Guide to Rental Application Fees
Both tenants and landlords tend to have a lot of questions about rental application fees. As a landlord, it is especially critical to have a thorough understanding of these fees to ensure you collect them properly and can answer any questions your prospective tenants may have.
In this guide to rental application fees, we will break down everything from what they are to how to collect them to how much you should be charging, the state law, and best practices, all in one.
What Are Rental Application Fees?
Starting from the top, it’s essential to understand what a rental application fee is by definition.
When an applicant submits a rental application to a landlord, they may also pay a rental application fee. The purpose of this non-refundable fee is to cover any costs associated with the application process, typically things like running a background check.
Sometimes, the fee covers direct costs, though can also be compensation for software fees or time spent reviewing an application. So, whether rental application fees are used to cover out-of-pocket expenses associated with accessing applicant screening reports or the labor, these fees can be a crucial element to the screening process.
Should Each Tenant Pay the Fee?
Any person considered for a lease agreement should be responsible for paying a rental application fee. For example, if you have a two-bedroom unit up for rent with two individuals interested in cohabitating, both will have to apply with a rental application fee of their own.
Some landlords or property managers may opt to wait for rental application fees for multiple applicants on one lease, but this is something that is entirely up to you (aside from legal limitations). Remember, if you want to cover your screening costs, it is likely to be in your best interest to charge every individual that is expected to be on the lease.
Each state has specific laws detailing rental application fees, so be sure to do your research to know your limitations beforehand.
How Much to Charge for Rental Application Fees
It’s important to remember that a rental application fee should only cover the cost of screening and should not be used as a source of revenue. That being said, the market and location of apartments can play a factor in the amount you request for this fee. As a rule of thumb, higher rents may yield higher rental application fees.
According to our data, the average cost of a rental application fee is $51 per applicant. However, depending on the market, this could range all the way up to $100 per applicant.
Now, before you get ahead of yourself thinking you can charge more for a rental application fee due to the heightened desirability of your neighborhood, always remember that state laws can impact and limit whether or not you can charge a fee and the maximum that can be charged.
State Laws About Rental Application Fees
State laws regarding rental application fees will ultimately determine whether or not you can charge at all, and, if so, at what price. They may prevent you from charging anything greater than the cost of an applicant’s background and credit check.
For example, landlords cannot charge an application fee whatsoever in Vermont or Massachusetts, while some other states have limits on the amount you can charge. Additionally, states like California, Minnesota, Virginia, and Wisconsin have very specific laws and regulations about the application fee collection process.
As always, you want to make sure you check with the local laws before instating your rental application fee.
When it comes to state laws about rental application fees, we aren’t experts. For an extensive list of tenant screening laws, including rental application fee limitations specific to each state, check out this list from RentPrep.
Rental Application Fees Best Practices
When it comes to charging rental application fees, assuming your state permits it, there are a few best practices you should follow.
Check Legal Limitations
Always check with state laws in your area regarding rental application fee limitations. To be on the safe side, you should also check with local housing regulations to see if they have any limitations as well.
First and foremost, you want to ensure that you are upfront with all applicants. Let them know that you charge a rental application fee as a part of your screening process.
Include the Exact Amount
When speaking with your applicant, make sure you show them where it is in writing the exact rental application fee amount.
Mention the Fee is Non-Refundable
Also, be sure to note to all applicants that the rental application fee is non-refundable. Again, whether or not the rental application fee is refundable may depend on the laws within your state.
When it comes down to it, rental applications fees may be limited based on the state your rental property is in. Otherwise, do your due diligence as a landlord to calculate the costs associated with screening applicants.
Rental application fees are there to help cover screening costs and not serve as a revenue source for landlords or property managers. You should always return the rental application fee if you come across an application that you deny before incurring any of these costs.
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