal references and/or employment doesn't match up to what they say. I feel that the time I spent on the research is time I could have spent elsewhere and paying someone else could easily run $10 an hour to scan through these applicants.

    I feel that if the applicant is comfortable with the information they gave us I am actually doing them a favor for the $10 to save them $40 up front. However, Maybe it would be worth what @David Stone mentioned in charging it all up front and run the check first to weed out the ones I dont need to scan through and still have the funds there to do the research if needed.

    Do you ever refund any of the fee? I have read in a couple of different posts that others do. I cant fully wrap my head around why but if its the in thing I reckon I am behind in times. 

    Also, do you think a $50.00 application fee is too steep? After all, you guys/gals out there know how much work goes into finding a decent tenant.

    I truly appreciate your help in this.

    0Reply
  • Randy Ferguson
    Robinson, IL · Member since 2013 · 9 posts · 7 votes
    7y

    James, I'm following along. We close in the morning on what will be our first rented REI deal. I have so much to learn about the screening process and how to go about it. Application fees is something that's foreign to me. I never hear local landlords mentioning this. I need to contact some to see what the norm is around here I guess.

    1Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Randy Ferguson, I wish you the best of luck. Congradulations!!! Here's to many, many more great investments.

    0Reply
  • David Stone
    Rental Property Investor · Davenport, FL · Member since 2013 · 285 posts · 220 votes
    7y

    @James Kirby what we do is rank multiple applications and process the best, most qualified application first. If we select that tenant, the remaining untouched applications get refunded in full and we’re unprocessed. If anywhere in our due diligence period we find a reason to deny an applicant, their application fee is not refundable. We charge $45 per adult applicant and have no problems getting multiple applications but this may be lower depending on demand in your area’s demand. Research what other landlords or apartments are charging in your area and keep it about the same if possible.

    1Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    7y

    @James Kirby You definitely want to have some kind of application fee for your rentals. In my market the fees tend to be between $25-$40 per applicant. You want the fee to be high enough to deter time wasters who do not meet your minimum quals from applying, but not to high where it is a turnoff for even quality applicants to apply. There is a delicate balance there.

    1Reply
  • Frank Chin
    Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    I have never in nearly 40 years of doing rentals, charge application fees, and don't plan to start. The reasons are:

    1.) I do open houses, one at most two, and usually have 20 to 40 showing up for each. Time wasters? Yes, too thirds of them are, and on more than one occasion, they helped me rent the place quickly. How? Renters, especially people relocating want to get it done quickly, and when they see a big crowd, asks, what are my chances? I quickly do a verbal assessment, i.e salary, credit, etc. and have them fill out the application. Many occasions, it would say be, May 3, and the renter says I want it by June 1, or July 1, and I would look around the room, say, I think it'll be long gone by then. They nod in agreement saying "you're right". So usually, they would go for May 15, or the same week. They have no idea some of the other lookers are time wasters.

    2.) Not collecting any fees gives me flexibility to choose tenants. Early on, I find tenants wanting to pay something, hold the place, then all the hell breaks loose when I want to return it because another renter got chosen. Imagine the riots if I kept the money. More than once, they threaten to come to my house and beat me up. Others threaten to sue for discrimination because they were there first, so why else would I collect anything. So every one is told that the decision would be made in a day or two, and if they didn't hear anything, give us a call.

    3. Financially speaking, I'm way ahead renting out the place in two weeks or within a week, particularly with monthly rents of $2,500. I at most spent $150.00 in fees checking out a few applicants, with a combined credit, eviction, and criminal check running $30.00/person. I'm ahead $1,250 renting a place out half a month sooner, and I'm not going to jeopardize it for being to cheap covering $60.00 in fees to run reports on two people, or $90.00 for three.

    So, all in all, not charging fees worked well for me. Besides, not all landlords charge fees in NYC where I am. And time wasters, come one, come all.

    5Reply
  • Alex Furini
    Architect · Cary, NC · Member since 2018 · 96 posts · 63 votes
    7y

    I do a hybrid version of what has been discussed so far. I accept applications from any tenants who want to apply. I only review once all apps and backup documents from a group have been submitted in entirety. I review the applications and determine who I want to move forward with. At this point I request my $50 per applicant fee which covers the credit/background checks and a little extra for my time.  For me pre-screening, in person meeting, my application and backup material gives me a full picture of the tenant. The credit/background just serves to confirm there is nothing hidden from me. By doing this, I don't have to accept fees from people I otherwise would not rent to. My costs are covered and applicants are happy to not pay fees for an apartment they may not even be considered for. Also I use rentprep as was mentioned previously in this thread. They will also call previous landlord and employer if you choose that specific service. I find it a nice option for the price. 

