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?
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.
It’s interesting to read how people handle it. What we have done is show it individually to people who are interested. They are given the option to apply. We were using Smart Move this last time and I wasn’t a huge fan of it because it doesn’t give a complete picture. Anyway, I would only have one person applying at any given time because it doesn’t take that long to verify income and get the report back. If I chose not to rent to them based on what I found out, I would schedule more showings and repeat.
I’ve been on the tenant end where they allow a bunch of people to apply online and then say “Ope, somebody else already rented it. But you can use your application fee toward another of our properties.” Uh, no! If I’m not interested in any of those, I lose my money. I will not operate like that and steal money from hardworking people. That’s honestly how I see it. Between my husband and I we were paying $75-100 per application and we did not have that kind of disposable income to apply a bunch of places, so we would only apply for ones we were sure we would get. Maybe class A people don’t care?
All that said, we are re-evaluating our process as landlords, not because it failed us but because I would prefer to just check income and references first before running their background and credit. It doesn’t take THAT long to make a couple phone calls and look at pay stubs submitted with the app. I wouldn’t be comfortable charging for that but I do want reimbursement for my fees for background checking.
Also if it’s not vacant when you’re marketing it, you can’t very well do an open house, and as someone who has mostly rented, I find it odd when people do open houses for a rental. I also am flexible on move-in date, so long as it’s not too far out. When we lived in the Atlanta area, it seemed everyone wanted move-in to be within two weeks, but considering we give 60 days notice in most areas to not renew a lease, how are we supposed to find a new place in advance? I don’t personally like cutting it that close, as a tenant or as a landlord.
@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?
I underprice my rentals, paint and clean the units, which makes people fight for it. My tenants generally stay there a few years, some as long as 12, so vacancy is low. The last vacancy, one tenant left around June 25, had a few days to paint and clean, and the new tenant moved in July 1. The tenant who left thought I should've refunded 5 days rent, but I explained leases run month to month, you don't rent by the day.
I see your issue being tenants try to tie up more than one rental, so fees would tie him to your unit. As my units are underpriced, paint and cleaned, I don't have that issue. I like chatting with tenants about how things are going, and the thing that bothers them the most is because of the scarcity of units, especially ones painted and cleaned, when they see my unit, they want it. This is especially so for people relocating, where one couple mentioned with my unit, they could just move in, instead of spending two weeks which they were planning on cleaning and painting.
The one thing I watch out for is people setting me up for discrimination, or they saw it first, and it should be first come first serve. Before the internet, I advertise my rentals in the New York Times, and one guy called at 7:00AM on a Saturday to ascertain if he's the first one seeing the unit. He woke me up and wanted to see the place at 8:00AM. So I told him he's not the first, and I have appointments already starting at 9:00, and I can make an appointment for him at 1:00PM so I don't have a big crowd at 9:00. He wanted to know how someone can make an appointment for 9:00 when the Saturday papers just came out, I advertised that weekend, and he said he checked the previous editions of the paper, and my rental wasn't in there. I told this know-it-all that people in the know is well aware the real estate section is out on Thursdays and you can get it on Thursday if you go down to the local newsstand, pay for the whole weekend paper but tell them you only want the real estate section. He goes "ohhhh ……" When I heard that, said "you didn't know that?"
Then I told him I showed the place the week before, but not through the New York Times. When he heard that, pounced, and wanted to know the name of the paper. I told him "OK, got a pencil ready? it's a Chinese newspaper, and you don't sound Chinese, and don't tell me you read Chinese".
Finally, he sound dejected, said "guess I lost another one, I won't be able to rent it". I said "why are you saying that, I show the place to everyone, everyone has an equal chance, and I won't make the decision after everyone seen it, and if interested, leave me an application. That's fair, isn't it?" Then I added, "it doesn't go to people calling 7:00AM Saturdays, and waking everyone up".
BTW, I didn't have people lined up at 9:00AM that Saturday, nor did I advertise in the Chinese paper. The part about getting the Real Estate section on Thursdays is true. I always wondered if the guy would sue me, or if he's a tester from the Justice Department or NAACP.
Through the years, I got a few wise guy applicants, but he was the most memorable. And he never showed up, unless anonymously, never gave me his name, though I would like to shake his hand.
It’s interesting to read how people handle it. What we have done is show it individually to people who are interested. They are given the option to apply. We were using Smart Move this last time and I wasn’t a huge fan of it because it doesn’t give a complete picture. Anyway, I would only have one person applying at any given time because it doesn’t take that long to verify income and get the report back. If I chose not to rent to them based on what I found out, I would schedule more showings and repeat.
