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Top 5 Dos and Donts of Rental Property Application Fees

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If you’re a landlord, you probably charge all prospective new tenants an application fee for the privilege of them applying to live in your rental property.  This fee generally covers the cost of the tenant screening process as well as your time.  However, there are some very clear dos and don’ts associated with this practice.

The Dos

  1. Always make sure your rental application fee only covers the screening costs and nothing more (i.e., it should not be used as a profit enhancer).
  2. Always explain to the applicants the purpose of the fee and what it covers.
  3. Always charge a separate fee (but same dollar amount) for each adult applicant.  Each applicant should fill out a separate application, and be charged a separate application fee.
  4. Always return the application fee if you do not wind up screening the tenant.
  5. Always accept either cash or a check for the fee.  Although cash comes with a guarantee, a check can be valuable as a screening tool as you’ll be able to identify the banking institution (not to mention the fact that the tenant has a checking account, period).

The Don’ts

  1. Never charge different fees to different people, as this could be considered a form of discrimination.
  2. Never go crazy charging every applicant a fee because it can become a hassle returning all the unused fees if you find a good tenant relatively early in the process.  Instead, take the top 2 or 3, collect the fee and run the reports.  If none of the top 2 or 3 fit the bill, repeat the process for the next 2 or 3 possibilities.
  3. Never collect a fee if you have no intention of considering the applicant, as this could be considered a form of fraud.
  4. Never charge more than the actual costs you will incur to screen the tenant.
  5. Never keep the fee even if you fail to run the screening reports.  If it’s unused, return the fee.

The bottom line is that application fees are a tool designed to help facilitate the screening process.  It should not be used as a profit booster, and you must make sure you do not employ a fee policy that could land you in legal hot water.  Good luck!

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