    0Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y
    0Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Michael Noto I was thinking the same thing. I found that most in the area are charging between 25-40 for their application fee's. Mine may end up being just a bit higher due to the rentals that I have seen in the area vs. what I want mine to be!

    I am in no way saying that I have nor do I want Luxury rentals. However, I do want to be known for Quality Rentals with Quality Tenants. I reckon its kind of a learn as you go game.

    0Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Frank Chin WOW - New York must be a seperate beast. I love your analogy and it makes perfect sense. I may have to try that out here as well and see what I get. 

    I am interested to know (if you dont mind sharing) what your vacancy rate is and what term leases you are signing?

    My fear is here that one may say that I never accepted their application and base it on a descrimination issue or what not. By charging the fee (even if I refund it later) I have that receipt to show that the application was received and can send a denial letter for any reason along with a refund, even if its just that their application was not processed beyond the pre-screening.

    I also fear that not having a fee allows any applicant to apply to any rentals they want without having any care of what unit they end up getting. Therefor when I accept that application and pay the fee and deny everyone else they then tell me that they have another place already or have changed their mind. By having to pay a nominal fee (even if I refund it upon a successful lease agreement) they have a little skin in the game.

    Your thoughts? 

    0Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Alex Furini I really like this idea too. You all have been so helpful. I looked at the rentprep and am actually thinking about doing that instead and using the $40 package for my screenings.

    If you dont mind me asking, is that the package that you use? I like the idea that they take some of the work off of my shoulders on calling previous landlords and employers. But, I am not sure how long it takes for the results to come in.

    Thanks again!

    0Reply
  • Eric Worral
    Investor · Buffalo, NY · Member since 2016 · 74 posts · 29 votes
    7y

    @David Stone thank you for the RentPrep shout out and spreading the good word.

    @James Kirby application fees are state dependent. From what I see Utah has no limits on what you can charge. If you're going to go through SmartMove you can choose to pay for the report yourself and just add the $10 on top of the report cost for your time.

    One word of caution is that SmartMove (and all tenant credit reports) pulled judgment and lien searches from their reports in 2017.

    When you go to get a mortgage a bank looks at this data because you're 5.5 times more likely to default on a mortgage if you have active judgments and/or liens. So you can imagine what it means if your renter has a record on file.

    If you go to the BiggerPockets Landlord Resource page you can see more details on this:
    https://www.biggerpockets.com/tools/landlord-resources

    1Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Eric Worral Awesome information.

    I never would have thought that they would have been that much higher of a risk. I did read about the Judgments and liens being removed from the reports though.

    I appreciate the link as well. I will do more research and feel that the price is fair!

    Thanks again!

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    7y
    Originally posted by @James Kirby:

    Hello Everyone,

          I am new to investment properties and I am currently in the process of closing on my first multi-unit property. I have been doing a lot of research on everything over the past several months and have a quick question on the Application Fees. I feel as though a lot of my time can be consumed by having the prospective tenants filling out applications and then having me screen the application (contacting previous landlords, employer, personal references, etc.) and only charging them for the credit and criminal background check. The question's that I have are:

    1. Is it legal to charge them a $10 application fee (to cover a portion of my time) plus have them pay for their credit and criminal background check if they pass my screening ($40 through SmartMove)? (I can't find anything about the legality of application fees in Utah)

    2. Does that sound harsh or uncalled for?

    3. I have read other posts where all or part of the application fees have been given back to approved tenants that accept and sign the lease agreement. Is this something that you would do? If so, why? and how much would you recommend crediting back?

    Thank you in advance for your time.

     1. "Your time" is part of why you get paid as a landlord. The alternative is to let a property manager do it. Charging someone for filling out an application, as well as the background/credit check (which is legitimate and something you *should* charge for) will, I predict, dwindle your applications to virtually none unless you are giving your property away. Who wants to fill out an application without knowing if they'll be disqualified for some reason that can't be explained before they start? Now, if you provide an application with a strict list of qualifiers/disqualifiers, and charge and people who can't follow those directions want to fill it out anyway, so be it, but then you're just taking money from the ignorant, uneducated, or just plain stupid. Do you want to be that guy? 

