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The Skinny on Rental Application Fees

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Smart rental property landlords charge application fees to prospective new tenants.  These fees help cover the costs of tenant verification, and also help eliminate time-wasting tire kickers.  Generally speaking, collecting a rental application fee is allowed and in fact is recommended, but there are some caveats you ought to keep in mind.

First, a landlord can’t use the fee as a way to collect more income.  The accepted use of an application fee is to cover your screening costs for that applicant – period.  Some states even have laws that require application fees to be kept to a minimum.  Specifically, some states mandate that the fee cannot be substantially greater than the actual cost to do the screening, and other states mandate that application fees be kept under a certain threshold – such as $40-$50 per instance.

Another thing to keep in mind is that the application fee must be used for its intended purpose.  In other words, you are not allowed to charge a fee, and then simply pocket the cash by not running the background check.  This could be deemed as fraud, the conviction of which could lead to legal troubles as well as punitive damages for the landlord.  But irrespective of the potential civil and legal ramifications, not screening tenants is a horrible idea anyway, so don’t do it!  You need to screen everybody who fills out an application so you know what you’re getting.

Additionally, keep in mind that if 2 or more adults are interested in moving into a single unit, you should collect the application fee for each individual.  Conduct the screening process on all individuals who plan to move into the same apartment because each person will ultimately contribute to your ability to receive your monthly rental payments.

Finally, I recommend that you always collect the fee in cash.  Doing so will help to expedite the process, as you won’t have to wait for a check to clear.  Just remember to provide a receipt to the tenant so there are no questions down the road.

In the final analysis, collecting an application fee is necessary and highly recommended.  Just make sure you only charge the amount you need to conduct the screening, and follow the other tips in this post as religiously as possible.  Do that and you will be just fine!

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