I’ve been on the tenant end where they allow a bunch of people to apply online and then say “Ope, somebody else already rented it. But you can use your application fee toward another of our properties.” Uh, no! If I’m not interested in any of those, I lose my money. I will not operate like that and steal money from hardworking people. That’s honestly how I see it. Between my husband and I we were paying $75-100 per application and we did not have that kind of disposable income to apply a bunch of places, so we would only apply for ones we were sure we would get. Maybe class A people don’t care?
All that said, we are re-evaluating our process as landlords, not because it failed us but because I would prefer to just check income and references first before running their background and credit. It doesn’t take THAT long to make a couple phone calls and look at pay stubs submitted with the app. I wouldn’t be comfortable charging for that but I do want reimbursement for my fees for background checking.
Also if it’s not vacant when you’re marketing it, you can’t very well do an open house, and as someone who has mostly rented, I find it odd when people do open houses for a rental. I also am flexible on move-in date, so long as it’s not too far out. When we lived in the Atlanta area, it seemed everyone wanted move-in to be within two weeks, but considering we give 60 days notice in most areas to not renew a lease, how are we supposed to find a new place in advance? I don’t personally like cutting it that close, as a tenant or as a landlord.
Andrea,
Thanks for the response. I agree stiff fee's and no refunds if not chosen is a no go for me either.
I think it's a great idea to stay on top of all of your documents etc. Innovation is the key to success.
I don't believe that an open house would work where I am located but I can see where it could in a larger market. My rentals are in 2 counties that combined have about 30k people. I prefer the 1-1 interaction to get to know them as well.
Hey @James Kirby I can shed some light on a few things for you.
The SmartMove package turnaround time is based on how fast the applicant responds to an email request to approve having their credit pulled. Once they approve the request, the completed report is instantly available.
The RentPrep report is about an hour turnaround time (during business hours) because our Screeners are compiling the data by hand. There is the potential to catch a little more information this way since the Screeners can search more than one data source for information.
As for who pays for the report - our SmartMove package gives you the option to pick either the landlord or the applicant, and the RentPrep product is limited to the landlord paying for it.
The biggest differentiator between the SmartMove and RentPrep reports is the credit report. I know you mentioned healthcare issues affecting people's credit and you're not wrong, but I'll point out that healthcare collections are now weighted a bit less on credit scores. SmartMove uses an algorithm that values monthly payments higher because this is the biggest factor when assessing a potential renter.
Lastly, our verification product is currently unavailable while we are working on redesigning it. Long story short, over the past 2 years we've seen the number of private landlords that we can reach by phone drop significantly. We've identified the issue being caused almost primarily by robo-dialers and the fact that people today are far less likely to answer an unknown phone number since we're all flooded with calls about a vehicle warranty or the "IRS" telling us we owe money. It's a shame, but it's a reality that we've accepted and now have to build a better mouse trap. For 12 years this product defined our service and differentiated us from a growing crowd of screening companies, so I can promise it will return. Our plan is to test and launch the replacement product by January 2020, when we roll out RentPrep 3.0.
I hope this helps James, and feel free to reach out to me directly anytime or call our office to speak with a Screener who can also point you in the right direction based on your specific needs or a specific applicant. I'd also be happy to jump on the phone when you call in if you happen to time it right, but I'm confident anyone in our office can help.
Thanks @Alex Furini for sharing your knowledge and experience. And for trusting RentPrep as long as you have! You've been using us since 2014 - I'd say the connection on Linkedin is long overdue. Let me know if there's ever anything I can do for you.
Stephen,
Thank you for taking the time to give me this information. This is a lot of what I am looking for. I have created an account and am looking forward to using it for our next unit that comes available. I am interested to see what the tenant sees on their end. Also, I know in the past the request for them to complete the application (other providers) would use my name, however, I would rather have it to where it states my company name is requesting them to provide the screening. How does that work with RentPrep?
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.
Do you call previous landlords and employers to verify good rental history and income? I can look over what a tenant puts on an application quickly, but verifying it takes more time. I prefer to have them complete the online background/credit check before I start making calls. But I will give their application a quick scan first. If I know they won't qualify I end it there so they don't waste their money on the screening.
@James Kirby I just rented my townhouse out last weekend. In my market there is a high demand for good quality homes. I held the home open for 2 hours and let everyone who Inquired about the property come by during that two hour window and anyone that was interested in applying for the home to go online to the Zillow listing which allows Potential tenants to apply directly for the property they want, it runs credit and background checks and lets you view the information free of charge. The person applying pays Zillow like 20$ and the credit check is an Experian credit check I’m not sure how in-depth the background check is though it does run Social Security number and confirm identity.
