Landlords hate to charge rental application fees as much as tenants hate to pay them. But these fees are necessary.
Experienced landlords, particularly those who’ve been burned by less-than-exemplary renters, screen future tenants to make sure they’re a good fit for their rental property. And that costs money. Thus, the application fee, which funds running background and credit checks on applicants.
Here’s what landlords and tenants need to know about application fees:
Landlords can charge rental application fees
Landlords need to know you can pay the rent, act in a financially responsible way, and will treat their property with respect. Running a credit check helps them get a sense of your financial history, and a background check helps them see if you have a history of behavioral red flags.
The application fee covers the screening cost.
Some landlords accept information directly from you and will give you a break on the application fee. If you bring your recent credit report and recent pay stubs, for example, some landlords will accept that in lieu of running your credit. Keep in mind, however, that landlords typically prefer to run their own credit check, as credit reports and pay stubs can be altered.
Note that landlords typically charge an application fee to everyone on the lease. Did you hear that, roommates?
Don’t get scammed
There’s a reasonable and customary charge for rental application fees. They usually cost $30-50, but some landlords may charge you up to $100. You can expect to pay the larger fees in a hot real estate market.
Some landlords, unfortunately, try to take advantage of applicants by charging them exorbitant fees just to apply or, even worse, just for viewing the property. Landlords like this are trying to make the application process a moneymaker, a practice that scrupulous landlords don’t do.
Don’t be afraid to walk away from a landlord who seems to be making a money grab. In fact, some states limit the amount a landlord can charge for an application fee. If your state has those limits, let the landlord know. If your state doesn’t mandate fees, ask if the landlord will lower the fee, so they’re charging enough to cover the cost of screening and that’s it.
Ask if the fee will be refunded
In some cases, your landlord may refund the cost of a rental application. This may happen if they had multiple applicants and rented the property to someone before they got to your application. In that case, not only will many landlords refund the application fee. Some states mandate they must refund the fee.
Be aware, though, you are not entitled to a refund just because you didn’t get the rental. If the landlord did the screening, they don’t have to refund the fee.
You can ask the landlord if they can put the application fee toward your security deposit, as a negotiation point. But it’s up to the landlord whether that will happen.
Related: Ask Lucas 012: Are Online Rental Applications More Secure than Paper Applications?
Charge rental application fees only for the actual cost
Application fees are intended to cover the cost of running a credit and background check. Taking a hard look at an applicant’s credit history, employer, former landlord, and doing a background search on criminal records will give you a good sense of whether someone would be a good tenant. You can and should screen each person on the lease.
Depending on your state, you might only be allowed to charge what credit and background checks cost. You’ll want to check the local and state rules where the rental is located for specific regulations for rental application fees.
If you use Cozy to manage your property, tenant screening reports are free for landlords. The applicant pays $24.99 each for a background check or credit report, or $39.99 for both. Applicants order the reports and share them directly with you, so you both stay on the same page.
To collect your application fee, tenants can pay via cash, check, or card. An advantage of using Cozy is that tenants pay online, so you don’t have to deal with money at all. If you’re accepting payments yourself, make sure to provide a receipt, especially if you provide refunds for application fees.
Don’t use application fees as a profit center
Finding a tenant to rent your property can be a time-consuming task, and you may feel justified charging for your time. It’s important, though, not to overcharge or to use the application as a profit center. Some states, such as California, for example, mandate against overcharging, allowing landlords to charge only their out-of-pocket expenses.
You can ultimately profit from your rental by charging market rates; as a bonus, you avoid potential legal ramifications and damage to your reputation that can come from charging unnecessarily high application fees.
Related: Should I increase rental rates every year?
Refund the application fee under certain circumstances
In some circumstances, particularly hot rental markets, you might end up renting your property to an applicant while you have the applications and fees of others still pending. If you have application fees from prospective renters and won’t be running their background checks, you should refund the fees.
Renters and landlords: know the laws in your state
State laws about application fees differ widely, so it’s important to know the rules in your state. Both renters and landlords should check into their state laws on this. California, for example, caps application fees at $47.22, and landlords need to provide the results to tenants if they request it. In Wisconsin, a landlord may charge the actual cost of a consumer credit report (up to $20).
There’s a lot to know about rental application fees, but you can master the best practices to make sure you’re charging and paying a fair rate.