    2. I don't know how much time your application process eats up. Mine is electronic, through Google Forms, and literally takes me about 30 seconds to scan to see if they meet general qualifications before moving on to the paid credit/background check. 

    3. I don't charge for an application. I do not return credit/background funds because I don't collect them - they pay those directly to TranUnion, and if their credit sucks or they have a bad criminal record they should know that before they move on. 

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    @James Kirby the key is pre-screening so you can eliminate bad applicants. Pre-screening starts with your advertisement. I state in my advertisement that we require household income of 3X rent, that we screen credit and require them to take possession of the property within 30 days. Before showing the property, I ask the same questions just to make sure nobody is wasting their time. 

    To answer your questions:

    1. In most states charging reasonable fees is allowable. As others stated $25-50 is common. I have seen fees as high as $75. I personally do not charge for my time. All the fees go directly to the screening service and are non refundable. I am upfront with tenants that I don't make money from applications. It is a cost of doing business.

    2. It seems like a small amount of money and appears petty. If the applicant is willing to invest $40 into a chance to rent from you, investing an hour of your time into them seems reasonable. If you have done a good job pre-screening, you should mostly be looking at qualified applicants. Usually the ones I deny are done so based on their credit report and it takes about 15 minutes to determine that.

    3. I never refund money to anyone. It should not be necessary because most every professional landlord doesn't refund application fees. My point is that it is normal and expected that the money is not refunded.

    I deal with each application one at a time and don't wait for a bunch. I think it is disrespectful to make a bunch of people pay money, knowing you will reject most of them. I take first qualified applicant. If you are taking multiple applications then I would refund other applicants or not take money at all. 

    2Reply
  • Bernardino Graziano
    North Royalton, OH · Member since 2016 · 41 posts · 48 votes
    7y

    @James Kirby

    I use tenantmagic.com. They charge $35 but you can change it to whatever amount you want to be and they send you the difference.

    0Reply
  • David Stumpf
    Rental Property Investor · Baltimore, MD · Member since 2017 · 142 posts · 125 votes
    7y

    I have a system similar to @Alex Furini.  When a tenant inquires I send them a copy of the minimum standards and a link to an online applications, which are required before schedule a viewing.  The application is skimmed to make sure they meet the minimum qualifications.  Then viewings are overlapped to save time and create the feeling of scarcity described by @Frank Chin.  If they like the home, I collect the application fee, copy drivers license, pay stubs, process the application and direct them to Rent Prep SmartMove +Liens.   The information is then entered into a tenant score card I designed on excel and the property is offered to the tenant with the highest score.  

    I like using this approach because it allows me to remove the time wasters in the beginning, allows me to collect the application fee from only serious applicants, and only take the time to verify the information after the fee is collected.  The score card also allows me to have documentation of how I ranked applicant to avoid discrimination claims.

    Good Luck!

    0Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y
    Originally posted by @JD Martin:
    Originally posted by @James Kirby:

    Hello Everyone,

          I am new to investment properties and I am currently in the process of closing on my first multi-unit property. I have been doing a lot of research on everything over the past several months and have a quick question on the Application Fees. I feel as though a lot of my time can be consumed by having the prospective tenants filling out applications and then having me screen the application (contacting previous landlords, employer, personal references, etc.) and only charging them for the credit and criminal background check. The question's that I have are:

    1. Is it legal to charge them a $10 application fee (to cover a portion of my time) plus have them pay for their credit and criminal background check if they pass my screening ($40 through SmartMove)? (I can't find anything about the legality of application fees in Utah)

    2. Does that sound harsh or uncalled for?

    3. I have read other posts where all or part of the application fees have been given back to approved tenants that accept and sign the lease agreement. Is this something that you would do? If so, why? and how much would you recommend crediting back?

    Thank you in advance for your time.

     1. "Your time" is part of why you get paid as a landlord. The alternative is to let a property manager do it. Charging someone for filling out an application, as well as the background/credit check (which is legitimate and something you *should* charge for) will, I predict, dwindle your applications to virtually none unless you are giving your property away. Who wants to fill out an application without knowing if they'll be disqualified for some reason that can't be explained before they start? Now, if you provide an application with a strict list of qualifiers/disqualifiers, and charge and people who can't follow those directions want to fill it out anyway, so be it, but then you're just taking money from the ignorant, uneducated, or just plain stupid. Do you want to be that guy? 

    2. I don't know how much time your application process eats up. Mine is electronic, through Google Forms, and literally takes me about 30 seconds to scan to see if they meet general qualifications before moving on to the paid credit/background check. 