Rental history, current employment etc will still need to be done on your end once you get the applications in. I had about 20 people come by 15 saying they wanted to apply 5 to 7 actually applying and I got to extremely well qualified tenants to pick from
@James Kirby I just rented my townhouse out last weekend. In my market there is a high demand for good quality homes. I held the home open for 2 hours and let everyone who Inquired about the property come by during that two hour window and anyone that was interested in applying for the home to go online to the Zillow listing which allows Potential tenants to apply directly for the property they want, it runs credit and background checks and lets you view the information free of charge. The person applying pays Zillow like 20$ and the credit check is an Experian credit check I’m not sure how in-depth the background check is though it does run Social Security number and confirm identity.
Rental history, current employment etc will still need to be done on your end once you get the applications in. I had about 20 people come by 15 saying they wanted to apply 5 to 7 actually applying and I got to extremely well qualified tenants to pick from
Mike,
Thanks for the information. That is huge. I didn't know that Zillow offered a service like that. I also prefer to be as hands off on it as I can be by allowing them to choose whether or not they want to apply. The only downside I can think of the way you did it is the ones that didn't get it being frustrated for the money they lost through Zillow. I wonder if Zillow allows them to use it at different properties though.
I think that for now, I am going to create an application that can be filled out via paper or electronically through Adobe and have them send that to me. If they pass my pre-screening I will send them the link to RentPrep for them to pay for the service themselves. I think that this way it kind of keeps them off my back a bit if they don't get it knowing that I sent it to them in good faith that I believed in them. I don't know its hard to say. I guess time will tell.
@James Kirby I cross-list all of my rentals on Zillow and Cozy. This covers 6 additional cross-listing websites and provides a wide array of visibility for my properties. I receive a lot of passive inquiries and respond with a template email to each of them. This email provides a list of qualifications and the process for application.
I allow prospective tenants to apply through either service, Zillow or Cozy. My email template provides a link to the Cozy application because I use their service for rent collection and can flip an approved tenant directly into the payment system. I require the potential adult occupant(s) to pay for the background and credit reports through either site. This takes the hassle away from collecting contact information up front and puts the responsibility in the hands of the potential tenant. If they are serious and feel they can meet my qualifications, they can do their part to move the process forward.
I do not charge any additional fees for reviewing the application. I find the time spent going through the application is not significant. Streamlining the process is my key driver to simplification. Within 24 hours, credit and background reports are back and reviewed. Tenants can receive an approval or denial after income verification.
Not all systems work for everyone, but I find my application system has generated high quality tenants that meet my standards. Expectations are set at the beginning of the relationship and maintained throughout.
@James Kirby After 18 years of being in the construction field, Id say 90% of the owners an or workers have some type of criminal back ground. This isn’t saying that contractors are criminals, just that some may had made bad choices in their youth and this is one of the only fields whom allow others a chance and a change. Everyone deserves a chance and judging one by their mistakes from 15-30 years prior is just as bad as one judging others by their post.
Before a had a property manager, I had charged the cost of the background check for each person over 18 who would be living there. If I recall my costs were around $35/person.
you should also run an eviction record search.
This accomplishes 2 things. First being, charging the application fee weeds out the people who aren't serious about renting, and saves you from wasting your time and money running the background check on them. Second, The cost of the background check isn't coming out of your profits.
I had always made the application fee non-refundable, though at times had said I would credit it toward the first months rent, assuming they qualified.
@Anthony Testino I also think that some deserve a chance. Though I've never been a fan of people who have a history of things like assault, domestic violence, and other that may be an indicator that they may cause trouble either with their neighbors or with me, particularly if they have multiple convictions in the near past. That being said, I have made exceptions for people in the past. You have to look at what the crime was, and how far in the past it was. People with a 1 time conviction maybe made a mistake, they guy that's been in and out of jail over the past 5-10 years might not be the best guy to rent to.
@Alexander Felice thanks for sharing your effective approach! You may want to adjust what fees you charge and/or what you call them, looks like the newly updated NYState rent laws limit application fees to $20 per person or the cost of the background check, whichever is *lower* - ianal though.
Link to new law s6458 (went into effect 6/15/19, started causing chaos at our local courthouse about 6/21/19). This is mostly updates of existing law; there's a "Download Bill Text pdf" link toward the top; helpfully the document shows added items in green and deleted items in red. Of course the document is 74 pages and includes plenty of regulation of rent-to-own manufactured homes lol.
One local legislator suggests there may be updates coming soon, as the bill was passed in a bit of a rush and may not reflect what folks *thought* was being passed (example-at one point the idea was for upstate counties to have to opt in, but that isn't in the bill that was passed...)
