Help! To charge an application fee or not?

18 Replies

I am new to real estate investment and just bought my first rental property in MA ( a condo).  I am having an "open house" this weekend with multiple showings at different appointment times and expect maybe 10 prospective tenants to show up.  I have a top applicant in mind already based on our phone conversation, as long as everything checks out with the formal application and credit check.  I am wondering if I should just pay the background/credit check fee myself for my top applicant ($35), or if I should collect an application fee from everyone and then refund it to those who don't pass my initial application screening?  I don't want to run numerous checks and run the risk of being resented/accused of discrimination by an applicant who is not selected over $35. I intend to use a website called CoreLogic for tenant screening.  Are there other sites that you would recommend instead? Are there any reputable sites that do credit /background checks for free?

First off, congrats on closing on your first rental. Owning rental property is a great investment! Sounds like you have a lot of your ducks in a row, doing open house style showings, and knowing the importance of tenant screening. The hardest part of being a landlord is finding the right tenant. Doing your due diligence is crucial to the success of your rental, so taking the right steps like pulling criminal, credit and eviction reports, calling references, and asking the right questions is key. There are plenty of options out there to help you with tenant screening, picking one that fits your needs is really what's more important. Some products help you with more than just screening, like collecting applications, marketing your property and so forth, others just help you pull reports. So depending on what your needs are will really dictate which solution you pick. As for your question about who should pay for the screening report, personally, I believe that any tenant that's not willing to pay for their own screening report is either hiding something or may not ultimately be 100% interested in your property. It's one way to weed out potentially bad tenants. Just my personal opinion on that. Anyway, let us know if you have any other questions, we'd love to help. And good luck getting your new condo rented!

Often the tenants are looking at multiple properties and will take the one accepted. As such they bring a copy to you. Some are not quite ready and you can take a couple finalists and tell them if not accepted you give the copy back to them. I have seen $35 appl per applicant. 

I wouldn’t do it. In Massachusetts, it’s not legal to charge an application fee; it’s done pretty frequently but it shouldn’t be. MA is so tenant friendly, I don’t think it’s worth the risk to operate in legal gray area...

See below:

http://phillipsgarcialaw.com/massachusetts-prohibits-application-fees-from-tenants/

In my ad or disclosure of terms to be considered, I let people that they should be willing to take a background check to be considered. I rent out spare bedrooms in my place and just leave it at the "willing to take a background check" because it does weed out people who have something to hide from my experience. For individuals renting out my SFH, I let the people who I am considering as tenants know that there will be a charge for a background check (I.e. I incur costs on their behalf, and they pay for my cost of doing business). I have never had an issue with people who are looking to be considered, in that they know they are out of a few people I am considering. And if you have a good feeling about the one applicant you already have in mind, you may just end up only asking this tenant to take a background check, and nobody else.

Like said before, application fees (if legal) are oftentimes a way to dissuade potential good tenants because if they think there's a lot of interest in a unit, they might not have the ability to justify spending that money on a "chance" they might be considered. Plus application fees are just a way for property management companies to offset costs and increase profit margins.

I would certainly charge an application fee. 

One of the most frustrating but important part of landlording is finding a good resident. 

In Bridgeport, Connecticut we get so many applicants that immediately weeding them out by charging a fee is a no brainer. 

The ones who are willing to pay the fee are the quickest to respond and most serious about the rental. Makes our job a lot easier. 

I agree with @Craig Bellot You need to charge an application fee. Most of the time, this will cover your background screening and any other misc items.

I agree with Craig and Keith. The expense, within reason, to do the background check should be taken into consideration and passed on to the applicant.

I'd also be sure the applicant realizes the landlord is going to want to see verifiable proof of 2.5x to 3x the rent as gross income. This tends to limit the number of unqualified applicants as well. 

Good luck and congrats on your new place!

@Alexandra Page , what about using TransUnion Smartmove? Technically, the applicant isn't paying any fee directly to the landlord, but to TransUnion, who then sends the credit report and background check to the landlord. Has there been any legal clarification on middlemen like this?

you could use cozy

The applicant goes online and pays the fee to them

They are then already set up to send payments via cost which gets deposited into your bank account 

I don’t charge application fees. In the tight Denver rental market I don’t feel right about taking money from 30 different people knowing I can only offer the unit to one.

That being said, I have definitely noticed that because I don’t charge an application fee, people apply even if they arnt very serious. That can be very frustrating while choosing a tenant, doing background checks, and offering a unit to someone who applied in a whim..

I dont charge for an application . I use smart move . I have a potential tenant fill out the application , then mail it to me , ( they usually put the return address of where they live now on the envelope)   I then check the application to see if there is anything on it that would deny them . If it looks good I then call them to do the background check on smartmove .  

 I then have some extra time to do some of my own checking , I ride by where they are living now , check out social media and the judicial system 

In MA, application fees are illegal.

Aloha! I have several rental properties that I own and manage for others. What I found works for me is to say that there will be a criminal/background and credit check with "possible" application fee if someone's application is selected from the first round.  Then Ill prescreen all the apps and select 2 or 3 to do more research on (google/social media, call previous landlord or jobs (very difficult to do) and then choose the top prospect and let them know that we will take next step with background checks and schedule to meet them again at the rental property for them to check it out again and submit the fee (which I DONT collect).  I don't feel right about taking people's money who are renting as they usually live paycheck to paycheck in the market that I rent to. But by saying that you may take app fee, weeds out lot of tire kickers and only people that are serious and/or know their background is clean. 

Hope this helps!

Jiva

@Ryan Hebert - That seems like a good way to circumvent the law, but I would still definitely check with my attorney.  Ultimately, you have to ask yourself if a credit score/report is the best way to assess these applicants.  My husband & I don't review credit reports.  We find with our tenants that they're often in transitional situations.  I.e. going through a divorce, moving out for the first time, new to this country, etc.  Often, these candidates won't have good credit, sometimes any credit.  We look at employment history, collect proof of income & also, in some cases require a co-signer.  The big red flag for us is if they have had any prior evictions, which can be verified at masscourts.org.  If they have been through the housing court system, that's an automatic no.

Congrats on the new adventure.  When it comes to an application fee, I found that if you charged a fee, people who don't meet you minimum criteria (min income, no evictions, no felony's, what ever you decided to set up as your min. requirements) will try to apply for the apartment hoping you don't pick up on a prior eviction or some other qualifying requirement.  I actually went up from 25 to $40 for my fee.  It costs me $35 to run the report, and the couple bucks covers anything else.  

I have had people come back with the application filled out, cash in hand, and tell me a story and ask my to accept the application.  Most of the time if they have to have a face to face conversation with me when they hand in there application, it is a red flag.  I prefer my tenants drop off the application in a drop box.

On a side note, I have heard of some people on here in tougher areas, make the application fee reimbursable towards the first months rent.  I like the idea of keeping a fee on it.  I live in a strong rental market, and have not had any issues.

I usually take applications from 2 applicants with application fees, tell others who are also interested in applying that they are on the wait list, and will let them know if the current applicants fall through.

It only takes no more than 2 days for background check. They also need to provide proof of income. Additionally, I call their previous landlord for reference.

I use transunion smart move, the tenant pays them directly so it's not technically an application fee. To be fair to the applicants I don't send them the link unless I'm sure I want to rent to them as long as everything checks out. The only people who ever lost money to application fees lied to me anyways.

@Ryan Hebert and @Thomas Hickey

I am not an Attorney, but you might want to check on using Smartmove or any of the other apps.

We all know its illegal to charge an app fee, but requiring a tenant to use it may cross the tenant friendly line.  The last thing we need to find out is a judge agrees with them.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here