    3. I don't charge for an application. I do not return credit/background funds because I don't collect them - they pay those directly to TranUnion, and if their credit sucks or they have a bad criminal record they should know that before they move on. 

     I agree wholeheartedly on not taking money from others with the intent on not renting to them and plan to refund all of the monies paid for applications that go unprocessed. I also don't want to be the guy trying to scrounge up a little money here and there for an application, I just don't want the ones that clearly know my expectations (which are published, mentioned over the phone, and mentioned upon showing the home) to blatantly waste my time either. However, I didn't know about rentprep until now and they actually do a lot of the calling for me which is what takes most of my time. So now it's just the application fee.

    I truly appreciate the feedback and the information you shared. I think between your advice and the many others I have been able to put a good plan in place moving forward.

    Thanks!

    0Reply
  • Alex Furini
    Architect · Cary, NC · Member since 2018 · 96 posts · 63 votes
    7y

    @James Kirby, I use the Rentprep package which includes Background, Eviction, Credit Score pass or fail, and the option to have Rentprep do the phone verification's. They have two options, smartmove and the rentprep background report. I prefer the rentprep background report as I am fine with receiving a pass fail credit report and not the entire credit report.  With the Rentprep report you can select all the above as options to include. I have used the rentprep smartmove in the past, but only after a tenant didn't pass and requested (at their expense) that I re-look into the reasons of why their credit failed. Hope that helps.

    Best of Luck

    Alex Furini, RA

    1Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y

    @Joe Splitrock I totally agree with the pre-screening starting at the time the home goes up on the market for rent, the phone conversations you have, and the showings you do. Each communication should clearly list out what is expected of them and what they can expect from you. Similar to hiring an employee if you will.

    I dont believe that I will charge for my time now that I found a site that does the legwork for me. So the $40 seems fair to me and they will see upfront that I am honest with them as they are paying a 3rd party to process the application.

    I will also do as you mentioned with basically a first approved applicant gets the place and the others are not charged.

    @Bernardino Graziano I have looked up rentprep.com and done some research on them. I find them to be far superior (on paper) than many of the others. Time will tell. I appreciate your advice!

    @David Stumpf I like the idea. I am a software developer so I am thinking that about building something that will help out with this as well and will serve as a quick lookup tool. 

    Thank you for the ideas on what to get from the renters as well. 

    I truly appreciate everyone chiming in. This is really helping me out.

    1Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y
    Originally posted by @Alex Furini:

    @James Kirby, I use the Rentprep package which includes Background, Eviction, Credit Score pass or fail, and the option to have Rentprep do the phone verification's. They have two options, smartmove and the rentprep background report. I prefer the rentprep background report as I am fine with receiving a pass fail credit report and not the entire credit report.  With the Rentprep report you can select all the above as options to include. I have used the rentprep smartmove in the past, but only after a tenant didn't pass and requested (at their expense) that I re-look into the reasons of why their credit failed. Hope that helps.

    Best of Luck

    Alex Furini, RA

     Alex,

         Thanks for the information. I am torn on what package to use. I know more and more are suffering bad credit due to healthcare issues and although I want all my renters to be excellent at paying bills, I do understand that certain things can happen that you have absolutely no control over. This is what makes me torn on the package to use.

    Do you remember how long it takes to get the results from the SmartMove package? 

    Thanks again!

    0Reply
  • Alex Furini
    Architect · Cary, NC · Member since 2018 · 96 posts · 63 votes
    7y

    James,


    Based upon my experience the turn over is just as fast as the background reports. Normally the same day I believe. The other difference between the two are the rentprep report is paid by you(collect the fee separate) and the smartmove is paid and authorized directly by the tenant. So it really just depends on how fast the tenant authorizes and pays for the report. Both are great and Ive used each many times. 


    Best of Luck

    Alex Furini, RA

    1Reply
  • James Kirby
    OP
    UT · Member since 2019 · 53 posts · 14 votes
    7y
    Originally posted by @Alex Furini:

    James,


    Based upon my experience the turn over is just as fast as the background reports. Normally the same day I believe. The other difference between the two are the rentprep report is paid by you(collect the fee separate) and the smartmove is paid and authorized directly by the tenant. So it really just depends on how fast the tenant authorizes and pays for the report. Both are great and Ive used each many times. 


    Best of Luck

    Alex Furini, RA

     Alex,

         Thank you!  I appreciate your time and share of knowledge.

    0Reply
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