I believe that you can in anywhere. I charge 50.00 which covers the 34.95 for the background checks and some money for my time. I don't even due showings without an application so only the serious ones apply. It cuts down on people with backgrounds that wouldn't pass even applying. Crediting back is up to you. I personally don't.
@James Kirby I cross-list all of my rentals on Zillow and Cozy. This covers 6 additional cross-listing websites and provides a wide array of visibility for my properties. I receive a lot of passive inquiries and respond with a template email to each of them. This email provides a list of qualifications and the process for application.
I allow prospective tenants to apply through either service, Zillow or Cozy. My email template provides a link to the Cozy application because I use their service for rent collection and can flip an approved tenant directly into the payment system. I require the potential adult occupant(s) to pay for the background and credit reports through either site. This takes the hassle away from collecting contact information up front and puts the responsibility in the hands of the potential tenant. If they are serious and feel they can meet my qualifications, they can do their part to move the process forward.
I do not charge any additional fees for reviewing the application. I find the time spent going through the application is not significant. Streamlining the process is my key driver to simplification. Within 24 hours, credit and background reports are back and reviewed. Tenants can receive an approval or denial after income verification.
Not all systems work for everyone, but I find my application system has generated high quality tenants that meet my standards. Expectations are set at the beginning of the relationship and maintained throughout.
Christopher,
I appreciate your advice. I have looked into Cozy myself and it looks like an amazing option. I wasn't too happy with the fees that it charges to accept the payments, but with that being said it does allow you or the tenant to pay those fees if that option is chosen (Just seemed quite high in my opinion). Have you received any pushback on those payment options? Do you offer other payment options to avoid those penalties?
I am also going to streamline my approach after getting the advice that I have received here. My main goal (Living in a very small community) was to save as much as I could for people by charging a nominal $10 fee for my time to pre-screen before having them pay for the background screenings. This would basically cover my time contacting employers, personal references, and current/past landlords. However, I have now decided that I will let them know that I trust that the information they provide to me is true and accurate and that upon passing the background check I will then spend my time doing my research to ensure that the rest is accurate. I truly don't mind putting in the time but I was doing it for all applicants to try and save them the $40 up front to find out that often times they had issues with previous landlords etc.
@James Kirby After 18 years of being in the construction field, Id say 90% of the owners an or workers have some type of criminal back ground. This isn’t saying that contractors are criminals, just that some may had made bad choices in their youth and this is one of the only fields whom allow others a chance and a change. Everyone deserves a chance and judging one by their mistakes from 15-30 years prior is just as bad as one judging others by their post.
Anthony,
My whole life has been based on second chances my friend. I agree with you wholeheartedly. However, for my rentals, I need to ensure the safety of my other renters (if multifamily) and the neighbors as well. Everyone can change and a lot of people want and do change. Our history is our history and we learn and grow from it. I will never base my decisions based solely on someone's background, but I do need to do my due diligence to protect everyone and my investments and I am sure that we can all understand that. I am more likely to work with people that don't lie to me about it than I am to those that do though!
I believe that you can in anywhere. I charge 50.00 which covers the 34.95 for the background checks and some money for my time. I don't even due showings without an application so only the serious ones apply. It cuts down on people with backgrounds that wouldn't pass even applying. Crediting back is up to you. I personally don't.
Jason,
I don't think that I would have enough people in some of the towns I have rentals to do this haha. I think that is a great approach for the bigger cities though. I am still debating on crediting the funds or partial funds back towards the first month's rent.
I believe that you can in anywhere. I charge 50.00 which covers the 34.95 for the background checks and some money for my time. I don't even due showings without an application so only the serious ones apply. It cuts down on people with backgrounds that wouldn't pass even applying. Crediting back is up to you. I personally don't.
Jason,
I don't think that I would have enough people in some of the towns I have rentals to do this haha. I think that is a great approach for the bigger cities though. I am still debating on crediting the funds or partial funds back towards the first month's rent.
Thanks!
Not sure how small your town is but mine is only 13,000 people
I believe that you can in anywhere. I charge 50.00 which covers the 34.95 for the background checks and some money for my time. I don't even due showings without an application so only the serious ones apply. It cuts down on people with backgrounds that wouldn't pass even applying. Crediting back is up to you. I personally don't.
Jason,
I don't think that I would have enough people in some of the towns I have rentals to do this haha. I think that is a great approach for the bigger cities though. I am still debating on crediting the funds or partial funds back towards the first month's rent.
Thanks!
Not sure how small your town is but mine is only 13,000 people
In the 2 counties that I have properties there is a total of 30k. Most of my properties are in 3 towns that are fairly close together (~20 mile radius) and have roughly 7k people.